When working as a contractor, not only do you get more flexibility to choose when you want to work but you also have the freedom to pick and choose which contracts you take. This means that you get the chance to broaden your skill set and increase your experience of working in different industries and for different companies. You also have more control over your chosen development path. Umbrella employees can also sometimes negotiate a higher rate, which can mean increased earnings compared to a permanent counterpart. However, since your next role is never guaranteed, having a strong financial plan is key. In this article we explore some tips for budgeting as an umbrella company employee.
Estimate your earnings
It’s important to determine what your income for each contract will be, as this allows you to estimate your earnings for the year. If you tend to work on contracts running several months this will make your estimates easier to work out, with the peace of mind knowing that you have secured a role for the next few months. However, if you tend to work on shorter term contracts, or you’re currently searching for your next role this could be more difficult.
Create a budgeting spreadsheet
Now that you’ve worked out roughly what you’ll earn, you’re one step closer to a bulletproof budget plan. A superb easy and cost-effective tool to improve your budgeting in the long run is to use a spreadsheet. This will allow you to calculate what you need for bills and savings and what you have as disposable income each month.
Continuing to save not only allows you to have a rainy-day fund should anything happen to you whilst contracting but it’s also a great way to pay for further training and learn vital skills that can take you and your earnings to the next level.
Business and personal account
Having two bank accounts, one for business and one for leisure, is a great way to keep those essential expenses and savings (that you've worked out on your spreadsheet) separate from your personal expenditure. This means, whatever is in your personal account is yours to spend on those well-earned treats!
Salary Sacrifice
An umbrella company, such as PayStream, can support salary sacrifice contributions into a personal pension plan which can save you £100’s in not only PAYE but also in NI each month. By sacrificing a percentage of your gross pay you’ll have a reduction in salary, but this reduction means that you save money each month in the form of PAYE and NI. At PayStream, we also pass on 100% of the employer NI saving to our umbrella company contractors, in the form of additional gross pay.
Set money aside for a rainy-day
Having a rainy-day fund as a contractor is vital, should you not be able to find a contract that’s right for you, or you’re simply taking some well-deserved time to rest and relax, you’ll need to rely on your ‘war chest’ that you’ve been building up each month. Don’t forget to consider how much you can afford to put away whilst calculating your budget, it’s always best to have more than needed!
Following these useful budgeting tips can help to put you in a good financial position. But don’t forget what works for one umbrella employee may not work for you, so experiment with different budgeting tactics to see what works for you.
