Warchest...

[Wanderer]

If you have a house then get a flexible mortgage, it's the best way to cover for the good and bad times....

[northernladuk]

Indeed, that's what I'm aiming too. Living by the same means and - as the net is roughly doubled on an average month - putting aside an extra month for every month worked. Good timing me and my girlfriend moved together recently so also my rent is reduced...

Which is the intention that everyone has.. Take Northwestperm2contract. He bought a house and openly admitted he spent his warchest doing it up. Down to 2 months or something at one point. Luckily for him he managed to get another contract. Would have been right up tulipcreek if he had 3 months wait for his next contract.

Why not just take the absolute minimum out of the company during your first contract. You can always do a final dividend in March to get you up to your tax limit but the money is in the business for safe keeping. You don't have to divi it all out every month. You can allocate as much as you want whenever you want.

[manubbo]

A very good point too, sir.

Perhaps a rule of thumb to follow is that if you go from permie to contracting and take a big jump in income, you need to put aside all of the extra income you are bringing in until you have a decent war chest. That's what I did when I first went contracting, I only felt comfortable when I had enough cash at hand to cover about a year's worth of living expenses.

This business is certainly not for people who are "no good with money" or live from hand to mouth.....

Indeed, that's what I'm aiming too. Living by the same means and - as the net is roughly doubled on an average month - putting aside an extra month for every month worked. Good timing me and my girlfriend moved together recently so also my rent is reduced...

[Wanderer]

It is the most tax efficient way of doing it yes but needs solid discipline to not spend the money you are divi'ing out.

A very good point too, sir.

Perhaps a rule of thumb to follow is that if you go from permie to contracting and take a big jump in income, you need to put aside all of the extra income you are bringing in until you have a decent war chest. That's what I did when I first went contracting, I only felt comfortable when I had enough cash at hand to cover about a year's worth of living expenses.

This business is certainly not for people who are "no good with money" or live from hand to mouth.....

[northernladuk]

Pay yourself salary and dividends up to the limit which would make you a higher rate taxpayer and then leave the rest in the company for a rainy day (or to be paid as a capital gain after a MVL a few years down the line)

Where this is great in theory I know from chatting to other new contractors you have to be very disciplined. In the first contract priority is the war chest and can be done as above but the result in most cases is they get giddy with the money coming in and it gets spent. Result is after the first 6 months there is no warchest at a time that you are more likely to need it then any time in the rest of your career.

It is the most tax efficient way of doing it yes but needs solid discipline to not spend the money you are divi'ing out.

[Wanderer]

do you usually build the warchest in your company account (for the ones that have a LTD, of course), or you still pay yourself and build it in your savings?

Pay yourself salary and dividends up to the limit which would make you a higher rate taxpayer and then leave the rest in the company for a rainy day (or to be paid as a capital gain after a MVL a few years down the line)

[manubbo]

https://www.google.co.uk/search?q=wa...hrome&ie=UTF-8

Interesting thread - the second result. I should have searched better

Interesting views also on how people behave differently. Well, first of all try to touch the minimum out of my savings to then build it up - probably will leave it in the business account but worth a chat with my accountant as well.

Thanks NLUK!

[northernladuk]

https://www.google.co.uk/search?q=wa...hrome&ie=UTF-8

[manubbo]

Better hope you don't get canned early then.

I do already have something set aside - but I'm looking to increase it, let's put it this way.

[TheFaQQer]

I read a lot about warchest - and is my intention to build one with my first gig (luckily rate and duration will allow me that).

Better hope you don't get canned early then.

[manubbo]

I read a lot about warchest - and is my intention to build one with my first gig (luckily rate and duration will allow me that).

But - as a matter of information - do you usually build the warchest in your company account (for the ones that have a LTD, of course), or you still pay yourself and build it in your savings? I also know some banks offer a "Business Savings" account.

I guess there's no exact way to do it, but I'm just curious on how people here handle this.