Money Matters For Contractors: How to Secure and Invest in Your Future Long Term

Financial planning is crucial for everyone who wants to own their finances and make it happen. Even more so for contractors. The career in contracting is flexible and rewarding but comes with financial risk and a no-money-back guarantee. 

In this blog from Compare Your Pay you can find out how contractors can stay on top of their budget, make budgeting a reliable tool, and develop financial plan for long-term growth and financial confidence. Let’s dive into the basics of money management and see how you can fund your future as a contractor. 

What Is Financial Planning?  

Financial planning means budgeting your finances so you can fund the expenses of the future and make the desired changes without feeling stressed. It’s about looking at your finances, developing attainable goals, and creating a plan that encompasses investments, savings, taxes, retirement, and insurance. 

This is especially relevant for contractors because the money can change at a quick rate. You can easily weather the storms of your career if you have a financial plan in place. 

Key Financial Strategies for Contractors  

Following are some practical tips for contractors who want to gain economic freedom and security: 

1. Track Your Income and Expenses  

There is a personal and professional price to pay when you do contracting work, and it's important to separate personal and business expenditure to view cash flows. 

To create a sense of a regular salary, consider withdrawing a fixed amount from your business bank account each month, regardless of when you're paid. Additionally, prepare a budget that covers both your personal and business needs, focusing on essential expenses and identifying areas where you can save.

Check expenses with financial apps or even just an excel sheet and schedule accordingly. You’ll also be able to budget monthly so that regular expenses are taken care of and you’re ready for the unexpected. 

2. Build an Emergency Fund  

As a contractor, it's important to have a backup plan in place. Start by setting aside a portion of your budget each month to build an emergency fund—aim for at least the equivalent of one year's income.

Ensure that this fund is kept in a liquid account, so it’s easily accessible in case of unexpected events. During profitable months, consider contributing more to strengthen your financial cushion.

3. Use Credit Cards Wisely  

Credit cards can be slippery slope. If you do it right, they can give you a decent credit rating which you will need to qualify for loans, mortgages or reduced rates on insurance. But it’s important to repay your balance within the agreed period so you don’t end up with high interest debt. 

4. Invest in Insurance  

Employers do not provide insurance for contractors. Comprehensive life and health insurance is essential for you and your loved ones. Additionally, consider obtaining business insurance to protect against potential risks to your business.

5. Stay on Top of Taxes 

Learn about what taxes you need to pay and fund it — usually 20%-28% of what you make. Profit from business expenses that you can deduct for taxes. Having an accountant can be accurate and save you money. 

6. Plan for Retirement  

Contractors don’t have employer pension plans so you will need to set one up. Make an investment in a pension fund now and you can guarantee your future. If you’ve got a retirement plan it’s less stressful and you’ll have a net against you when you grow old. 

7.Avoid Lifestyle Inflation 

As you receive promotions and your income increases, it's easy to upgrade your lifestyle or business expenses. However, if you allow your costs to rise along with your income, you may find yourself struggling financially.

To avoid this temptation, prioritise saving first. Use the additional income to bolster your emergency fund, invest in your business, or create a nest egg for your long-term goals.

Remember, financial success is determined not by how much money you make, but by how wisely you manage it.

Conclusion  

Contracting can offer flexibility and freedom, but it requires careful financial planning in advance. If you can follow these steps—create a budget, save money, purchase insurance, and save for retirement—you can live financially comfortably and focus on your career. 

With the freedom of contracting and effective financial management, you can achieve stability and peace of mind. Start now to take control of your financial future.