How to Become Rich Contractors
Becoming rich contractors.
Most IT Contractors get into IT Contracting as they see it as a great way to make their pile and get out. Most would rather be doing something else.
Some, I regret to say the minority, make it rich and get out. However, the great majority are stuck in IT Contracting for many years and sometimes decades. They don’t bcome rich contractors.
So, what differentiates those who are able to make their pile and become rich contractors and those who don’t?
Rich Contractors keep spending down
– When you first start IT Contracting you get a lot more money than you had before as a permie – perhaps double. It is even better than that as all the extra money is free money.
If you spent, for instance, 80% of your wages when you were a permie then you are now getting 6 times as much spare money when you go contracting.
Those that make it to richness are those who don’t increase their spending by too much. So, there is plenty left to invest for the future.
Rich Contractors Invest Wisely
– The problem that most IT Contractors have is that they start investing in the Stock Market just when it looks safe, i.e. when it has been going up relentlessly for the previous few years.
That’s the wrong time to invest.
When investing in the Stock market it is best to take a long term view. In the long term the Stock Market goes up.
However, if you are out of work at the same time as your Stock Market investments are plunging, as happens in a downturn in the economy, then you are going to be in a lot of trouble.
You are going to blow all the gains you made in the times of plenty. So, you will be back to square one. This is a regular scenario for IT Contractors. It’s happened to me twice. It will happen to many of you in the next downturn.
The best way to invest, to become one of the rich contractors, is to take a long term view. Plan that you are going to invest in the Stock Market at regular intervals whether the market is going up or down.
Rich Contractors Have a Safety Net
However, before you do this you will need your nest egg of cash that will provide you with a safety net. That’s so that you don’t need to cash in your investment when you are out of work.
I would suggest that you secure six months worth of money in savings accounts that you can draw from before you touch your investments.
That’s the first thing you should do as an IT Contractors. You should build your safety net so that you can live for six months without cashing in your investments.
Some of you may want to build a stronger and longer safety net and make it a year’s worth of money. However, contractors being contractors I don’t expect that many of you will.
Your instincts will be to invest straight away as you are a risk taker and an optimist but you must suppress this. Once you have this safety net in place then you are ready to take the next step in your journey to making it rich as an IT Contractor.
Rich Contractors Invest Wisely in the Stock Market
The great thing about the Stock Market is that it pays out to the average punter which other forms of gambling don’t.
You can even be less than average as a Stock market punter and make money.
If you do the Football Pools the payout is around 28% of what you put in.
If you do the Lottery it is 50%.
Then if you back the horses the payout is 90% each time you back. However, if you back regularly then that 9/10ths payout becomes less and less.
It is the same with casinos where the payout is 97% with each spin of the wheel.
Rich Contractors Take Advantage
However, with the Stock Market the payout is 112% percent.
So you’d have to be a bit of a mug to be able to keep losing that 12% advantage over the market.
If you think you are less than average you could just stick a pin in the Financial Times and come out with a selection of shares which should give you a 12% return.
Rich Contractors definitely pick their own shares.
Rich Contractors Don’t Buy Unit Trusts
I’ve lost count of the number of times I’ve argued unsuccessfully with IT Contractors not to invest in Unit Trusts.
Each year, two thirds of Unit Trusts underperform the market.
One of the reasons is that you are having to pay the costs and salaries of those employed by them so they’ve got to do much better than beat the market by 12% just to stay at even keel with it.
If you must buy Unit Trusts then at least back tracker funds which track the market indices.
I don’t know why IT Contractors feel the need to trust their money and their stock market choices to a bunch of mostly fresh city graduates rather than to pick up experience by buying their own shares.
But many of them do – and can’t be talked out of it.
Rich Contractors Stay Away From Futures Market
Also, stay away from the Futures Market.
It may look like a quick way to make money quickly but 95% of those who play the futures market get burned within 6 months.
This is a terrible waste of money and I can’t stress enough that you should stay away from it.
So, investing regularly in the Stock Market for the longer term is a great way for IT Contractors to bring forward the great day when they can bcome rich contractors and can get out.
Rich Contractors Invest in Property
However, they should diversify.
They should not put all their money into the market.
Property is another good way of making money.
It’s also a good each way bet.
It’s seldom that both the property market and the Stock Market are falling at the same time.
Rich Contractors are Successful IT Contractors
One guy I knew instead of renting used to buy a house or flat at each contract where he worked.
Instead of paying rent or hotel bills he was paying the money in mortgage payments.
When his contract finished he simply rented it out.
By the time he stopped contracting he had six different houses and was able to live on the income from those whilst accumulating huge capital gains.
Rich Contractors Keep Working
The most important thing to an IT Contractor is to be in work. Too much money is wasted by IT Contractors in time out, either deliberate or between contracts.
If you are working for 3 months and then have 6 weeks out whilst looking for a contract, work for 3 months and then have another 6 weeks out then you might as well be a permie in financial terms.
Although it is nice to have some time off, if it is deliberate, I find than non-deliberate time off wasn’t much good as it was stressful, as you didn’t know when your next contract was coming from. You wouldn’t exactly call it quality time off.
Good Rate v Staying in Work
I was always a good negotiator when it was time to look for a rise.
However, that wasn’t necessarily good as when companies were looking to start laying off people from projects, they often just lopped off the most expensive contractors.
If the average rate paid at a contract site is £400 a day and you are on £380 a day then you are much more likely to get renewed than the guy on £420. Rich Contractors sometimes take lower rates as staying in owrk is often mor important.
As you know when permie Project Leaders are doing this sort of thing it is often just a bean count and even though you might be better than the cheaper guy it might fit their remaining Project Budget better getting rid of you.
The main object of thoose who would become rich Contractors, therefore, is to keep themselves in work rather than in getting huge rates.
It is permissible to be able to take holidays as long as they are mid-contract but keep to a minimum those breaks between contracts either deliberate or non-deliberate
Best Strategy to Become Rich Contractors
So, to sum up what your strategy to become rich contractors should be, it would be:-
1. Don’t rapidly increase your spending when you start contracting
2. Build a safety net cash pile before investing
3. Invest in the Stock Market but regularly over a long period of time
4. Diversify by investing also in property
5. Keep working even at a lower rate than others
If you follow this strategy you should be able to both see out the next downturn which will surely come and eventually be able to get out of IT Contracting altogether after a few years and go and do whatever you want.
Good Luck in aiming to become one of the rich contractors!
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