The best ways to manage your finances as a contractor

If you work as an independent contractor or consultant, you need to find a way to manage your finances effectively. This will make it easier to deal with issues such as annual tax returns and also to simply see how your finances are looking on a business or personal level. Unfortunately for many people who work in this way, it is not something they have a natural flair for. While you may be outstanding in the actual service you provide and find that enjoyable, managing your finances may not be the same story.

If you are looking for ways to manage your finances when working as an independent contractor, the below should help.

Use an umbrella company 

You may have heard of these companies before but not be sure of what they offer exactly. In simple terms, they act as your official employer for all the temporary contracts you take on when working through them. This is different from setting up your own limited company or end clients being your direct employer.

But why does this make managing your business finances easier?

As they are your official employer, umbrella companies do all the hard work around payments. This includes submitting timesheets on your behalf to end clients, collecting payments, and using the PAYE system to transfer over what you are owed (after deductions that they process). This takes a lot of the financial management work off your plate and even gives you a payslip each month to keep. For more information for consultants or contractors on umbrella companies, the internet is a great resource. 

Keep personal and private money separate

One great financial management tip for independent contractors is simply not mixing up your personal money with your business cash. This can be a real nightmare further down the line when pulling information together for tax returns or trying to sort out any invoice discrepancies. To avoid this, you just need to set up a separate business bank account to use. Any payments related to your business should go there in order to keep things clear.

Think about milestone payments

For some contractors in certain sectors, there is a worry about being paid on time when a project is complete. This can affect all people who work in this way but is especially pressing in construction, for example. To help manage this in a less stressful way, why not think about using milestone payments as part of any project? This would see you get paid via increments as the job progresses, rather than getting it all in one lump sum on completion. If you then end up having to wait months for your final instalment, you at least have some money to keep you going.

Managing your finances is key 

Good financial management is essential for anyone who works via temporary contracts. You simply do not have the luxury that salaried employees do of leaving it all to someone else to worry about. By making financial management a key part of your business, you are setting yourself up to succeed for the long term.

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