Freelancers or self-employed individuals enjoy a greater flexibility than their corporate counterparts and it’s even possible to earn more if there is a stable client base. But it’s not all rainbows and unicorns.
As a freelancer, you need to pay more attention to your cashflow, insurance coverage, CPF balances and retirement plan because you’re pretty much on your own.
Here’s a complete guide to surviving as a freelancer or self-employed individual.
1. Retirement planning without CPF contributions
If you are a self-employed freelancer, you won’t receive employer CPF contributions, unlike regular employees. Aside to that, you aren’t required to set aside money in your CPF (except for Medisave, which is compulsory).
Employer CPF contribution in Singapore is equivalent to 17% of the employee’s wage (aged 55 and below). And employees contribute 20% of their salary, which is automatically deducted from the monthly salary.
It means two things for you as a freelancer or self-employed. First, if you’re trying to benchmark your earnings against that of a salaried employee in your field, you’ve got to take into account the employer’s CPF contributions they enjoy, too. So if your peer is earning $4,000, you should be bringing in $4,680 to be on par.
Second, you need to be careful of how you plan for retirement and old age as you don’t have that nest egg called CPF. You can do a few things:
1. Force yourself to contribute to CPF voluntarily
You will find it difficult to purposefully set aside some money to deposit into CPF since it’s not required of you and during the beginning days of your career it will seem like you just haven’t earned enough to do that.
But, you should seriously consider it because the CPF Special Account generates 4% in interest, risk-free. This means that you can let your money grow inside and if you’re above 55, you can add an extra 1% interest on the combined balance of all your accounts.
2. Medisave contribution for self-employed individuals is compulsory, so save for it
If you are a freelancer employed by the government, you will have a portion of your salary deposited into Medisave automatically starting 2020.
This is useful because freelancers are required to contribute to their Medisave yearly, but with no proper planning, freelancers could find themselves struggling to get funds for it.
While it’s something regular employees don’t even spare time thinking about, Medisave contributions are no small sum. As long as your income is above $18,000, Medisave contribution for self-employed individuals can be hefty at up to 8% of your earnings for under 35s, or 9% if you’re aged between 35 to under 45.
Furthermore, unlike the cash in your CPF Special and Ordinary Accounts, you don’t get to touch your Medisave contributions when you retire, except for sums which exceed the Basic Healthcare Sum, which is currently $57,200 (2019) but likely to rise in future. It’s not altogether a bad thing; you can tap on Medisave for your healthcare needs, especially during old age.
If you’re a freelancer in the private sector, in the absence of a Contribute-As-You-Earn (CAYE) scheme that government sector’s freelancers enjoy, you’d better save for your yearly Medisave contributions. Use a high-interest savings account to stash away a certain amount every month just like how you’d save for a major expense like travel.
2. What insurance policies should you get as a freelancer?
Corporate employees can take medical leave or hospitalisation leave when they are ill or face an accident. But if you’re a freelancer or self-employed individual, such misfortunes can mean loss of income.
So, you’d want to beef up basic insurance policies such as:
- Life insurance: Pays your dependants when you pass away
- Critical illness insurance: Provides a payout to you if you are diagnosed with a critical illness
- Personal accident insurance: Pays you when you get into an accident
- Hospitalisation insurance: All Singaporeans are covered under MediShield Life, which is a compulsory health insurance scheme that covers large hospital bills. It’s worth to look into upgrading your plan with an Integrated Shield Plan.
After all that’s done, as a freelancer you should guard yourself with insurance policies that protect you against loss of income in the event of disability. Disability income insurance policies pay up to 75% or 80% of your average monthly salary until you retire, or however long the policy you choose provides for.
And, make sure you know clearly how your insurer defines “disability”.
Ideally, you’d want to also look into getting something that covers payment-related disputes, but there aren’t that many of such products in the market right now. Currently, the only ways to dispute payment matters are to approach Small Claims Tribunals, or approach the relevant sector agencies like IMDA and LTA.
3. How do you file for income tax as a self-employed individual?
One major pain point for many freelancers is having to file taxes manually. As long as you have income from business activities in Singapore, received a tax form or an invitation to e-file, or earn more than $20,000 in a financial year, you need to file and pay income tax.
There are a few steps to filing your tax as a self-employed individual or freelancer:
- Find out your tax obligation
- Set an accounting period
- Keep proper records and accounts
- Prepare a Statement of Accounts with 4-liners: Revenue, Gross Profit, Allowable Business Expenses and Adjusted Profit
- File your income tax using e-filing or Form through IRAS
Those are just general steps. For specific professions like bloggers, lawyers or tuition teachers, IRAS has introduced different guidelines for self-employed individuals so you might want to check in on the latest requirements.
Surviving as a freelancer — 3 career tips
Working as a freelancer or self-employed gives you a great deal of flexibility so it’s up to you to determine your own work life balance and salary.
While you may not have to commute like a regular salaryman, sometimes the flexibility can be a bane. If you coop yourself up at home, you can easily get distracted by the TV, the cat, the bed, who knows what else. Or, if you hustle non-stop, you can easily get burnt out. Try these 3 ways to keep yourself productive yet well-rested.
1. Force yourself to condense your work into shorter and more focused time periods
If you have an entire day to do some tasks, you’ll end up using all the time there is on your hands, making your work day seem longer than it really is.
Freelancers deserve a social life too. Commit to meeting friends or doing something else at certain times of the day so that you can work efficiently during your work hours and not have work drag over time.
2. Be disciplined about resting
You may have gotten out of the corporate world to get more work-life balance but freelancers can easily burn out since there is no set time duration for work. Because you can technically work at any time of day, don’t be surprised if you end up working at all hours.
If you want to freelance without burning out, you need a lot of discipline to make the lifestyle work for you. Have clear boundaries—promise yourself you’ll stop working after a certain hour, and have the discipline to start work by a certain time each day instead of letting things drag into the night.
3. Have a plan for your career instead plugging away blindly
The path of a salaried employee is clearer than that of a freelancer. Employees have only to look at their superiors to see what options are open to them as they climb the career ladder. They have a support network in the form of colleagues and industry friends, which can help them to clarify what lies ahead.
For freelancers, the way forward isn’t as clear. For instance, if you’re a freelance web designer, you could potentially spend the next 20 years making the exact same websites. Do you really want to do the same thing forever?
Then think about how to upgrade yourself. Are there new skills you want to develop so you can expand your portfolio? Do you want to raise your fees if you’re being underpaid right now? Do you hope to work on bigger projects with higher profile clients? Do you hope to help underprivileged people or contribute to a pet cause with your work?
Once you’ve identified the areas where growth is needed, it’s then easier to determine what steps you need to take to get there. And sometimes, that’s what you need to make work more meaningful.
How do manage your finances and stay happy as a freelancer? Share your tips in the comments!