When you own a business, you find yourself needing to think about things that never concerned you as a PAYG employee.

Tax, insurance, superannuation…the list goes on.

In terms of superannuation, you may have wondered: do sole operators and entrepreneurs need to pay themselves super? From a legal and tax point of view, there is nothing compelling you to do so – but that doesn’t mean it’s not important. While you won’t be penalised by the government if you don’t contribute regularly to your super, you could find yourself in financial difficulty later in life if you neglect your retirement fund.

Why you should make super a priority

Have you ever met anyone who has retired with nothing but the aged pension to rely on? With a current weekly payment of around $455 per week for a single person, it’s not exactly luxurious living, with many retirees struggling to pay for basics like food, electricity and medication.

In fact, a University of NSW report Poverty in Australia 2018, found that one-third of those aged over 65 and on the pension were living in poverty, while an OECD Report ranked Australia lowest in the region for income security in old age.

When you have a mortgage and a family, the idea of retiring on a bare bones income is very unattractive. You certainly don’t want to be a burden on your children, or be unable to enjoy your retirement because you can’t afford anything. But that’s not the only reason to consider topping up your super fund.

It could reduce your tax bill

Not only is a healthy superannuation balance vital to ensure your comfort in old age, but it could also benefit you financially, right now. Self-employed Australians can contribute up to $25,000 per year in concessional super contributions, which they can claim a tax deduction for.

You can also contribute an additional $100,000 per year in non-concessional super payments. This means you can’t claim any tax deductions for these contributions, but they still help to boost your super in preparation for retirement.

For more information on the tax deductions available to business owners who pay themselves super, speak to your accountant or financial adviser, or check out the Australian Taxation Office website.

Take advantage of compound interest

In the ideal situation, you should be saving and securing your financial future while you build your business, because the beauty of compound interest means that even small, regular deposits add up over time.

For example, if you’re starting out with $80,000 in your super from your previous employment, and you make monthly deposits of $400 into a top-performing fund returning 10 per cent per year, in 10 years your balance will be $298,501. Depositing $1000 per month will see your balance skyrocket to $421,000 within a decade.

And if you can manage a contribution of $2,000 per month, your superannuation balance would reach $626,000 within 10 years, or $2.1m within 20 years!

To figure out how much your super could grow to using various deposit scenarios, try the ASIC Compound Interest Calculator.

Deposit extra when you can

While you probably won’t miss $20 or $50 per week now, you’ll be thankful you stashed it away later when you can retire comfortably on a sizeable nest egg.

The sooner you can start adding extra funds to your super, the better – so you can take full advantage of that compound interest magic.

How can you fit super into your budget?

To make super a priority, you’ll need to free up some cashflow in the business budget to pay for it. You can do this by either growing your incoming revenue, or cutting back on some outgoing expenses and redirecting this money into your super.

Areas where most business owners can find savings include gas and electricity bills, insurance premiums and business loans. The team at Morris Finance can help you refinance or consolidate your business loans, so you are able to begin contributing your desired amount into superannuation – and pave the way towards a financially free future.

How much super should you be paying yourself?

Currently, Australian employers are required to pay their staff a minimum 9.5% superannuation. You could adopt this approach, and deposit 9.5% of your earnings into your chosen super fund.

Alternatively, you could sit down with your financial adviser to discuss how much money you’d like to have in super when you retire, then work backwards to figure out how much you will need to contribute. This amount will depend on the type of lifestyle you aspire to in retirement, and whether you will have any ongoing financial obligations – for example, will your home be paid off in full?

Keen to boost your retirement fund with some strategic investments? Speak to our expert team at Morris Finance on (03) 5223 3453 to find out how we can help.