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The IT Contractors who stay poor

By Ashley Carron Subscribe to RSS | December 29th 2011 | Views:
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Most contractor look at the daily rates they are getting compared to how much they used to earn as a permanent employee and think “Wow! Four or five years of this and I’ll have made it and be out of here”. They multiply the £400 or £500 they may make a day, multiply it by 5 for their weekly rate and then by 50 for their annual income and then by 5 for how much they will earn over 5 years.

At the lower rate that’s half a million pounds- At the higher rate that will be £625,000.

However, what New Contractors don’t take into account are times when they will be ‘sitting on the bench’ for a few weeks between contracts or maybe even for a few months if there is a downturn. They don’t take into account that they may sometimes get sick, they have to take bank holidays off, they’ll want to go on holiday.

They also subtract from the total figure what they currently spend as a permanent worker.

However, once they become a contractor they’ll want a better car, a bigger house, holidays in the Caribbean rather than in Portugal and they’ll go to better (and more expensive) restaurants and go out more often. They usually invest their income in property and the Stock Market. This will get them closer to their goal of making their pile and getting out quickly.

What happens, in practice, is that new contractors usually get into the IT Contracting profession when there are plenty of IT Contracting jobs around, i.e. during a boom. It is usually pretty good, at first, as they earn crazy money and there are plenty of contracts around at good rates.

They put some of the money they earn into shares in a rising stock market and take out a mortgage on a big house with one of those fancy Contractor Mortgages. Each week they calculate their worth, i.e. their cash in the bank, what their stocks and shares are worth and what their property is worth minus the mortgage.

They think the world is their oyster as the figure for their wealth goes up on an almost weekly basis.

Then the boom goes bust. The company they are working for lays off some of their contractors and your are one of the unlucky ones. There are no other contracts around and all the bills of the car and mortgage have to be paid. The stock market was already starting to slide and it has become impossible to sell the house. Weeks and months go by with money going out and none coming in.

The contractor has to sell his shares at a loss.

He cannot sell his house at all and it is in danger of being repossessed as he’s stopped the mortgage payments. After 6 months to a year everything is gone including his or her partner, the flash car and the fancy house – including the money the contractor had set aside for tax. He is in deep despair and wonders if he will ever work again. This, my friends, is the profile of the contractor who will never get rich.

Ashley Carron - About Author:
For more information on Umbrella Company, Contractor Mortgages and Contractor Companies. Please visit:- www.itcontractor.com

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