As one of the skilled tradespeople in Australia, you are part of the backbone of the construction and service industries. But each trade faces unique financial challenges, making personalised finance advice for tradies so important.
In this blog, we will explore the value of financial advice for tradies in Australia and will show you financial strategies that work.
Understanding the Financial Challenges Tradies Face
The challenges you face as a tradie, make finance advice a crucial service for you. Your income is likely to be irregular. Job durations tend to vary, and seasonal fluctuations can disrupt your cash flow.
As a tradesmen, your work is likely to involve physical demands and potential safety risks too. Whether you are a plumber, builder, electrician or chippy, you can't completely escape the physical nature of being a tradie, and so you need to plan for unforeseen circumstances and work-related injuries.
To help manage some of the risk, you should have an emergency fund that covers at least three to six months’ worth of expenses. This will provide you a financial safety net during lean periods and unexpected events.
You also need to ensure you have adequate insurance cover, like life insurance and income protection, which may even be mandatory for you to get on site.
A financial planner that understands tradies, will help you create a strategy that manages these risks, but also capitalises on the opportunities in your situation.
Expanding on Essential Components of Finance Advice for Tradies
As a start, you should create a realistic budget. This needs to include personal and business expenses. This will help identify areas to reduce costs and enhance savings.
Establish a bank account as an emergency fund, if you don't already have one. If you have a home loan, consider using a designated offset account for this purpose. Your home loan interest rate will usually be higher than bank interest rates.
When cashflow is good, you need to make sure you are using it well and further in this blog we'll talk about investment strategies tradies can consider.
Moreover, you need to be managing your tax position, to keep tax down. Also you want to structure your debt well, to keep your debt costs to a minimum too. Financial planning for tradies covers all of these things and more.
In addition to day-to-day cashflow management, tradies should focus on investment planning. This will help you grow your wealth over time. By diversifying your investment portfolio beyond your trade, you can also mitigate some of your risk, and likely enhance your long term returns.
Finance advice for tradies will always include a proper assessment of your risk tolerance. It can be costly to make quick investment decisions that backfire, and proper risk profiling can help you avoid this.
As a financial planner, that regularly works with tradies, we see that many tradies do not have clear investment goals. A common reason we are given, is that your job starts early and by the end of the day you are physically spent. This makes sense of course and demonstrates how financial planning for tradies can help.
What financial advice for tradies includes as well, is assistance to establish investment goals and choose suitable investment options. This may include shares, property, or managed funds, as some examples.
We find that tradies often favour direct property investment, and this can lead to good investment outcomes, because it leverages their skillset and utilises their wider network.
Fortunately, the team at Yield have a unique skillset incorporating property into our financial plans. 45% of our clients are also property investors and we will help you by providing detailed cashflow and capital management planning.
This is really valuable for tradies, because it gives you a window into the future, to help make your decisions informed. Our modelling will help you understand and weigh up the tax and debt considerations. As well as offering ideas for diversification into other strategies, like superannuation.
Business Owner Tradies
Man of our tradie clients are also business owners. If you are a tradie business owner, one way we can really help you, is to leverage your existing structures to make your personal financial plan work with your business plan. This is most helpful, because you face additional financial considerations, managing your trade, and running your business.
Naturally tax planning becomes more complex for you as well, and there are lots of strategies to minimise tax liabilities, while staying compliant.
Another important area of advice we can provide you as a business owner is succession planning. This is an area that is often neglected, but is crucial for business continuity. Especially when retiring or transitioning the business to new ownership. Business insurance cover forms part of succession planning agreements and more broadly to protect you and your family personally.
Proper cash flow management is another essential aspect of financial planning for business owner tradies, as this ensures smooth operations and adequate funds for both personal and business needs.
By seeking advice from financial professionals experienced in the unique needs of tradies and their businesses. You will receive valuable guidance on optimising profitability, managing business debt, and structuring the business for long-term success.
*Data above taken from a recent survey conducted by St. George Bank for the Tradie Economy Report*
Planning for retirement is crucial for tradies to enjoy financial security in their later years. However we often find that tradies do not consider retirement enough. Retirement financial planning for tradies is especially important, because of the physical demands of your job. It is highly plausible that you will need to consider an earlier retirement, than you would choose otherwise.
Retirement planning will help you consider what lump sum you need to retire securely and then steps you can take to get there and the earlier you put this on your radar the better.
One area of advice we often focus on for tradies retirement is investing in superannuation. Because as you can see in the above graphic from St George, tradies often don't invest nearly enough into their superannuation. One quarter of tradies don't have a retirement plan at all.
This is shocking and yet is consistent with what we see. Superannuation is purpose built for retirement and offers great tax benefits. Finance advice for tradies will help you plan to contribute to super when your cashflow is good, to ensure you are parking some away for your future. With time and compounding, you will see your value grow!
A super strategy we love for tradies is to establish an self-managed superannuation fund (SMSF), and this can extend to all tradies. It has a range of benefits potentially, but in particular for tradies, it is the best vehicle for property investing.
Regularly reviewing and adjusting your retirement plan based on changing financial circumstances and goals is essential to stay on track. Seeking advice from qualified financial planners, ensures compliance with regulatory requirements. Financial planners will also help you maximise tax strategies and optimise retirement savings and income.
Seeking Professional Guidance
Given the intricacies of finance advice for tradies, it is wise to get professional guidance. Certified financial advisors with expertise in financial planning for tradies can provide personalised advice tailored to your specific needs. This will include investment advice, optimising tax strategies, minimise debt liabilities, and provide comprehensive retirement planning services.
Additionally, financial planners can connect tradies with other trusted professionals, such as accountants and lawyers, who also specialise in the unique needs of tradies. Collaborating with a team of experts ensures the personalised finance advice advice tradies need.
How Yield Can Help You
Most of our clients who work in trades own and operate their own businesses. We will develop a personalised financial plan for your family while also considering the financial possibilities of your business in order to offer advice that our clients find valuable.
Our team have won several professional awards and are experts that understand the challenges and the opportunities that tradies face, when it comes to your finances, and we are well-equipped to guide you towards achieving your financial goals.
Reach out to our team of financial advisors and see how we can help you attain your financial objectives and safeguard your position for an optimal retirement.