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How Self-Employed Contractors Can Save for the Unexpected


If the last few months have taught us anything, it’s that our plans can be quickly derailed by events outside our control. Many self-employed contractors have been unable to secure new contracts, or have had existing contracts cancelled, as a result of the coronavirus crisis. Some have found themselves unable to access government help, and as a result have experienced severe financial stress.

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Now the UK is cautiously coming out of lockdown and contracts are re-starting, it makes sense to protect yourself from future problems. One way to do this is to build up reserves that can be used to cover expenses if your income is interrupted. Contractors often refer to this as building a war chest. This is especially important in the current situation because local lockdowns are a distinct possibility as the country continues to manage the coronavirus outbreak.

If you’ve just returned to work after several months with no income, saving may be last thing on your mind, but it’s an important thing to consider. Here are some tips that might help.

Calculate how much money you need

One of the first important tasks when you return to work is to create a monthly budget, including all the business expenses you have to pay. This will include your travel expenses, insurance, accountancy fees, money put aside to pay your tax and money paid to your personal account.

Personal expenses

When working out how much money you need to keep your business running, it’s important to consider how much you need to be paid, so it might be helpful to create a personal budget as well.

This should include everything that you need to pay each month. When deciding what to include, choose anything that you couldn’t easily stop paying. This will include your household bills, anything you have a contract for, and estimates of variable costs like personal travel and groceries. You might also want to add a small amount on to cover unexpected price rises and give you some flexibility.

Once you know the minimum amount of money you need to keep your business and your life running, you’ll probably find that you earn quite a bit more than this while you’re working.

Providing for your holidays as a self-employed contractor

Before you start planning what to do with the excess, there’s one more essential thing to consider – your holidays. While it’s not uncommon for contractors to work for long periods without a break, it’s important to take regular holidays and give yourself time to recharge. As a self-employed contractor you’ll only earn while you’re working, so you’ll need to make provision for your time off.

Taking into account weekends and bank holidays and assuming you want to take six weeks’ holiday, each year has 44 working weeks. This means you will need to cover your expenses for 52 weeks from the income you generate in 44. Spreading your annual income over 52 weeks will ensure you have enough cash to cover you when you’re not working.

Making your position stable

Now you know how much money you need for essential expenses, and you’ve adjusted to take account of your holidays, your remaining earnings are available either to pay yourself more, or save against future emergencies. We would advise saving as much as you can until you’re confident that you have the necessary reserves to make your position stable. How much you need to save will depend on your circumstances and the conditions in your sector, but as a general rule we would advise saving 3 to 6 months’ expenses if this is practical.

How should you save?

Saving regularly by standing order or direct debit is a much more effective strategy than saving “as and when” so we so we’d advise you to save consistently into a savings account where it can accrue interest. Interest rates are unusually low at the moment, so you might not want to choose an account that locks you in for a long time. It may be worth revisiting your arrangements at a later date to see if you can get a better rate on your savings.

If your earnings don’t cover your expenses

If you’ve worked out your expenses as advised at the beginning of this article and you’ve discovered that you need more money than you’re earning, that’s a serious problem. If this is the case we’d advise you to take a close look at your fees and ensure that you’re charging the right amount for your services. What are other contractors in your field charging? Are you under-valuing your knowledge and expertise? One possible strategy is to arrange your fees so you can survive on two or three days pay per week, leaving what you earn in the rest of the week available to save.

If you’re a client of Orange Genie Accountancy, your accountant will be happy to discuss your situation in detail.

If you have any questions or of we can help in any way, please call our expert team on 01296 468 483 or email


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