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Marisa Wikramanayake breaks down how freelancers can grow their super without wanting to cry.
For many writers, super or having a sufficient amount of super to retire on, is a pipe dream. As one young writer starting out told me, just thinking about it, makes them want to cry: “I have this great system where I ignore it and then hope I die young”
When you don’t know how much you will be making in a week, a month, a year and don’t know if your pitches will be accepted, how do you contribute to your super?
It’s hard. But there are also plenty of writers, struggling with uncertain, irregular incomes, who have planned for super. So how do they do it? I asked the super fund Media Super, accountants and writers for their best tips and tricks.
1. Check your clients
The first thing to check is if more than 10% of your annual income comes from one particular source or client. If this is the case and it is work that requires that you exchange your time for renumeration, you may be owed super. The ATO has a tool called “Am I entitled to super?” that helps you figure out if this is the case.
2. Structuring your business can help with discipline
If you want to get into the habit of putting 9.5% of your income into super, it helps when it is a legal requirement. Many freelancers set themselves up as a company and are then required by law to both pay themselves a wage and contribute to their super. If you operate as a sole trader it is not a legal requirement but the idea of making it a non-negotiable part of your financial planning is key. As always, make sure you choose the business structure that works for you.
As one successful science writer put it: “Because I'm an employee of my Pty Ltd company, I'm obliged by law to pay myself super. It's good because I get in trouble with the accountant and potentially the ATO if I don't, which is a pretty strong incentive to pay it regularly.”
3. Maximise compound interest
A few freelancers mentioned that they paid either weekly, monthly or quarterly into a high interest savings account and transferred the balance into their super before the end of the financial year just to get a little bit extra in interest.
4. Automate it so you aren’t tempted
Direct debit is a secret weapon. Some writers and journalists set up a regular transfer either based on a monthly breakdown of what 10% of their approximated annual income would be or on what they could afford and thought they could reasonably make that each month. Others opted to take 10% out of each payment they received.
As one journalist put it: “It’s a variation on the ‘pay yourself first’ idea. The direct debit makes it difficult not to contribute if things are tight in any particular month.”
5. Check your fund’s fees and charges
Some recommended switching funds to get one that had less fees and charges for how you wanted to use it to keep more of your money. One writer, also working as an accountant, put her super into a self managed fund which she has more control over. Media Super also recommends that you check for any lost super, rollover all your super funds into one and take your super with you if you move between employers for any contract work. They also recommend checking what insurance your super fund provides you and if you need it: “Be mindful that if you have sporadic income, the premiums will still get taken from your account. You need to be sure a) there is enough to cover these premiums or b) that it’s not leaving you with less and less super.”
6. Decide if you want deductions or co-contributions
As of July 2017, the ATO allows anyone to put up to $25,000 into their super fund and claim it as a tax deduction without needing to pass a self employed test. This is a personal concession contribution.
As Rhett Hollick, a Certified Practicing Accountant at AMHR puts it: “This is particularly handy for people with unstable income. For instance, you could wait until June and see how much money you have made for the year before committing anything to super. In years where you have made more income, you can take advantage of the tax breaks given for contributing to superannuation. In a quieter year, you may choose to put less into superannuation.”
The other option, a non-concessional contribution, is to claim up to an extra $500 as a co-contribution from the government but no tax deduction. Hollick recommends this option in a year of lower income as it only requires putting in $1000. The advantage is that the extra $500 usually covers any fees and charges and you get to keep more of your money.
7. Ask your partner
Partners and spouses can contribute super into your account if they are earning more income than you do and are in a higher tax bracket. Media Super recommends this as it will mean they pay less tax on their income by placing some of it in your super fund.
8. Take control of your investments
Something I did when I first started contributing to my super was to vary how much of my super was invested in different ways. Most super funds will offer you preset arrangements of how to invest based on your attitude to risk such as a balanced or high risk option but you can choose to invest a percentage in stocks, a percentage in infrastructure, a percentage in property and so on. It is worth trying out an arrangement and checking your super regularly to see how you tweak it to get a better return. And there is another little trick to figuring it out: “ Good financial advice from a qualified financial planner is key here. Most funds, including Media Super, offer this service over the phone for free.”
I don’t have much in my super and I don’t know what my income is likely to be at the end of the financial year but by planning ahead and using these tips, I feel I can set goals for myself and that I can at least fill up my super. But if I had to leave you with one more tip it would be to tackle any debt and save up for an emergency fund first along with or before starting on building your super. You in the present deserve to be as financially secure as you want yourself to be in the future.
Marisa Wikramanayake is a freelance editor, author and journalist, Sri Lankan born, Australia based and world travelled. And regularly tortured by a cat called Trouble at six am for breakfast. She has worked in print, online and radio and TV news and published her first book at 17. And then got shortlisted for a prize. When not banging the table as a MEAA delegate and representative on National Media Section, National Freelancer Committee and MEAA WA Media Committee, she stares hopefully at a computer screen wishing her next books HIM and Gin and Tonic into existence and edits books for other people that then go win awards. You can find her at her website http://www.marisa.com.au and on Twitter at @mwikramanayake
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