As a self-employed worker, you wonder about your future. You want to anticipate fluctuations in your income and be able to still have enough money when times are less profitable. You don’t have a pension fund, so you also have to save for retirement.
Where do you start?
First, you should consider certain things when determining how much money you need to save for retirement. For example:
- At what age do you want to retire?
- What financial obligations will you have (fixed expenses, debts, loans, etc.)?
- What projects do you have (travel, family, volunteering, part-time work, etc.)?
These things will impact the amount you want to save so that your retirement lives up to your expectations. Try our retirement calculator to see how much you will need to save.
Contributing to an RRSP
Opening an RRSP will help you grow your money tax-free while reducing the amount contributed from your taxable income. Depending on your situation, you could receive significant tax refunds. The money will only be taxed when it is withdrawn from the RRSP.
Plan ahead with an emergency fund
As a self-employed worker, you should also think about short-term unexpected expenses. This is where a TFSA comes in handy. Because you can’t know what the future holds, it’s a good idea, and advisable, to set up an emergency fund in addition to saving for your different projects. This fund will help you face the ups and downs of being a self-employed worker without having to get a loan.
As a general rule, it is a good idea to save the equivalent of three to six months’ worth of your income or your monthly expenses.1 However, remember to adjust your emergency fund if your financial situation changes.
Set savings objectives, contribute regularly, whether large or small amounts, and make sure you have control over your financial future.
To make it easier to save, think about making your contributions via direct debit from your bank account. Set the amount and the frequency of the withdrawals to reach your objectives. This will ensure that the amount you determine for savings is included in your monthly budget instead of having to come up with money if something happens.
Work with a financial security advisor, who can guide you and suggest the savings products that best suit your situation.
1 Source: Government of Canada