Ways contractors can save money post-lockdown
This article is for information purposes only and should not be seen as financial advice. You should always consult with your accountant or a finance expert for any financial advice.
During lockdown, many contractors found themselves out of work and ineligible to claim government support in any meaningful way which meant they were forced to raid their savings in order to cover their regular expenses such as mortgage, rent, utilities, car, childcare fees, food, and anything else that their income would normally pay for. That’s left some contractors in a situation where their savings are severely depleted, or even used up entirely. It can feel like a precarious position to be in but, with the economy opening up again and more and more opportunities for work becoming available, it’s time to start replenishing those savings again.
But what can contractors do to maximise their savings post-lockdown? The Kingsbridge team has put together some helpful ideas.
Use separate accounts
Having separate accounts for different things allows you to partition your money rather than putting your eggs in one basket. Ideally you would have:
- Your main current account for bills, groceries and your mortgage/rent;
- An account for short term savings – this would include things like holidays or a specific item you’re saving for;
- An emergency fund which is there for when the car needs repairs, the boiler breaks, and other unexpected expenses;
- Longer-term savings – this is the one you want to put money into, but not touch for many, many years to cover your retirement or other future plans.
Keeping funds separate like this means you’re not dipping into your longer-term savings when you fancy a holiday or need to have your car repaired, allowing you to build up bigger savings over the years while still having money to spend on other things.
Set a monthly savings budget
A common mistake people make when saving money is to see what they have left at the end of the month after everything has left their account and then put what’s left away. This really only works for those who are very frugal and/or very disciplined. A more effective strategy is to budget for your savings and transfer it out of your account as soon as you get paid. This means that you can commit a regular savings amount each month, maximising your savings.
As a simplified example, assume that as a contractor you pocket around £2,000 each month after you’ve put some aside to cover taxes and other deductions. Your share of household outgoings including mortgage, bills, groceries and any childcare costs comes in at £1,000, leaving you with £1,000. You may then wish to put £100 into your emergency fund, another £100 into short term savings, and £300 into long term savings, meaning you’re saving £500, while still keeping £500 for anything else that month. It’s much easier to put £500 into your various savings accounts at the start of the month, than to try to not spend it and hope you can put it away later. Budgeting for it means you don’t even miss it.
Of course, you want to make sure you can afford to save that £500 (or whatever the amount is) every month and the following tips can help with that.
The 24-hour rule
Mobile shopping is super convenient and has been a lifeline to many during lockdown. However, it can be a little too convenient and it’s very easy to get carried away with unnecessary spending and blowing your budget. As a rule of thumb, give yourself a ‘cooling-off period’ by applying the 24-hour rule. So, unless it’s a strictly necessary item or an emergency purchase, make yourself wait 24 hours. If you still believe you need the item after that time, go ahead and buy it but, if you don’t, you can just leave it.
Make the most of sign-up offers
If you look around you can get sign-up offers on most products and services these days. It might come in the form of a free trial or a discount of some kind, but it’s worth checking out.
For instance, most broadband and TV providers offer hefty discounts to new customers that aren’t available to existing customers, so if your contract is at an end with your current provider, then it could be a good idea to see what else is out there. Or if you’re thinking of buying a big-ticket item, have a look if the retailer has a new customer discount for newsletter sign-ups. You can always cancel your subscription once you’ve used the discount code. While finding offers like these can take a little bit of work, they can save you a lot of money in the long term.
Cut back on takeaways
We all do it: spend money on groceries and then end up getting takeaways instead of cooking, often resulting in the food you’ve bought at the supermarket spoiling – meaning you’ve unnecessarily paid out twice for your meal that day – as well as producing excess food waste. It’s a habit you’ll want to kick if you’re going to save more money so consider the following tips:
- Plan your meals for the week ahead, buying only the groceries you need.
- If you know there’s a day you’ll likely want a takeaway or meal out, plan it in so it’s included in the budget.
- Make a packed lunch to take out with you, rather than buying expensive pre-packed sandwiches – it might only be £1.50, but assuming you do buy one five days per week over, say, 45 weeks of the year, that’s £337.50 a year on sandwiches alone. A loaf of bread costs around £1.10 and, if you freeze it to last, can make around nine sandwiches depending on how thickly it’s sliced. While the cost of fillings will vary, it’s still going to cost a lot less than £1.50 per sandwich.
- Say no to takeaway coffee. Assuming your daily Americano is £2.65, using the same calculation as above that’s £596.25 on coffee. You could buy a large reusable takeout coffee cup for around £12, a filter coffee machine for around £35 and a 250g bag of good quality ground coffee (around 15 cups worth) for less than £10.
These are only small changes, but they can add up to big savings over time.
Another way to save money is to protect yourself from unnecessary financial risks by being appropriately insured. Contractor insurance from Kingsbridge, including public liability and professional indemnity, will protect you in the event of a claim made against you so that you don’t have to use savings. Find out more on our website or call 01242 808740.