Working from home as a contractor sounds like the ultimate dream but proceed with caution as many challenges await you. Self-accountability and responsibility for their own financial management, are among the most difficult challenges faced by contractors.

1. Maintain a Contingency Fund

As a contractor, you have little to no financial protection, so the maintenance of an emergency fund is imperative. Work may temporarily dry up, so you must have something to fall back on to cover the essentials such as rental or mortgage payments and utility bills.

2. Wait before Leaving Your Job

If you are only just starting out, but you have a regular job, use it as your lifeline for the time being. Many make the mistake of diving head first into their self-employed venture without considerable savings at their disposal, which can be disastrous. Before you consider quitting, make sure you have a vast and reliable client base and consistent work.

3. Have Multiple Sources of Income

Freelance work is often inconsistent, especially within the first year or two. Consistent and reliable income come with time, as you’ll need to grow a client base. As a contractor, it is preferable to have lots of small clients rather than having to rely solely on one to two streams of income.

4. Enjoy a Debt-Free Life

Before you even consider relying on freelancing as a way of earning a living, ensure that all debts such as credit card balances and bank overdrafts have been paid off in full. Also, you should definitely avoid borrowing money to get your freelancing career off the ground. Don’t fall into the trap of long-term loans as it all eventually has to be paid back.

5. Be Organised

It is essential, in any business, that your accounts are organised and be disciplined in the art of recording everything. Accounting software such as Xero or Quickbooks can be a lifesaver for non-accountants as makes the task much easier. The software will allow you to track all expenses and income including clients who owe you money. It is always to best to consult your friendly accountants at MT Corporate Advisory to make sure you are on the right path.

6. Separate bank accounts

If you have a business account and a personal account, it is vital to keep expenses from these accounts separate; not using your business account for business expenses and vice versa. This could create unnecessary tax implications and accidentally give yourself a director’s loan. Director’s loans are an expense (not a salary, dividend or expense repayment) from a limited company’s bank account, that must be paid back to the company.

7. Claim All Expenses

By neglecting to declare all expenses, many contractors end up paying more tax than required. When lodging your BAS and Income Tax Returns, all work-related expenses should/can be claimed. Ensure to keep all your receipts and invoices, in case you are asked to provide evidence of expenditures!

8. Super Contributions

Being self-employed means, you aren’t required to make contributions to a super fund, but it wise to think long term, especially when it comes to retirement. If you choose to build up your super while you’re contracting, you may be able to claim a tax deduction. To find out how speak to our Self-Managed Super Specialists at Virtu Super today.

9. Use Free Forms of Marketing

The use of a website or blog as the hub of your online contracting business means you’ll have to spend considerable time promoting it. This does not necessarily mean you’ll have to spend money. Social Media Marketing, Search Engine Optimisation (SEO) and Content Marketing are free methods you can use to promote the website and your business.

10. Use VoIP Telephony

If you depend heavily on telephone communication, ensure to use a VoIP telephony service to handle calls. It is also a good idea to have an online phone number so that people can contact you via a landline or mobile phone. VoIP tends to be much cheaper for making international calls to landlines and mobiles. Skype is the most well-known solution however, GoToMeeting, Dialpad, WhatsApp, and Google Hangouts are worth consideration.

11. Buy Used Furniture

Designing your own home office can be an exciting experience, but it is easy to get carried away with the expenditures. While most things can be classified as expenses for tax purposes, you should be cautious of overspending. Spending a little more on a comfortable, ergonomic chair should be a priority but everything else should be purchased second hand.

12. Run a Paperless Office

Rarely there is a need for the use of a printer in the home office these days. Running a near-paperless office will save you money on things like ink cartridges, paper, and printer maintenance. Only use the printer on those rare occasions where it’s absolutely necessary to, such as when sending a letter or printing a copy of an important document. Utilising a cloud-based system such as DropBox or Google Docs is the perfect and cheap alternative to paper.

13. Invest in quality tools upfront

Cheaply made can waste both time and money. Don’t suffer the headache of having to purchase low-quality tools over and over, instead invest in something that will last.

14. Chat with an expert

Perhaps the most important thing to do is to seek expert advice, which could save you money. Don’t hesitate to contact MT Corporate Advisory to see how we can help you.