Financial planning for the self-employed in 7 steps

This helps:

• Keep a budget book or use digital tools to track your expenses for a few months.
• List fixed costs (rent, electricity, insurance) and variable costs (food, hobbies, everyday life) to find potential savings and get an overview.
• Analyse income retrospectively and set a realistic average value for how much money is received per year and spread over 12 months.
• Draw up a budget plan: How much money is available each month for all expenses, reserves and pension provision?

2. Build up reserves - for tax, downtime and illness

Self-employed people not only need to build up their own tax reserves, but also make provisions for months with fewer orders or periods of illness. A good financial cushion helps to build up a feeling of financial security and to be able to relax on holiday without spontaneous orders.

These reserves are important:

• Tax reserve: set aside 30-40% of income directly, business accounts that categorise income and tax reserves directly help here.
• Private nest egg: 3-6 months' expenditure in a call money account
• Operating reserve: For fluctuating months or investments

3. Check insurance policies

Financial planning not only means investing in the future, but also protecting yourself. The following insurances are part of this:

Important insurances:

• Health insurance (statutory or private)
• Occupational disability insurance
• Private liability
• Public liability (depending on the industry)

4. Define financial goals

Financial planning is life planning. If you really want to realise your dream sabbatical, you need a financial plan. How much money do I need - and how long do I need to save to put it aside? Whether it's a trip, a wedding, gifts or parental leave: only when these dreams have concrete sums can a plan be drawn up to achieve them.

What are my financial goals? These questions can help:

• How do I want to work - how many hours, with which clients?
• How much holiday do I need per year to feel comfortable?
• What major financial expenses am I planning? (Wedding, car, etc.)
• How do I want to live - rent or own?
• What does "financial independence" mean to me?
• Do I want children one day - and what does that mean for me financially?
• Am I financially responsible for other people and what exactly does that mean? (parents, partners, children)?

5. Planning retirement provision

How do I want to live in old age - and how much will it cost me? Time is the most important factor when planning your own pension - the earlier you start, the smaller your monthly savings can be. But it is also clear that if you don't make provisions, you will have to work for a very long time. A pension can consist of many different components that are individual to each person. As a self-employed person, there is a wide range of options that can also be flexibly adapted to different job situations. Important: The products have different risk and return expectations. This is precisely why it makes sense to combine several modules in order to optimise security and potential returns.

Important: These products may also include contracts that are simply not worthwhile due to high ongoing costs, poor potential returns or inflexible contract terms. It therefore makes sense to review existing contracts regularly and seek independent advice if necessary.

Building blocks for retirement provision:

• Statutory pension insurance (voluntary), possibly via the KSK
• Private pension insurance
• Rürup pension (basic pension for the self-employed): State-subsidised, funded pension with tax benefits
• Riester pension: State-subsidised private pension scheme (only available under certain conditions)Investments on the stock market: ETF savings plans, funds, shares
• Property: Owner-occupied or rented property
• Company pension scheme: also available for some self-employed people via pension funds

6. Building financial knowledge - step by step

Steps one to five are a guide to how financial planning works as a self-employed person. It's up to each individual to find out how to implement it. And it is completely normal not to be able to foresee what the final solution will look like at the beginning and perhaps not even know how you will get there. Dealing with your own finances is like learning a new language and immersing yourself in the subject. And it doesn't matter whether you read books, listen to podcasts or watch videos.

If you want to check your level of knowledge, you can use the following questions:

• Which financial products suit me - for which financial goals?
• What building blocks can my pension scheme consist of?
• What is my financial risk profile?
• What is the difference between saving and investing?
• Would I like to invest in the stock market or are property investments better suited to me?
• Do I do my own financial planning or do I seek advice?

7. Building healthy financial habits

At the beginning, financial planning seems like a huge mountain of decisions. But with every hour you devote to this topic, you can break the huge mountain down into small, feasible decisions.

Financial habits to keep you on track:

• Schedule monthly financial appointments: check income, check reserves, clear bills
• Take stock every quarter: What went well? What can you improve?
• Talk more openly about money: Talk regularly and openly with colleagues and friends about all financial issues and support each other.
• Deal with the money mindset: We often learnt how to deal with money in childhood, often unconsciously. Especially if the topic scares you, it is worth being aware of your socialisation. This podcast episode and this article deal with the topic of money mindset in detail.