Choosing to become a contractor and operate as an independent contractor instead of as an employee of a business or organisation in a traditional sense generally requires that you are very good at what you do. After all, a contractor who isn’t an expert in their field and who can’t demonstrate a proven track record when interviewing for a new contract position may well struggle to find their next contract gig.
You know you’re good at what you do. That has enabled you to skip out of traditional, regimented full-time employment. Instead, you will make money as a contractor and choose when and where you work and how long you spend with any one organisation as a newly minted independent contractor.
Sure, being a full-time employed worker with one employer is handy. There’s also the comfort and the security that comes with knowing exactly how much income you will receive in your regular pay packet, whether weekly, fortnightly, or monthly. The steady nature of it and the certainty and peace of mind it provides is comforting. However much of that goes out the window once you get set up as a contractor, which is why many independent contractors seek out a contractor budgeting guide.
Contractor money management tips
So, you’ve chosen to become a contractor, and you’re now self-employed and all set to make money as a contractor. You’ve made the choice to decide when, where, and how long you work for any one organisation. You’re smart, so you know well that as an independent contractor you will have to get comfortable living with a degree of uncertainty and unpredictability when it comes to your income and finances. You’ll also benefit from learning some contractor money management tips from a contractor budgeting guide such as this one.
Unless you are sitting on a healthy nest egg, part of your job now is financial planner and financial controller – master of your own financial destiny. Here are a few tips and strategies that may come in handy for managing your finances as an independent contractor.
1. Taking care of your expenses and administration
Becoming a successful independent contractor requires that you also become proficient at managing everything. And by ‘everything’, we mean your accounting, your tax, your business administration tasks, and most importantly, your finances. You obviously won’t get paid for this work, but it’s work that you must do, especially if you work through your own limited company.
Of course, if you have the means once you’ve set up as a contractor, you can outsource these duties to a small business accountant and purely focus on making money as a contractor. But if you don’t, or you’d prefer to avoid the additional expense by doing it yourself, then have at it.
A small handful of minutes each week should be all it takes to log your expenses and keep your accounts current. And doing your admin in small bouts throughout the week will ensure it doesn’t get out of hand and leave you flustered and scurrying around at the end of each month or quarter.
2. Segmenting your finances
A simple but essential contractor money management tip for independent contractors is keeping your personal bank accounts and business bank accounts separate. You may even have each of them with different banks just to draw a clear line between the two so you don’t accidentally confuse them.
You don’t want personal funds going into your business account, or business funds going into your personal account. This is because doing so can make it nigh on impossible to gain a true understanding of how you’re tracking financially as an independent contractor.
3. Covering essential costs when you become a contractor
The final point in this contractor budgeting guide is a point that goes without saying. But as an independent contractor, keep in mind that there are a number of work-related overhead costs and liabilities that you will have to service yourself out of your own pocket. These costs were previously serviced by your full-time employer as part of your employment agreement before you became an independent contractor. So be sure to factor these expenses into you financial planning.
You may be required to also hold your own public liability insurance and professional indemnity insurance to cover you for any legal costs you may incur as an independent contractor. As a contractor you will not have access to any sick leave, so you may also wish to consider insuring your income with an income protection insurance policy as part of your contractor insurance strategy.
Planning for your next role
Part of successfully managing your finances as an independent contractor is planning ahead to ensure that when you want to work (or need to work), work is readily attainable. Securing your next contract role without too much hassle is a key part of keeping an even keel as an independent contractor. It’s the safety net you need.
To help ensure that you can get independent contractor work without too much trouble when you need it, it’s best to maintain close ongoing professional relationships with the leading recruitment agencies that service your industry. When you become a contractor, be sure to put the time and effort into keeping up appearances with them. Keep them in the loop regarding your movements and when you will be in the market for a new contractor role. It’ll make life easier for them, and by extension easier for you too.
Now that you’ve set up as a contractor, implementing these contractor money management tips will help keep you abreast of your financial state of play as you continue to ply your trade as an independent contractor.
When you set up as a contractor and choose BizCover for your contractor insurance* you’ll enjoy the convenience of being able to compare multiple business insurance and contractor insurance quotes online while benefitting from competitive pricing, just like the more than 220,000 Australian small businesses that choose BizCover. Give us a call 1300 920 864 to find out how simple, quick, and easy it can be to purchase small business insurance.
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