Seven tips on how to plan financially as an entrepreneur

The financial planning experience of an entrepreneur looks different than that of a salary earner.

Planning for retirement (and structuring your financial portfolio in general) becomes quite difficult if you don’t have a steady income.

Many of our calculations and recommendations use a percentage of income to calculate your replacement rate. As an entrepreneur, your experiences may not always look like this. Not only are funds reinvested in the business, but earnings can also vary – sometimes significantly.

A few recommendations on how you as an entrepreneur can optimize your portfolio:

  1. Choose the right investment platform that offers flexibility. Choosing a wealth platform that doesn’t include punitive structures is very important (this is something you should generally look out for). If you choose to pause or change your contributions in specific months, no negative penalty structures will be applied to your portfolio.
  2. Plan short-term. You can structure a well-diversified investment portfolio that is fully accessible to short-term business issues and opportunities. Optimizing and planning your asset allocation plays an important role here. Consider both local and offshore equity exposures for long-term capital growth, and cash and bond exposures for short-term planning. Allocation may vary based on your company’s plans and the projects you wish to take on.
  3. Make sure you have an emergency fund! An emergency fund can still be a well-managed portfolio. Since this is an emergency fund, there is a chance that you will not use the entire fund in the short term. It is therefore advisable to at least optimize the return. Don’t just leave these funds in the bank unless you need immediate liquidity. It may take three to five days for a voluntary investment to be reached.
  4. Maximize your annual tax benefits. Investments do not have to be made as a static monthly commitment. Contributions can be made as funds become available. Annual flat rates can also be created before the end of the tax year. There are two main benefits here:
    • Tax-free investment. You are allowed to contribute R36 000 per year and R500 000 in your lifetime. Technically, you can invest beyond these limits, but those contributions are taxed at 40%. Therefore, this way is not recommended.
    • Pension: 27.5% of the higher of your pay or taxable income, up to a maximum of R350,000 per annum. Don’t worry too much about contributing more than your 27.5%. These excess contributions become a tax-free benefit when you retire. This can be quite a huge benefit and give you the opportunity to increase your available tax free amount from R500 000 to more than this on retirement.
  5. Make sure you protect your ability to work and earn income. As an entrepreneur, your main asset is generating income. Make sure you protect yourself against illness and disability.
  6. Put a strong audit team in place from the start. There are many tax advantages that you can optimize in your company on an annual basis. Getting the right advice and guidance from the start will save you a lot of time and money!
  7. Work with an investment advisor who understands your business goals and can build your portfolio accordingly.
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