Contract work and freelancing can seem like a daunting venture to undertake in your life. With no surety of a fixed income at the end of the month, people often find it too risky. However scary it might seem, careful financial planning can help you protect your future and business.
Structurally approaching your contract work can be one of the most rewarding things you’ll ever do in life. It instills in you a feeling of independence and responsibility. Moreover, you become the master of your career. Here are some of the most important financial tips for contractors to help run your business with stability.
Protect your business
One of the biggest money losses that a contractor faces is from liabilities. A customer or your supplier could file a case against you in case of unforeseen damages caused by your services or business. The resulting money that you need to pay in legal fees or damages can heavily impact your financial stability. To avoid such losses, it is crucial to protect your business with insurance.
Public Liability Insurance for Sole Traders covers any legal fees or damages payment that you might need to pay. This enables you to avoid any heavy expenditures. Other insurance plans that you might need to look into are Business Insurance and Professional Indemnity Insurance. Depending on the industry you work in, these insurance plans can be molded to fit your preferences and needs so that you get the best value out of your money.
Secure your future with a pension scheme
When working as a contractor, one can often forget about planning for the future. Apart from insuring your business, you also need to plan and make use of a retirement fund. By securing your future with a pension fund, you’ll never run out of money when you eventually retire.
Moreover, pension contributions are also an allowed expense. If you choose to contribute to your pension fund, you will enjoy a reduced tax bill. Do remember that there’s a certain limit to the contributions you can make to your retirement fund in a year. Get in touch with a professional contractor accountant to help you figure out how you can maximize your pension contributions and reduce your tax bill.
Keep personal expenses separate
Paying for personal expenditures from your business earnings is one of the most damaging things you can do for yourself as a contractor. You must not use your business earnings to pay for the next takeout dinner or movie tickets. It is crucial to separate personal expenses from your business earnings and expenses. We highly recommend opening a separate business account.
Rather than using personal savings account for retirement contributions, your salary, emergency funds, business operating expenditures, taxes, use your business account. Doing so will help you maintain all your income statements and keep track of your books better.
Open an emergency savings account
Your business is not the only entity in your life that might need to take care of emergency expenditures. You might need to pay a huge medical bill or get your car repaired. For any such emergency expenses, you mustn’t raid into your business account or personal savings account. Instead, open an emergency savings account.
Thus, for every unfortunate event that you might encounter, your emergency savings account will be there to cover you. Even if you lose business for a few months due to an economic crisis, you will still have enough money to cover your utility and essential bills.
Work on profitable contracts
Keeping enough money on the side can also help you pick up more profitable contracts. Working on the same kind of contracts can offer you stability but it might not do anything more than just help you pay your bills. To be able to bring more lucrative projects under your belt, having saved-up money can be an excellent way to kickstart this.
When you don’t need to stuff your timeline with low-priority projects, you have the time and space to work on projects that can bring in a lot of money. Plus, since you already have quite a lot of savings to depend on, you’ll have peace of mind when it comes to paying bills and taking care of business expenditures.
When you choose to build your career as a contractor, you choose a lifestyle that’s very different from others. You need to ensure that you save up well on the good days and secure your life better on the rainy days. It can take a while to get used to running your ship however, once you get used to it, it can be quite rewarding.
Having a financial backup can also help you diversify your portfolio and not take up work just for the sake of paying bills. Get in touch with a professional contractor accountant, learn how you can maximize your savings, and secure your future and independence in the best way possible.