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Budget & Finance Tips for IT Contractors


One of the biggest challenges of working as an IT contractor is losing the reassurance and security that comes from receiving a fixed pay packet at the end of the month. While many IT professionals choose to go the contractor route to increase their earnings, they do open themselves up to weekly, monthly and annual fluctuations. For that reason, careful budgeting is essential.

A budget plays a crucial role in helping IT contractors live without a guaranteed income and still maintain their quality of life, even during periods between contracts. But how should you go about creating a budget you can rely on? These are our top tips…

  1. Set your day rate

One of the most important parts of any IT contractor budget is determining a fair and realistic day rate – one that you’ll be happy to work for and which will allow you to achieve your goals. This can be done by calculating how much you need to earn to live comfortably and factoring in the market rate for your skills.

If you already have a contract in place then it’s much easier to work out how much you’ll earn versus the cost of bills and living expenses. You should also aim to put some money aside every month in case it takes time to find your next role.

  1. Determine your legal structure

Every IT contractor must choose the type of legal structure they want to work under. This will affect the proportion of earnings you take home, so it’s something you must decide before you can create a reliable budget. You have two options open to you, either operating under an umbrella company or creating a limited company.

The structure you choose will impact your earning potential as contractors operating as limited and umbrella companies are taxed in different ways. There may also be restrictions on the structure you can choose based on the type of contract you have and the work you do.

  • Umbrella company – Going the umbrella company route will see you pay similar income tax and National Insurance as you would in a permanent employment, making this a less lucrative option.
  • Limited company – Creating a limited company can lead to reduced tax liabilities. However, there is an additional administrative burden associated with this option and it may not be appropriate depending on your contract or working practices.

These are some of the other main umbrella and limited company considerations.




  1. Put money away for a rainy day

At one point or another, despite being in extremely high demand, most IT contractors will experience a period where they are without a contract for longer than they might like. Alternatively, you might experience a period of ill-health. For that reason, it’s essential to factor savings into your budget of between 10-20 percent of your take-home pay.

While savings might be something those working as employees can afford to dip into and spend, contractors should consider a proportion of their savings as money they no longer have. That will ensure there’s always a buffer in place in case of a rainy day. Having sufficient savings to maintain your quality of life for at least six months should be considered a minimum.

  1. Make use of online tools

If you can think of nothing worse than creating yet another spreadsheet, take a look at some of the apps and other software that’s available to help you manage your finances as an IT contractor. There are plenty of budgeting tools out there, but as a starting point, you might choose to look at:

  • You Need a BudgetThis simple budgeting tool allows you to import your bank files and assign funds to the costs you have so that every expense is accounted for. You can then see how much you’re left with at the end of the month.
  • Mint – Mint automatically categorises your transactions and tracks them against your budget. It also sends you alerts when you go over budget and provides you with a quick snapshot of your cash-flow.

Although different budgeting tactics work for every IT contractor, we think these tips provide an excellent starting point to make you more aware of your income and expenditure and help cover those leaner times. Be sure to get expert contractors’ budgeting and financing advice from our partners at Parasol, GiantIncome Management and PayStream.

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