Last Updated on Mar 13, 2020 by James W
While being an independent contractor can offer a lot of advantages, such as a flexible schedule and the ability to choose your own projects, there are some definite challenges that contractors must learn to manage in order to succeed. Your income can be unpredictable, so budgeting can be stressful. Here are some tips for managing your finances and achieving your career goals.
Don’t include funds you have not received yet
Even if you are quite sure that you will be awarded a project, it is best to not just assume. This can lead to thoughts such as: “I can spend this because I will get to do that job next month.??? If the client cancels the project and you have already spent the money, then you can find yourself short.
Make sure you are familiar with typical income and bills
If you know the amount of your expenditures, then you will know the minimum amount of income you need to cover your bills before you make any additional purchases.
Budget for higher costs
If you think your grocery bill will be $200, try to add a bit more into your budget. Prices on items can vary a lot. It is very easy to underestimate what you really need to spend. If you use a debit or credit card for your purchases, you will be able to look back and see just how much you are really spending. Many people are surprised what the real amount is that they are spending. Picking up a few items at the grocery store that are unplanned could be adding up more than you think.
Provide yourself with a cushion
If you are just starting out as a professional contractor, it might be difficult for you to save money in the beginning. However, if you can do so, saving at least 10% of your take home is a fantastic way to make sure that you can cover your bills if you experience a dip in your income. This is even more essential if your workload fluctuates with the seasons. Think of this cushion of savings as your own personal unemployment insurance.
Keep good track of receipts and taxes
While receipts are no fun to keep track of, it is essential that you have a good system of organization. If you don’t want to keep a lot of paper around, take a photo of your receipt and file it electronically. This is especially helpful because many receipts become illegible quite quickly. The IRS recommends that you keep several years’ worth of receipts and tax records in case of an audit. Keeping receipts can also ensure that you get the maximum deduction on your taxes.
An umbrella company, such as www.atlantic-umbrella.com, can help you to manage your contractor finances by assisting with billing, payments and taxes, so that you can concentrate on getting more clients and making more profit. This will ensure no more confusion about taxes and other deductions.