How Do I Build A War Chest

[doomage]

Treasure chest, Storage chest? The OP wants a War Chest.

Just don't spend too much, I always plan to have enough to live for 1-2 years without a cut in quality of life.

If you move from Perm to Contract and can't save then there is something VERY wrong with your financial management.

GL.

Or a sick child. Many things can happen.

[Oscar10]

Thank you all for the responses. I will use these first few months to reduce credit card debt and build up my Co balance sheet while keeping personal spending to a minimum.

[northernladuk]

Thank you all for the responses. I will use these first few months to reduce credit card debt and build up my Co balance sheet while keeping personal spending to a minimum.

A war chest should last up to 6 months or even more. It is going to take more than a few months to build it up to a suitable level and IMO credit cards are a personal finance issue which I keep separate from my company finances. If you mix the two you will find you will end up using the company money (i.e. warchest) money to prop up your personal life.

[Ignis Fatuus]

Here's my back of the envelope calculations for what 10000 of company money becomes in your pocket under various options:

1. If you are on Basic Rate Tax (and normal Employee's NI).
As a dividend: 8000
As PAYE: 5976

2. On Higher Rate Tax (and above Employee's NI upper limit).
As a dividend: 6000
As PAYE: 5184

3. Worth noting for older contractors on HRT but expecting to retire on BRT is the option of the company paying it directly into a SIPP. If the contractor then takes out 25% tax free, and draws the rest while retired and paying only Basic Rate Tax:

total: 8500.
(tax free 25%: 2500; ultimate income, 7500 at 20% tax, no NI: 6000)

[psychocandy]

Thank you all for the responses. I will use these first few months to reduce credit card debt and build up my Co balance sheet while keeping personal spending to a minimum.

Like I said need to balance this out a bit. If debts are at full credit card rate then crack on pay them off as soon as. If things go pear shaped, you can always just rack up the debt again if needs be.

In my case, debts were at low balance transfer rate so even though they were costing me it was not as much. So what I didn't want to happen was to chuck ALL my spare cash at them then something untoward happen with contract. Suddenly, no savings and all spending would now have to go back on at FULL interest rate.

[lithium147]

If you are married, your partner is not working, and you are not planning to get divorced in the near future, you can use income shifting:
Contractors' Questions: Can I 'income-split'? Income splitting :: Contractor UK

Also, dividends come with a 10% franking credit.
This takes a while to get your head around.
Its effect is only to reduce the total amount that you can extract from your company before hitting the 25% dividend tax.
for 2012/13
Upper limit: £42,475.00
less PAYE: £7,596.00 (you might pay yourself something else)
multiply by tax credit: 1-10%
( £42,475.00 - £7,596.00 ) * 0.9 = £31,391.10