While the lure of flexible work hours and great work life balance is an attractive benefit of being a contractor, there are many pitfalls you should avoid to ensure the longevity of your work freedom.
Time and time again we see contractors making the same mistakes, which form bad habits and can lead to long term problems.
Here are some Ayers tips to avoid common contractor pitfalls:
This is probably the biggest mistake we see contractors make – particularly those just starting out. While your overall annual income may be substantial, the flow of money is not always regular. Managing your money is critical to avoid living off credit before your next pay check arrives.
Here are some tips:
Set aside money for income tax. You can be hit with hefty penalties, or worse, face legal action by the ATO if you fail to meet tax obligations. If you fail to plan ahead for tax, it can be difficult to pay tax bills – making this a priority for your business is worth while. To avoid this pitfall, open a separate account and make regular deposits into it. It will require some will power not to dip into the account but you will be relieved once your tax bill arrives and you have the funds ready to pay them on time.
One of the downsides to contracting is missing out on employer paid superannuation contributions. While retirement can seem like a world away, you need to plan ahead to ensure security when retirement does finally happen. According to the Australian Super Funds Association, almost a quarter of self employed Australians had no superannuation at all in 2012. The good news is Superannuation is a tax effective investment for retirement savings. Adding to your super can also reduce tax on your income.
Without the luxury of sick leave, your financial situation could be severely affected should you become sick or injured. For this reason, it’s worth your while having income protection insurance to protect you and your family should you become sick or injured. Income protection is usually a tax deductible expense so there’s no excuse not to have it!