How to save for a deposit when you're self-employed

Running your own business isn’t easy. Fluctuating cash flow can affect even the best savings plan.

Unexpected business expenses may throw your budget into a tailspin. A workplace accident could wipe out your savings in a flash.

Brigid Holder should know. She was running two businesses – vegetation maintenance service Weedmasters, and a health and lifestyle coaching consultancy called Happy Healthy and Free – all while saving for her latest investment property.

Here are Brigid’s top tips for saving for your first home while running your own business.

1. Set a goal – and write it down

The first step to a successful savings plan is to set a tangible goal. Setting a clear goal you can refer to when the going gets tough will help keep your eyes on the prize.

“We found it really helped to write our goal down and keep it where we could see it,” says Holder.

“That made it much more real and helped remind us what we were making sacrifices to achieve.”

Setting a clear goal will help you keep your eyes on the prize.

2. Open a dedicated savings account

“When you’re managing your own business, there’s often a lot of cash moving in and out of your bank accounts. That’s why it’s important to open a dedicated savings account for your house deposit,” says Holder.

Should you find yourself tempted to dip into your savings, giving the account a name, such as ‘house fund’, will help remind you that it’s off limits. As will the risk of losing interest.

“Many financial institutions may offer bonus interest if you deposit a certain amount of money every month and make no withdrawals. Every bit of extra income helps, so it pays to shop around for the best deal.”

3. Manage your cash flow

Unstable cash flow is a major challenge for self-employed people, and sticking to your savings plan during low-cash periods can be difficult, she says.

“Our businesses can be quite seasonal, so cash flow can become an issue when you’re trying to save. It’s important to plan for periods when your cash flow might be tight.

“Try to reduce your expenses during these times so it doesn’t impact your savings.”

Another good tactic is to always deposit a manageable percentage, say 25%, of whatever comes in straight into your house fund. That way, your contributions are smaller during slow periods, and more sizeable when you’ve got cash to spare. Either way, your savings keep going up.

Unstable cash flow is a major challenge for self-employed people.

4. Work with a financial expert

Sometimes calling in professional help is the best way to overcome savings obstacles. For Brigid, an accountant and home loan specialist was the answer.

“Our home loan expert was the biggest help for us – especially when it came to navigating our way through the home loan process,” she says.

“The help our accountant provided was also invaluable. Your lender will want to see proof of income, which can be more challenging for self-employed people to provide than if you work on a salary. Our accountant dealt directly with our home loan provider, which made the process a lot easier for us.”

5. Protect your income

When Brigid’s partner was injured in a workplace accident, she learned a sobering lesson about the importance of income protection insurance, particularly when saving for – or paying off – a house.

“Income protection is vital for self-employed people,” she says. “If an accident happens and you can’t work for a period of time, and have no money coming in, you’re likely going to be dipping into your house savings.

“Having income protection means that even if something unexpected happens, your hard-earned savings will be safe.”

With a clear goal in sight and the right plans in place, saving for your first home is definitely achievable – even while you’re running your own business.

This article was originally published on 7 Jun 2016 at 10:00am but has been regularly updated to keep the information current.