Who knew that self-employment could lead to radical saving?

There’s typically more cash to handle than as an employee, but the flow is usually uneven, nothing like a fortnightly pay cheque. And there’s no annual or sick leave, either. So running under our own steam calls for savvy money management, and it’s a great opportunity to lift our money skills.

There is a dizzying amount to figure out when you shift from being an employee to self-employed. I’ve done this a few times, and each time there’s so much to decide on and make happen. And if you’re setting up your own small business, there will be even more to do, depending on what you’re up to.

You are now free to tax yourself

The “radical saving” I mentioned above was due to taxes. There was the GST I was collecting to set aside and pay to Inland Revenue every couple of months. Then there was also this challenging bit for the first year, when not only did I have to be ready to pay income tax on whatever I had already earned, but also put aside enough to cover my estimated provisional tax for the year to come. A real double-whammy.

Not knowing exactly how much the eventual bill was going to be was downright unnerving. Years ago I had also been caught out on taxes and embarrassingly had to ask my parents to bail me out. This time I was determined to get it right.

The solution? I simply started paying myself first every month, sweeping more than a third of my earnings into a separate tax account. I found it empowering, actually. I was basically separating my business expenses from my personal budget, which certainly helped.

There is actually a fair amount of time to prepare before the taxes need paying. But I would never recommend going it alone – a good accountant makes all the difference and can make sure we don’t get out of our depth.

Getting self-employed cover right

When you’re suddenly self-employed, there are new choices to make about life insurance, income protection insurance, and any of your stuff that needs protecting. Without sick leave, becoming ill or injured becomes an entirely different equation. The idea is to cover yourself for anything that might come along and stop you from getting ahead and reaching your goals.

Another item to pay will be your self-employed cover for ACC. Another expense to plan for! It’s also important to understand where ACC cover finishes and your insurance needs to pick up, since many of us aren’t familiar with where the limits are.

Good insurance advice is the remedy. Since insurance solutions when you are self-employed are quite bespoke, you’ll probably need an expert opinion.

Don’t forget KiwiSaver

Just because you’re self-employed doesn’t mean KiwiSaver isn’t right for you. The main difference, of course, is that you don’t get the employer contribution – you’re the employer now, so it’s up to you how much you put in. But you will still get any market returns from your KiwiSaver money being invested.

And you can still get your big five hundy from the government into your KiwiSaver each year. The government will match 50 cents for every dollar you put in, up to $521 every year. (Over an average KiwiSaver experience, to give an idea, that can become close to $36,000, so it’s worth doing.) Plan on putting in at least $20 a week – the easiest way is to set up an automatic payment to your provider.

If you’re running your own show and have employees, it’s important to know your KiwiSaver obligations for them. Here’s where to find out more.

So overall there is plenty to plan for if you’re transitioning from employee to self-employed. You just might find that all that forward thinking does some positive things for your money skills as well.

Comments (2)

Gravatar for Solomon


9:17am | 9 May 2020

I’m self employed working for a company 40 hours a week permanent job, he pays my taxes at $27 an hour, I pay my statutory days and annual leave from hourly rate after tax, not sure but around 30%, have to invoice him weekly. Outdoor work, hours fluctuate due to weather. Bound by employer or sacked. Am I in trouble with IRD, NZ.

Gravatar for FreelancingKiwi


1:53am | 2 Dec 2018

There are not many things to consider actually. If you are an experienced freelancer, paying taxes is easy. I think what you should consider more is to find a customer. Thanks to freelance-market places, nowadays, it is easy too. Finding a customer is not only enough sometimes, but you should also know how to address them. There is an article about tips to address customers for freelancers and entrepreneurs from New Zealand which I think is very useful: