Reply to: Weekly Dividend

[Datalink]

Income should be steady till the end of this year *touch wood*. Thanks all, off to read other parts of the forum now to try and get my head round everything. I say debt, but it's £1.6k on two credit cards and a £2k interest free overdraft so nothing substantial, they'll be gone before the new tax year. What will effect me is my previous credit history where I ended up with a default on my file due to a nasty divorce. Long story but that's off within a month or so which should let me build it up nicely over the coming few years.

[Wanderer]

Thanks for the advice all. Yes, I do have an accountant. I'm with SJD and I have been shown the most tax efficient way of working. He has suggested I speak to an IFA but I was going to wait a month or two to let funds build and debt be paid off.

I don't think you will have much chance of getting a 100% mortgage while being newly self employed and having other debts.

War chest is my number one priority. I'm thinking of saving personal money on top of that, which I figure should be doable.

Yep. Also look at flexible mortgages, they will get you a good return on your savings which is great if you have an income which fluctuates.

[Datalink]

Thanks for the advice all. Yes, I do have an accountant. I'm with SJD and I have been shown the most tax efficient way of working. He has suggested I speak to an IFA but I was going to wait a month or two to let funds build and debt be paid off.

War chest is my number one priority. I'm thinking of saving personal money on top of that, which I figure should be doable.

[northernladuk]

You are heading for a problem which could ultimately cost you your new house...

You haven't mentioned the word warchest yet. If your plan is to save hard and scrape together the deposit for your house you are not going to have a penny to support yourself should when you are out of contract. You are not yet an experienced contractor so still a risk so end to end gigs are not a given. 2 months out of a gig means you can't pay any of your bills and still need a couple of grand to live on.... can't do that and the first thing they will come after is your shiney new house.

Forget the house, concentrate on getting a 3-6 month warchest and THEN start saving for a house.

Do not kid yourself that you can use your warchest as deposit. As a contractor you can get walked there and then, and it happens. Many new contractors get in to hopeless situations due to poor future planning, don't be one of them.

[Wanderer]

What I want to know is what is the 'best' way for me to buy a house quickly? I've been told by a colleague at work that if I pay myself via the above means then I would find it harder to find a lender due to having a low salary and that I should pay myself a higher salary for a few years and then after 2-3 seek a mortgage. But on the flipside I have been reading a lot online which suggests that there are a lot of brokers out there who are contractor friendly and simply work out deals based on daily rates, work history and CV.

You might be able to go to a broker because not having much deposit, being self employed and being paid dividends isn't going to compute with some of the high street lenders. Do a search for the word "mortgage" on this forum and you will find lots of discussions of it.

Probably it will boil down to "save up a 25% deposit and get a year's worth of trading and accounts done then apply through a broker" - though that's not what you want to hear, is it.

[psychocandy]

Datalink - speak to your accountant. You do have one yeh?

Colleague is talking bollox about the salary thing. Won't make any difference to a lender because all they are likely to see is the wording temporary contract. All it'll do is mean you pay more NI in the long run if you decide to pay a larger salary.

Of course, salary level is dependent on a number of things anyway but I wouldnt pay a larger salary in the hope of making my income look better to traditional lenders.

Best bet is to speak to one of the contractor mortgage companies....

[Datalink]

Hello!

New member here. I couldn't figure where to put this post, whether to create a new thread or add it to an existing, but I figure I'd add it here as it's sort of the same subject. Thanks for the posts in here by the way, good info and has eased some concerns I had.

I've recently started contracting. Unfortunately I hadn't managed to buy a house prior to my move from perm. Nor had I managed to save any money, so I'm looking at saving money and buying a house at some point.

Now, I understand that the most tax efficient way for me to work is to take a salary of £7400 or there abouts and pay the rest in dividends. My intention is to take fairly regular dividends till my credit card and overdraft is paid off (some £3000), then start slowing down how often I take them as I build up more money in my own personal accounts. Anyway, this is kind of by the by and not my question.

What I want to know is what is the 'best' way for me to buy a house quickly? I've been told by a colleague at work that if I pay myself via the above means then I would find it harder to find a lender due to having a low salary and that I should pay myself a higher salary for a few years and then after 2-3 seek a mortgage. But on the flipside I have been reading a lot online which suggests that there are a lot of brokers out there who are contractor friendly and simply work out deals based on daily rates, work history and CV.

Any guidance or personal experiences please?

[psychocandy]

I am back up to 3 months warchest

Hopefully will be up to 4 or 5 by the end of the contract!

Again thanks for keeping me in your thoughts.

3 months aint much IMHO. I like 6 months minimum....

[northernladuk]

Maybe to a high flying, loaded contractor like yourself I am doing badly, to others (and myself) I consider myself to be doing quite well. It's easy to look down on others, what is more difficult is showing a bit of humility in life and respecting that every person's situation is different. e.g. Just because somebody ended up a cleaner it doesn't mean we should look down on them.

For you 5 months warchest is nothing, for me to have a house, invest my money in a property and still have a few months buffer is good enough and I am happy to live on the edge while I am still not 30.

Nicely put. You're getting there.

[NorthWestPerm2Contr]

No problems. Much easier to point out to people how badly they are doing something when you have a practical real life example at hand.

Maybe to a high flying, loaded contractor like yourself I am doing badly, to others (and myself) I consider myself to be doing quite well. It's easy to look down on others, what is more difficult is showing a bit of humility in life and respecting that every person's situation is different. e.g. Just because somebody ended up a cleaner it doesn't mean we should look down on them.

For you 5 months warchest is nothing, for me to have a house, invest my money in a property and still have a few months buffer is good enough and I am happy to live on the edge while I am still not 30.

[northernladuk]

I am back up to 3 months warchest

Hopefully will be up to 4 or 5 by the end of the contract!

Again thanks for keeping me in your thoughts.

No problems. Much easier to point out to people how badly they are doing something when you have a practical real life example at hand.

[NorthWestPerm2Contr]

I don't know what you guys do that allows you to build a warchest up from personal divi money that I can't. I spend most of what I pay myself with some savings, which are savings not warchest.

The warchest is most definitely the profit that I have left in the company after I have taken max divs which builds itself naturally...

I can't be building a 16-18k warchest when I only pay/divi myself around 40K a year :|

Are people kidding themselves that their savings are their warchest? To me they are totally separate. One is for big purchases for me and my family in the future, the other is to cover my income if I am on the bench.

There is always the situation that NWP2C is in where he has spent all but 2 months of his 'warchest' on his new house. That would indicate confusion over savings and warchest and also a problem that it can be spent far too easily on things it isn't supposed to be for.

I am back up to 3 months warchest

Hopefully will be up to 4 or 5 by the end of the contract!

Again thanks for keeping me in your thoughts.

[malvolio]

...snip... To be honest, I think its wise to extract what you can from the company each tax year up to 40% limit.

Or take what you need when you need it and stop fretting about extra taxes if you need the money for something (noting that usually I don't since I already have most of the necessary toys...)

Don't see the point of keeping it in the company.

Unless like me you only aim to work 6/7 months a year but CBA to keep stopping and starting things...?


At the end of the day there are no "right" business models, only the one that works for you. And at my age life's too short to worry about the last 5%

[psychocandy]

Maybe I see things a little more simply than you do then - my "warchest" is to cover an equivalent monthly salary should I be between contracts, where it sits is irrelevant to me. I set a goal of X number of months of good living and have piled all that into ISA's and the best savings accounts I can find whilst giving myself the flexibility to draw from them without having to give long notice periods.

My savings are elsewhere (in regular savings accounts and wherever else I can earn a couple of percentage points above the HSBC rate) - there is no connection between the two in my mind, maybe I'm a bit more disciplined than you give some people credit for?

I want my money to work for me - sat in the business account it does no such thing, so I spend the time (and actually enjoy) looking for the best (risk-free) way to make a bit of money on my hard-earned.

EDIT: And this isn't meant to be as scathing as it sounds, but just because someone does something in a different way to you doesn't make it wrong.

Me too. I measure my warchest as how long it will pay the bills for if I'm without contract. Currently up to about 15 months which is OK.

Time to start paying off more credit cards now. They're low rate balance transfer so no rush - see previous post about balancing act.

[psychocandy]

There is always the situation that NWP2C is in where he has spent all but 2 months of his 'warchest' on his new house. That would indicate confusion over savings and warchest and also a problem that it can be spent far too easily on things it isn't supposed to be for.

Bad idea to spend your warchest like this. My savings warchest is there just for that - its ringfenced not for use.

If I want to buy anything I won't touch these savings. I need a new car at the moment but I ain't touching it I'd rather get a loan.

No good using your whole warchest to save a few £ on interest only to find yourself suddenly without contract. Nice car but zero money. I'd rather pay the interest to allow me the flexibilty of having my warchest easily accessible still (of course, you could flog the car).

One disadvantage of taking loan is that it increases outgoings and thus more is needed per month from warchest to pay the loan. But its a balancing act to keep outgoings down if possible and build warchest.