Are contractors financially prepared for the future?

Recently, in conjunction with FMD Financial, we held an important Roundtable event designed to help us understand our contractors and their thoughts regarding financial planning for the future. With FMD Financial’s CEO, Lee Wapling, as the facilitator, a thoughtful and honest conversation ensued between the members of our focus group about the paths that led them to contracting, the advantages and disadvantages of this type of work and how they plan for the future. Here are the insights we gained from this important discussion along with some useful tips from FMD Adviser, Nick Stanley:
Insight #1: A majority of contractors continue contracting by choice
All of our contractor participants revealed how they entered into the contracting lifestyle. Some were forced into it by a lack of work opportunities during hard times in the economy. Others consciously chose to become contractors as a way to earn higher levels of income and experience variety in their careers. Regardless of the path that led to contracting, all of the contractors have made firm choices to keep working this way for the foreseeable future. The benefits are many, including being able to choose cutting edge projects to work on, and according to the focus group, they far outweigh the disadvantages. Many had been offered permanent positions and had declined the opportunities.
Financial Adviser, Nick Stanley’s Tip: Earning a premium for your knowledge skills is the great financial benefit of contracting and if managed well it should set-up you up for the future. It’s well worth seeking professional financial advice to grow and protect that income premium while the going is good.
Insight #2: Contractors save for a rainy day
Contractors can often be without work for short periods when they are between projects. The general consensus was that they all planned ahead for this type of downtime, always having at least two to three months’ worth of wages in the bank for a rainy day. One contractor in particular has worked hard to ensure he always has two years’ worth of wages saved. Another member of the group believes he has a built in buffer of about 3 months simply due to the fact that wages as a niche skilled contractor are much higher than in a permanent role, which provides him with reassurance.
Financial Adviser, Nick Stanley’s Tip:  When you’re working hard and earning good money, spending can easily increase as your income grows. If just 10% of your income premium as a contractor is redirected to super, you’ll have a lot more money in the long run.
Insight #3: Contractors don’t buy into the illusion of security in permanent work
According to our focus group, once they started contracting, they quickly realised the freedom this type of work affords them. Many also enjoyed the lack of restrictions that a permanent employee deals with, such as not having to worry about company objectives. They only need to focus on the objectives set for their particular project.
When asked about whether or not they fear contracts being cut short or not having work for a period of time, one member said, “I’m comfortable and confident that I’m always prepared for job interviews as my CV is always up to date. I’m always aware of the skill sets that are in demand. Someone in a permanent role might be at a company for 10 years but will not be as prepared as I am if the company decides to make people redundant.” Other members talked about having built a network of contacts at previous companies through contract work that has allowed them to feel confident that if their current contract came to an end abruptly, they would find work easily that way.
Financial Adviser, Nick Stanley’s Tip:  Contractors are great at managing their changing careers but long-term financial planning is also important to ensure you continue to enjoy the financial freedom you value so much now well into the future.
Insight #4: Planning for retirement is important to contractors
The focus group discussed fears for the future and a common theme emerged that sowing the seeds for retirement and allowing for illness is high on their list of priorities. Being proactive and planning ahead is essential as a contractor, as they are responsible for their own superannuation, as well as insurances to cover living costs and mortgage repayments in the event of an accident or illness.
Financial Adviser, Nick Stanley’s Tip: When your income is your greatest financial advantage it’s crucial to protect it with adequate insurance. As we age, health challenges can create a financial storm with medical bills to pay and a reduction in income all at once.
We’d like to thank our contractors for so generously taking the time to participate in this event and for providing such valuable insight into the needs of our Customers.
To find out more about how Entity Solutions and our Financial Services partner FMD Financial can assist with your early financial planning, please get in touch with your Customer Delivery Manager or email us at enquiries@entitysolutions.com.au today.
Nick Stanley is Entity Solutions’ trusted associate at FMD Financial, our financial services strategic partner.