Approach to warchest building up

[psychocandy]

Got some debts from permiedom that I'd like to pay off now that I've got the chance, however, I'm all too aware that you really need to build up savings/warchest for a rainy day when contracting. So with that in mind, we've been trying not to spend too much.

Used my redundancy payment to keep us going for the past few months so haven't touched the contract income yet. I also paid off a higher rate credit card.

Most of my debts now are pretty low lifetime balance transfers so not too expensive but I'd still like to get rid of them. Obviously, the payments mean my monthly outgoings are more (so I need more saved per month to last out any bench time)

Current gig is looking good. Been extended till end of year and looks like it might run and run (yes, I know nothings guaranteed and it could all go t*ts up tomorrow!)

So whats everyone's approach? Ignore the debts and build up a decent rainy day fund asap? Or pay off debts to lower outgoings for when the bench time comes?

I guess one consideration is that if you've got too much saved you aint going to be able to claim any JSA during bench time. Not that its much but every little helps.

[Clippy]

Which category does this topic fall into?

Accounting or Legal?

[northernladuk]

Which category does this topic fall into?

Accounting or Legal?

General or Light Relief IMO...

[eek]

So whats everyone's approach? Ignore the debts and build up a decent rainy day fund asap? Or pay off debts to lower outgoings for when the bench time comes?

Build up enough cash for 6 months bench time then start paying your debts off.

[Jog On]

Got some debts from permiedom that I'd like to pay off now that I've got the chance, however, I'm all too aware that you really need to build up savings/warchest for a rainy day when contracting. So with that in mind, we've been trying not to spend too much.

Used my redundancy payment to keep us going for the past few months so haven't touched the contract income yet. I also paid off a higher rate credit card.

Most of my debts now are pretty low lifetime balance transfers so not too expensive but I'd still like to get rid of them. Obviously, the payments mean my monthly outgoings are more (so I need more saved per month to last out any bench time)

Current gig is looking good. Been extended till end of year and looks like it might run and run (yes, I know nothings guaranteed and it could all go t*ts up tomorrow!)

So whats everyone's approach? Ignore the debts and build up a decent rainy day fund asap? Or pay off debts to lower outgoings for when the bench time comes?

I guess one consideration is that if you've got too much saved you aint going to be able to claim any JSA during bench time. Not that its much but every little helps.

Pay the debts off first IMO, then build warchest when you're debt free. Nothing worse than having debt payments on top of everything else when there's nothing coming in.

[northernladuk]

Pay the debts off first IMO, then build warchest

Build up enough cash for 6 months bench time then start paying your debts off.

As you can see below there are differing opinions on what is a very personal situation. The bottom line is this is your situation and you are the only one that can answer this. It is a pretty basic personal finance situation and is a pretty poor if you can't figure out what to do with.

There is no right or wrong answer, just do what is best for you and your attitude/approach to your finances.

[craig1]

I'm paid in a different way to most contractors as I go through a LLP, my typical split of income is:

1/3 warchest
1/3 tax account
1/3 for use as I see fit, including bills.

The tax account always has too much in it and I reconcile it each year when I do my SA return with the balance being returned to me for blowing on whatever fluff I want at that time.

If I had long-term debts though, that would come out of the last 1/3 as there's no point in being debt free if you've no money to tide you over if you're unexpectedly benched. I'd go with eek's suggestion of a 6 month warchest then pay off debts aggressively.

I'm comfortably over 12 months warchest now so that 1/3 is currently going into longer term savings and investments.

[Wanderer]

Most of my debts now are pretty low lifetime balance transfers so not too expensive but I'd still like to get rid of them.

The way I look at it is if I have money in the bank earning 1% interest and a credit card costing me 10 or 20% then I'm better to pay off the credit card. Why pay interest on a credit card debt if you could pay it off? That is presuming you could borrow the money back if you needed it.

My golden rule is to never spend money on a credit card if I don't have enough cash to pay it back when I get the statement.

[MarillionFan]

Start a spreadsheet.

Enter your savings, Corp tax, vat, debts, credit cards, loans etc and then work out where you'll be in
any month based on ingoing/outgoings etc. Then you can you can
implement things like credit card balance xfers and when Corp or vat is paid to best plan out your cash flow. Do that and you'll never find yourself
caught out.

[NotAllThere]

Which category does this topic fall into?

Accounting or Legal?

Borderline. I think General is better.

What Wanderer says is true, but you need to factor in taxation - assuming your ltd. 40% tax is probably more than CC interest.