Being a contractor or freelancer is not all it’s cracked up to be. If you are planning to be one or have been one for a while now, you would know that despite the multitude of benefits of going about business on your own managing your money and setting up your own benefits is a tedious and important responsibility.
Securing a regularly compensated, full-time position a traditional and safe bet, but if you are more of a risk taker becoming a contractor can be highly profitable.
If you are thinking twice of making the big move because you’re scared to lose the safety net of a regular employment, there’s more options out there for you than you think. Thanks to your bigger, more flexible income, you have more to manage taxes, investments and benefits.
Pitfall 1: Setting Up Independently
Now this can be viewed as both a disadvantage and/or the opposite. While given a much bigger freedom to take care of your finances, a poorly structured financial plan can lead to massive tax cuts if you are unable to maximize company and personal tax breaks. The key to solving this is doing ample research to carefully structure your finances so that you are able to build more tax efficient investments through your surplus income.
You’ll find out that there are quite an overwhelming number of options for portals to help you out. There’s insurance companies, banks, and other financial services. To be able to best secure a financial planning partner, ask for freelancer/contractor specific plans. This is no longer hard to find, ask around contractor circles and make an effort to join contractor networks in your industry and location so you can find the best financial advisors for contractor markets.
Pitfall 2: Getting Mortgages
Contractors usually get the short end of the stick when it comes to securing mortgages. Traditional banks and loaning avenues will either A – give you a maximum loan only based on salary alone, or B – not trust you with a loan at all. Unfortunately many contractors find trying to secure a decent size mortgage very frustrating. Normal lending policies are in the dark when it comes to freelancers. For example, despite being a growing industry, IT contractor mortgages are hard to find in decent amounts since loaning firms understand the fundamental truth that despite big earnings, there is the reality of the indefinite and short-term nature of contracts. The ones that will overlook this will often be the least competitive in terms of interest rates. No bueno.
How to solve this? Clean up your act. If you have good credit rating and have a deposit (most adviseably in the 5%-20% range), you will not need to fear being classified as high risk. It is all about keeping your finances clean, as they will also take into account the fact that you have better chances for paying with savings from your hefty contractor checks. You may not be able to get a loan straight from banks, but there are many industry and contractor specific loaning firms that can not only provide you a better consideration for your circumstances, offering mortgages that take into account dividends with competitive interest rates and protection products that are tailored to your particular circumstances.
What needs to be understood mostly is that at the end of the day, responsible financial management is both the challenge and the key to getting money security in the contractual world. Don’t get intimidated by normal lending policies or hear say. Turn to experts before you shy away from getting your money situation under control.
Do you have tips for contractors? Reach out to us in the comments below or tweet @mscareergirl!
Image Credit: AnnieAnniePancake on Flickr
