Managing Your Time Off as a Contractor

The contracting lifestyle means that you get paid when you’re at work and you don’t get paid when you’re not. Although financial planning should be a part of everyone’s lives, it becomes even more important when you begin contracting.

Whilst some contractors are lucky enough to have a sought after trade or niche, have nailed a fairly long term contract or are simply enjoying a healthy market for their work, this is not always the case and contractors are more likely to find themselves with gaps in their income than their permanent counterparts when the work runs a little dry. It is ideal to keep a decent cash pool/buffer of 3-6 months so everything doesn’t fall apart if you cannot find work.

Having a monthly budget is also a strategic way of managing your finances. You should know how much of your contract earnings need to be set aside for things like tax, used for business expenses and how much is for personal expenses such as your mortgage. Ensuring that you have enough money to account for everything is vital to keeping your head above water and is fairly basic financial planning.

Being able to take holidays more or less when you want is one of the big perks of going solo, but the downside is that you don’t get paid for them. Lucky then that contractors tend to earn more than their permanent counterparts and can take their income out of the company how they like (i.e. you can take 11 months pay over a 12 month period so you still get paid while you’re on holiday), so budgeting for your holiday time shouldn’t be an issue as long as some organisation goes into it.

Unplanned time off such as falling ill or unexpected childcare needs is one of the main worries for contractors, more so for those who are deciding on whether to take the plunge or not. Having the cash buffer we mentioned earlier will help with any of these unexpected expenses, but it is worth also considering insurances particularly in the case of more serious accidents. There are a number of life insurances and private medical care policies on the market so do your research before parting with your cash.

If you are still concerned with managing your finances, speak with your contractor accountant or a financial planner who will be able to offer you tailored advice.

By:Jane Hailstone

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