Warchests

[Old Greg]

If you are paying down your debt, you are building up your warchest. But your starting point was a negative number.

[ladymuck]

It is possible to build up a decent stash, you just have to be disciplined about it. I've gotten less disciplined rather than more over the years and had a bit of a squeaky bum time of it a while ago. I had to cut right back and account for every penny and now have a rolling three month budget planning everything out.

My formula for deciding my optimum daily rate is:

((Annual outgoings * 2) + 20%) / (5 * 40)

So essentially earning twice my annual expenses in a 40 week year. That means I can stash the cash and take time off without worry. The 20% is roughly tax.

I tweak the formula to work out the absolute minimum I could charge per day and still cover my expenses with a time off buffer.

[BR14]

I just winged it. you can't know what happens tomorrow.

do what suits you, and any dependents.

[DSF70]

I’ve been contracting for just over 3 years. Before i went contracting I had my own savings war chest that would keep me going for 6-9 months if I made a hash of it / failed to get a contract.

Luckily that war chest never got touched...because I’ve been in contract all that time.

My other mission was to retain the standard of living I had as a permie (I’m fairly cautious) whilst building up a pot in the business.

I’m now at a point where:

1. I have a better standard of living than I did as a permie, because I pay myself a similar amount, but obviously more tax efficient, building up personal savings as I go (plus paid off small mortgage I had left)

2. Every day I invoice I see as a day I don’t need to (if that makes sense), e.g. I only need to be in contract 5-6 months a year to retain my standard of living. Anything over that goes into the business pot.

I know some guys, who’ve been contracting for 10, 15, even 20 years who fear being out because they’ve not put anything behind them.

So I guess it defends his much you pay yourself, and ultimately how much you spend.

[edison]

I’ve been contracting for just over 3 years. Before i went contracting I had my own savings war chest that would keep me going for 6-9 months if I made a hash of it / failed to get a contract.

Luckily that war chest never got touched...because I’ve been in contract all that time.

My other mission was to retain the standard of living I had as a permie (I’m fairly cautious) whilst building up a pot in the business.

I’m now at a point where:

1. I have a better standard of living than I did as a permie, because I pay myself a similar amount, but obviously more tax efficient, building up personal savings as I go (plus paid off small mortgage I had left)

2. Every day I invoice I see as a day I don’t need to (if that makes sense), e.g. I only need to be in contract 5-6 months a year to retain my standard of living. Anything over that goes into the business pot.

I know some guys, who’ve been contracting for 10, 15, even 20 years who fear being out because they’ve not put anything behind them.

So I guess it defends his much you pay yourself, and ultimately how much you spend.

I took the same approach in having a war chest of about 9 months worth as I packed in a high paying permie role.

I think of a warchest as any savings, so that includes ISAs etc as well as money in MyCo.

I tend to save as much money as I can and if I get an extension or new contract, that's normally when I feel a bit more confident to splash out on larger purchases such as a planned holiday.

I got down to £500 in MyCo at one point after a lengthy break. I still had other savings but psychologically I knew I had to build up the company funds when I got a contract shortly after.

[dx4100]

Maintain 6 to 12 months worth of living costs (depending on your attitude to risk)...

Do what the hell you want with the rest...

I don’t think it needs over thinking beyond that...

[fiisch]

I'm a Business Analyst, on £400 a day. That's a decent wage compared to other jobs, I've always been between £300 and £400. Talking to other analysts, and PMs, that sort of day rate seems to be the going rate. I've never met a BA or PM on more than 450.

I think that's industry/location dependent. I'm a BA and seek a minimum of £500/day, and I'm not especially experienced/brilliant, but work in London in FS. I'm probably at the lower end of the spectrum in terms of day rate.

I've also struggled with building up a warchest over the last year - wife currently not working (young child/possibly another on the horizon) and chunky expenditure (£5k / month), but we do save £500-750 per month. However, I tend to treat personal and business savings as separate - were I to be benched, I would prefer not to have to dip into my personal savings.

You mention a max dividend of £3,667 - of course, you can take more than that, but it'll push you into higher dividend rate tax.

I tend to take circa £400/month expenses (petrol, use of home office), salary for myself and my wife (who does the administrative stuff), and then split £3500 dividends 50/50.

If you're single, or have another household earner, I think contracting works much better. For us, it's been a way to amass cash very quickly, shoot up the housing ladder and give me a broader experience in my career, but it's a helluva risk and it does give me sleepless nights. At the moment, beyond 4 months benched and we'd be in very hot water, which I think makes me susceptible to having to take permanent roles when the time comes to move on.

[fatJock]

Rule of thumb I live to is that I only take up to the high rate tax threshold plus any expenses I have in the month. From that I then live on what I was taking home after tax as a permie which saw me comfortable enough. Anything else I put into a personal savings account.

At the end of this tax year, and only after three contracting I'll safely have at least 18 months in the company and a few quid put away personally which has already been subject to tax.

I live on my own and don't live a frugal life - it's easily comfortable to achieve a decent war chest particularly if you've had a good run without any bench time.

[PerfectStorm]

If you are paying down your debt, you are building up your warchest. But your starting point was a negative number.

Very good point.

One of the first things I did when I had a decent 'chest going was clear down an old (and horrifically APR-laden) credit card from a debt I'd taken on in more desperate times. The kind of thing where you pay off £20 and they add £50 of interest a month.

Getting rid of the rubbish is all part of shoring yourself up. I could've moved it to a 0% deal but it was nice to just get rid.

[Nut]

Very good point.

One of the first things I did when I had a decent 'chest going was clear down an old (and horrifically APR-laden) credit card from a debt I'd taken on in more desperate times. The kind of thing where you pay off £20 and they add £50 of interest a month.

Getting rid of the rubbish is all part of shoring yourself up. I could've moved it to a 0% deal but it was nice to just get rid.

This sort of thing is the kind of advice which really shouldn't be underestimated.

The fact they say their outgoings are high. Well that needs fixing first. Shift debts to 0% cards or otherwise refinance to lower APR deals, pay off debts in order of highest to lowest APR. If you can't make decent savings you should at least be reducing your outgoings as much as possible. Clear those debts.

With the current uncertainty it will be far more valuable to have smaller outgoings and less savings than more savings and huge outgoings on huge APR debts that is just going to eat those savings anyway.