When you’re self-employed $0 invested will equal 0% return

When you’re self-employed: $0 invested will equal 0% returned (and other reasons why there’s more to superannuation when you’re self-employed than just fund performance)

Over 2.2m Australians, almost 10% of our working population, are now self-employed.

From designers, writers, photographers, marketers and business consultants, to carpenters, labourers and handymen, cleaners and gardeners to delivery drivers, a huge proportion of Australians are making a living – or operating a side hustle – by running their own business.

A full 20% of self-employed workers have absolutely zero super heading into retirement, while the remainder have on average around half the super of their employee counterparts.

At the cross section of these facts sits the issue that when you’re an employee you’re conditioned to mostly just care about the investment returns of your super fund.

And employees can afford that luxury – their employer handles the other major parts.

But when you’re self-employed and doing superannuation on your own, three things become equally important to give your nest egg the best chance to grow.

  • Making regular contributions
  • Activating the tax benefits related to your superannuation
  • Returns on the investments inside your super

It’s this holistic member performance that’s crucial.

Because if you ignore even one of the above, you could seriously disadvantage yourself. Put simply, $0 invested will equal 0% returned regardless of what fund you’re with.

Here are tips on how this holy trinity of self-employed superannuation can help you save more and ensure a sizable nest egg looking forward to a comfortable retirement.

Stop falling further and further behind

One of the rare luxuries of working for someone else is being able to outsource the headache of managing pesky liabilities such as tax, leave, and super contributions.

While for employees, pay and super arrives automatically, for self-employed workers, making regular super contributions usually takes organisation, effort, and money.

Three things are already spent in large quantities running a business on a daily basis. Self-employed folks need to adopt and maintain a different mindset to their super fund.

Employees tend to focus primarily on fees and performance but self-employed people are better served focusing on how best to maintain a system of regular contributions.

Quite simply, if nothing goes in, nothing comes out; (i.e. $0 contributed will have a 0% return). So, choosing a fund that helps you contribute on an ongoing basis is key.

GigSuper, a super fund designed specifically for self-employed Australians, is changing the game for those who work for themselves. GigSuper’s members are three times more likely to make super contributions than the average self-employed Australian.

89% of GigSuper members have made super contributions in the last 6 months.

Such regular contributions are the first key to building a superannuation balance that befits all the hard work and sacrifice that self-employed people put in.

In other words, the money that you put in early – in your 20s, 30s, and 40s – is the base that helps you to take greater advantage of superannuation returns later in life.

So the earlier you start, the more the market can do the heavy lifting for you.

Take advantage of the system

Most self-employed people don’t know that you can use your super contributions to slash your tax bill. In fact, if you don’t, you might be leaving a tip for the Tax Man every year. Yikes! ‍

The government knows that locking money away for a really long time probably isn’t most people’s preference. They incentivise folks to do it by giving low tax rates inside super.

Putting away super is like having your very own tax haven in the Cayman Islands, but it’s legal. However, most of the investments inside super are available outside super.

The biggest difference is that the money you make on the investments outside super is generally taxed at your marginal tax rate, 32.5% on average, while the money you make on the investments inside super is generally taxed at the superannuation tax rate of 15%.

All of this that could be the difference between thousands of dollars. However, when you’re self-employed and making personal contributions, it’s really important to note this aspect. ‍

If you want the earnings you contribute to super to be taxed at 15% – instead of your marginal tax rate – you have to claim your contribution as a tax deduction. ‍

The way to claim your Personal Contributions as a tax deduction with most funds is,

  • Make the contribution
  • Print off a Notice of Intent to Claim form
  • Complete the form
  • Send it to the fund (sometimes via snail mail)
  • Wait for the fund to process it
  • Receive confirmation from your fund
  • Use that receipt when you do your taxes

Even though it’s often worth doing, the manual, tedious nature of it can put people off.

Which is why GigSuper has automated the process. When you set up an account, just tell GigSuper whether you want to claim all your contributions as a tax deduction.

If you choose the ‘Yes’ option, there’s no paperwork required for you to fill out as they will automate the process for you and send you what you need when it comes to tax time.

Diversify

Once your regular contributions are sorted, and you’re paying less money in taxes – you’ve then got more inside your investments to keep compounding over the long term.

Compounding in low-cost, low-tax index funds facilitates you to build retirement wealth.

This means you won’t be paying fund managers unnecessarily hefty fees to try to outperform the market…because in the long run, that’s an extremely difficult task to pull off.

No wonder Warren Buffett is always praising index funds. What’s worth noting for self-employed folks, is that all the investment options in GigSuper are built using index funds.

GigSuper’s investment options have also performed strongly, with their High Growth and Growth investment options returning an indicative 22.73% and 19.01% respectively.

That growth wouldn’t mean as much for GigSuper or other fund’s members if they weren’t regularly feeding their super and claiming their tax deductions along the way.

In summary, too many hard-working, self-employed Australians are falling for the trap of focusing solely on performance when it comes to their super fund.

To conform to the self-employed superannuation statistics, it’s better to focus on not putting super into the too-hard basket and get the ball rolling by contributing regularly.

GigSuper is a vital cog in the change, helping self-employed Australians to make regular super contributions, enjoy lower tax liabilities, achieve investment returns and build retirement savings that reflects all their hard work and sacrifice over the years.

89% of GigSuper’s members, who have had an account for at least 3 months, have made a personal contribution to super in the last year, compared to only 25% of self-employed people.

This should not be considered as tax advice. If in doubt, it’s advisable to talk to your tax accountant, professional adviser or visit the Australian Taxation Office (ATO) website.

Mr. Buffet speaks about index funds, including in The Little Book of Common Sense Investing by Jack Bogle. And just to be clear, Mr. Buffet endorses index funds, not GigSuper.

If he ever personally endorses GigSuper, you can bet they’ll let you know.