Contracting can be rewarding both financially and personally in the global market – but it does come with some challenges, one of which is living without a guaranteed income. The better you manage your money as a contractor, the more peaceful you will feel and the better you will be able to continue in the field of contracting or freelancing. Our blog provides some easy money management tips that can help your cash flow.
Claim all expenses:
Many contractors end up paying more tax than required, simply because they neglect to declare all of their expenses. All work-related expenses should be claimed as such when you're filling in your tax returns, including software, hardware, home office equipment and everyday supplies. Any related bills, travel or education should also be claimed as expenses. Just be sure to keep all of your receipts and invoices in case you need to provide evidence! Make sure to contact your accountant and get it claimed.
Separate your personal and business bank accounts:
As discussed above, many businesses expenses can be written off on tax day. However, you will NOT be able to do so, unless you’re carefully documenting and tracking such expenses.
One simple way to help with this is to open up a separate bank account that you only use in connection with your business expenses. One account is for business income and expenses, the other is for personal transactions. Having all transactions in one place is extremely helpful when it comes to paying taxes and claiming expenses.
Project your earnings and price your rate:
If you already have a contract secured for the next six months to a year it is easier to work out what you’ll make versus bills, savings and living expenses.
Contractors often start as employees first, before leaving to work on their own. They have a good knowledge of the rates being paid and the type of work expected of them. Before you dive in, it’s always wise to do a little market research to see what others in the industry are charging for their services. If you’re in a position to bid on work, don’t ask for less than you need. Undervaluing the skills, you bring to a project will make some potential customers think that you can’t deliver the quality they need. Keep in mind that what you’re paid has to cover expenses like insurance, overhead, benefits, savings, and taxes.
Pay your bills on time:
Your credit rating is critical as a contractor and a freelancer! You want to save, budget, monitor your budget, and pay everything on time.
Paying on time will enable you to keep your credit rating high. A high credit rating means that, if you have an emergency that goes beyond your savings, you should be able to get a loan or access a line of credit.
Track your financial data:
Making time for a weekly and monthly financial review can help keep your business operations in check, ensure your services are priced right, and will help ease the burden of tax filings. Look at your cash flow and make sure clients are paying on time, create a plan for handling major upcoming expenditures, and know what your lines of credit are. If you see any expenses that are getting out of hand, come up with a plan to lower those costs.
Budgeting and Planning:
Budgeting is critical as a contractor. It’s important to plan both your spending and savings to be sure you’ve got money to fall back on when needed. Following the rule of putting 10-20% of your take-home pay away as savings can help you reach your saving goals if you can manage it. Saving money may not be in your nature but getting into the habit of doing it early on in your contracting career will help you manage your cash flow and ensure you have money to see you through the quiet periods.
If you’re drawn towards contracting, chances are you have a strong streak of independence. So even though these financial demands can be challenging, you’re well equipped to handle them. Take some time to design a budget, make a savings plan, and sign up for your own benefits.
As long as you’re proactive about managing your money, you can find success as a contractor or a freelancer and enjoy the freedom and perks that go with this career path. If you are looking to work on contract roles, Join Techfynder, the easiest way to find high-quality contract and remote jobs, head over to our website to see the latest roles across all sectors.