Freelancers
Flexible and gig work
Separating work and personal accounts helps you clearly track business income and expenses, making it easier to manage your cash flow.
A dedicated business account prevents mixing personal and business transactions, streamlining budgeting and tax preparation.
Doing this can help you gain a clear picture of how your business is performing financially.
Calculate your annual income:
Start by adding up all sources of income you expect to receive in a year, including freelance jobs, contracts, and any side income.
Divide by 12:
Take your total annual income and divide it by 12 to get an estimate of your average monthly income. This gives you a clear idea of what you can expect to earn each month.
Estimating your average monthly income helps you manage your finances better, especially if your income fluctuates. It allows you to allocate funds for essential expenses, savings, and future investments, ensuring you stay on track even during months when income is lower than expected.
Look up the various payments you need to make and separate them into fixed and variable.
Fixed expenses are recurring costs that are generally constant every month. Examples include housing loan payments or rental, insurance premiums, utilities, and other loan repayments.
Variable expenses are costs that fluctuate based on usage or activity levels. These include groceries, entertainment, and transportation.
Track your expenses for a month or two to get a clearer picture of where your money is going. It’s difficult the first time you do this, but the effort is mainly one-off.
Click below to download budgeting spreadsheet
Repeat this once a year or when there is a major change in your finances.
Your total debt payments should not exceed 30-35% of your monthly income. This includes loans, credit card balances, or other debts.
By maintaining a healthy debt-to-income ratio, you ensure that you’re not overburdened by debt and still have room to save, invest, and cover other expenses comfortably.
Click here to read our OwlRubrics Debt Ratios.
Make sure you have an emergency fund in place to cover unexpected expenses, like medical bills or lull periods. Aim to build up savings that can cover at least 12 months of your living expenses.
Having this amount on hand allows you to handle any unforeseen events without turning to debt.
Click here to read our OwlRubrics Building your Emergency Fund.
Set a target of how much to save, invest, or pay off debt (“pay yourself first”). 15% of gross salary is recommended as a minimum (not counting CPF contributions).
Think about how you would adjust your expenses to make that happen. There may be non-essential expenses you can do without. This practice ensures that you live within your means and can prioritise saving and investing for future financial goals.
Decide where this 15% to Pay Yourself First would go:
Build your emergency fund, in savings (if you have less than 6 months’ worth of expenses)
Pay off debt, while building some of your emergency fund; or
Investing for the longer term through CPF and/or a suitable investment portfolio
Click here to read our OwlRubrics: Pay Myself First, and More Each Year.
Implement the Budget and “Pay Yourself First” using the 3- Account system. This includes automating the transfers through a monthly standing instruction.
Do this even if you are not yet ready to invest (under Do Next) – you can keep the 15% in the savings account first for a bigger emergency fund
Do this even if you can’t do 15% – start with whatever you can
Increase what you do by 1% every year. It’s like building muscle!
Click here to read our OwlRubrics: Implementing Personal Budget.
Optional Steps
Protection for large medical expenses
a. Integrated Shield Plan (IP): Consider a Public Hospital ‘B1’ ward IP on top of MediShield Life to cover a significant portion of hospitalisation expenses incurred before, during and post-hospitalisation.
Protection from loss of income
b. Occupational Disability Insurance: This insurance is vital for freelancers in high-risk jobs, as it provides income protection if you’re unable to work due to illness or injury. It covers a wide range of situations where you can’t perform your usual job duties.
c. Personal Accident Plan: A personal accident plan is essential if you work in a high-risk job, as it provides financial protection against accidents. Since no work means no income for self-employed individuals, this plan helps you manage the financial burden that comes with injuries, allowing you to focus on recovery without worrying about lost earnings.
Click below to read more about the importance of reviewing your insurance annually.
Why Start Early?
Compounding effect
The sooner you start, the more your savings can grow. CPF’s higher interest rates of at least 2.5% allow your money to compound, resulting in much larger retirement savings over the years.
Reduce financial stress later
Regular contributions from an early age reduce the pressure of having to make large, catch-up contributions later in life when your expenses might be higher. Early planning ensures you stay financially secure and avoid stress as you approach retirement.
Example: 30-year-old freelancer earning $4,000/month
Typically, employees receive 37% of their salary in their CPF accounts.
Total CPF Contribution: 37% of $4,000 = $1,480, of which:
MediSave Account (MA) = $320
Special Account (SA) = $240
Ordinary Account (OA) = $920
Besides your mandatory MediSave contributions as a self-employed, you could top up another $240 each month to your SA. Small regular contributions can build up to a substantial retirement fund over time due to risk-free compounding interest rate of up to 5% p.a..
Click below to learn more about topping up your CPF.
Platform Workers
If you are a platform worker born on 1 January 1995 or later, your platform operator will help you make monthly contributions into your Ordinary, Special and MediSave Accounts to help you build up savings for housing and retirement. The contribution rate will increase gradually to eventually align with employees. This also means your total earnings will increase due to additional contributions from your platform operator.
If you are a platform worker born before 1 January 1995, you can also opt in for increased CPF contributions to grow your Ordinary and Special Account savings.
To help you cope with the drop in take-home pay due, the Platform Workers CPF Transition Support scheme provides monthly cash support to lower-income platform workers to offset part of the year-on-year increase in the platform worker’s share of CPF contributions.
Click here to learn more about CPF contributions for platform workers
Prioritise contributing to your CPF account
CPF offers a risk-free way to grow your money with guaranteed returns. Maximise this benefit before venturing into investments that come with market risk.
Start by learning the basics of investing.
Understand the different asset types (stocks, bonds, etc.) and how they perform in different market conditions.
Educate yourself on common investment terms like diversification, risk, and returns.
Invest in a suitable portfolio. Caution! You need to be financially healthy, with the right time horizon and risk appetite.
Avoid jumping into investments without fully understanding them. Take time to learn, ask questions, and consult reliable sources or professionals if needed.
Understand how markets work and how to invest wisely without stress.
Learn continuously:
Read up reputable financial websites or books to deepen your knowledge.
Start small to get a feel for how investing works without risking too much money upfront.
Consider using tools like robo-advisors or investment platforms that guide beginners in creating portfolios based on their goals and risk tolerance.
Click below to visit our investment page, where you can explore our investment solutions and use our risk profiling tool for personalized portfolio recommendations.
Learn new skills or take up side hustles to diversify your income sources.
Incorporate your business
Understand the process and responsibilities of incorporating your own business, including compliance, taxes, and financial management.
While freelancing offers flexibility, having your own business can provide long-term growth opportunities, help with credibility and provide access to certain clients or markets.
Explore the option of being an employee (full or part-time)
Explore the benefits of stable employment, such as regular income, opportunities for career progression, and access to employer benefits like healthcare and CPF contributions.
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