You’ve decided to become a technical consultant. Congratulations! Not only does this mean more challenging work and less stress, it also means a bigger paycheck. Yay!
As a technical consultant, you’ll be making 50-90% more money than a similar full-time employee. While you might assume that this increase equates to expensive cars, travel, and vacation homes, you’re wrong. It actually equates to unpaid vacations, retirement, and health care.
This isn’t obvious to new technical consultants, and, as a result, we’ve providing you with 4 tips that will help you manage your finances as a technical consultant.
1. Don’t Change Your Lifestyle
One of the biggest mistakes a new consultant can make is to take this 50-90% wage increase and spend it all on big, luxurious amenities. We’re not saying that you shouldn’t buy nice things or take trips occasionally. You should. You just shouldn’t spend it all on the newest Lexus or a down payment on a summer home in the Hamptons. Don’t let the increased income completely change your outlook on spending.
2. Save, Save, Save
Why shouldn’t you let the increased income completely change your outlook on spending? Well, with taking on a contracting role, there are added expenses that you need to take into consideration. For example, when you factor in the occasional time off between gigs, unpaid vacations and health care, you realize that saving this money is how you mitigate risk.
Use the extra income for your most pressing financial needs, be it paying off debt or getting closer to your savings goals. Don’t use it to buy unnecessary commodities, because you might need this money down the road when you have an unpaid vacation.
You can save, and therefore make, more money by becoming an S-Corp. This option allows you to save more in taxes than you would as a W2. Deductions available to you as a Corp will often be worthwhile.
For more information on tax types and incorporation, check out this blog post.
4. Be Informed About Your Health Care Options
Some affordable plans are available with high deductibles. Assuming your family doesn’t have major medical issues, a high deductible plan can be a cost effective way of protecting yourself from a large medical incident.
While the increased money in your paycheck may make you feel like Donald Trump, you’re not. As a result, don’t go and spend all of the extra wages of your new paycheck, but save the increase and take S-Corp and health care options into consideration. When you’re a technical consultant, you have to be smart with your money, just as if you were a full-time employee.
Thanks to rosscrawford1 for the use of their respective photographs.