Warchests Warchests
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Thread: Warchests

  1. #1

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    Default Warchests

    I've seen this mentioned all over the place, and I'm being really dumb here but I don't really understand how people have built up large warchests.

    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.

    In a month, that works out to be £8,000 plus VAT.

    Out of that 8k, there's corporation tax to come out, plus insurances, pension contributions, mobile phone, etc.

    As per my accountant, the dividend I can pay myself is £3,667 and salary £719.

    That doesn't leave an awful lot out of that 8k.

    An option would be to not take as high a dividend but due to loans in the past, my personal outgoings are quite high so I need all the money I can get in my personal account, so I take the maximum my accountant says I can.

    I assume most people would take a salary and dividend of similar amounts.

    If that's the case, there's probably between 1 and 3k in the business account left over. That would take a while to build up a sizeable warchest, yet I see people on here mention how big theirs is, and "after working for a year, I've got a great warchest again".

    What am I missing?

  2. #2

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    I managed to pull together a house deposit - in London prices - using mine.

    £400 a day * 5 days * 46 weeks is £92,000. That's an awful lot of money even on a slightly lower day rate.

    There's no obligation to pay yourself that £3667 dividend each month. Pay yourself what's needed. Keep the rest in the business or pull out just before the end of the year. No point going into advanced states of tax banding if you don't get a job the following year.

    Do you know how many permanent BAs would love to be on 92k before taxes? A great many of them will be on around half that or less - and still, before tax.

    You're in the top 2% of earners in the UK, know when you're onto a good thing. If you've got old debts that need servicing - well, it happens, you have to pay for it at some point. Either move to a lower 0% or ramp the outstanding debt down as quickly as you can. That said, cashflow is king.

  3. #3

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    I'm not sure about everyone else, but I consider personal savings and company retained profit my* warchest.

    fwiw, I try to stay on around the higher tax rate with my dividends, which leaves a lot in my company's savings accounts.

    (* as in it eventually belongs to me, no "it's your companies" pedantry necessary)

  4. #4

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    How much spare you have at the end of the month/year will depend on what income your partner brings in and what kind of lifestyle you live. If she's bringing nothing in then yes, it's going to be difficult to get it built up compared to someone who has a 2nd decent income.

    Also, if you are living the life and have to spend to keep it up then again, warchest will be an issue. Seen this a few times and have literally seen a grown man in tears has he's spent it all and his contract got cut short.

    For me, when I started contracting, i lived on the minium. Oddly enough I've never had so little income in that period, just so I could get the warchest up first. Divis up to the tax threshold an no more. Doesn't take too long to build it up. Once it got to 3+ months I relaxed a little and once it was 6 months I was fine. That said I can live off the money up to the tax bracket or there abouts so the warchest is still growing.

    If your lifestyle means you have to go through the threshold and get the money out at higher tax then you need to have a think about your lifestyle. You won't be spending a penny when you are out of work with no warchest so it's about priorities.

    Cut back now to make the hard times managable or spunk it all away and suffer hard when the worst hits. Up to you to budget.
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  5. #5

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    The trick that worked for me was to keep my lifestyle pretty much the same so I was earning like a contractor but living like I was still on my permie salary, in comfort but with no unnecessary frills.

    Also, as the boring bastard that I am, I like doing spreadsheets with monthly expenses, categorised by what's necessary and what I could live without in case I was on the bench. And then calculate how many days of work I'd need to cover those. It's pretty fun to estimate how many days you'd need to work in order to have a 3/6/12 months warchest. Once you have everything written down, it's much easier to stick to the plan and before you know it your warchest will be pretty healthy.

  6. #6

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    according to Company Calculations - Outside IR35

    you should be taking around £1,000 more per month.
    Check your accountants sums.
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  7. #7

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    Quote Originally Posted by PCTNN View Post
    The trick that worked for me was to keep my lifestyle pretty much the same so I was earning like a contractor but living like I was still on my permie salary, in comfort but with no unnecessary frills.

    Also, as the boring bastard that I am, I like doing spreadsheets with monthly expenses, categorised by what's necessary and what I could live without in case I was on the bench. And then calculate how many days of work I'd need to cover those. It's pretty fun to estimate how many days you'd need to work in order to have a 3/6/12 months warchest. Once you have everything written down, it's much easier to stick to the plan and before you know it your warchest will be pretty healthy.
    I'm on a similar rate as the OP and do what PCTNN does. I'm not as disciplined financially as I was as a permie, but I still have a good idea on what my outgoings are and where I can cut back if needed.

  8. #8

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    Quote Originally Posted by djm View Post
    I've seen this mentioned all over the place, and I'm being really dumb here but I don't really understand how people have built up large warchests.
    ...
    Out of that 8k, there's corporation tax to come out, plus insurances, pension contributions, mobile phone, etc.

    As per my accountant, the dividend I can pay myself is £3,667 and salary £719.

    ... due to loans in the past, my personal outgoings are quite high...

    ...What am I missing?
    What you’re missing is that you’ve not specified how much you’re paying in to a pension, how much you’re paying for your mobile, how often you change your phone, what all the etc are, and how much your personal outgoings are.

    For most people who aren’t contractors, to see >£4,300 a month hitting the bank account is an awful lot.
    My advice would be to clear down your personal debt - don’t just service it. Forget about putting lots away for a pension until you’ve sorted out your debt. At the same time look at other ways of saving money. Having a pension is good, but it’s not cash that you have access to. Maybe look at alternatives to that.
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  9. #9

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    Along with personal savings I also count easily accessible investments such as ISAs and premium bonds that can be cashed out quickly if necessary.

    I like to spread the risk across institutions and pots so I'll be doing eeny, meeny, miny, moe to decide which one to hit first if the time comes. My premium bonds looks particularly vulnerable as I haven't had a 'win' for months now, though if the banks get into trouble again the NS&I should be a safer bet.
    Maybe tomorrow, I'll want to settle down. Until tomorrow, I'll just keep moving on.

  10. #10

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    Quote Originally Posted by Hobosapien View Post
    Along with personal savings I also count easily accessible investments such as ISAs and premium bonds that can be cashed out quickly if necessary.

    I like to spread the risk across institutions and pots so I'll be doing eeny, meeny, miny, moe to decide which one to hit first if the time comes. My premium bonds looks particularly vulnerable as I haven't had a 'win' for months now, though if the banks get into trouble again the NS&I should be a safer bet.
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