Am I too cautious or too adventurous ?

[ExitViaTheCashRamp]

Good Evening Folks,

 Was hoping for some advice from folks who actually understand money. I fear both being too cautious and at the same time too adventurous ! I work as a IT contractor on 6 monthly rolling contracts, my job is ideal in many respect, I picked up the contract with some astonishing luck a few years ago. Whilst I have been more or less continuously employed since '99, whenever I have applied for other jobs I have failed miserably -- in fact the last time I actually applied for a job successfully was in 1999 ! This current contracting role just fell into my lap.

 As such, I have a fear of losing my role and little belief in finding a professional role if (more likely when) I lose it. This has meant I have tended to hoard cash or virtually cash like products. My company (I own and control) picks up about £45k after costs per year  which is not increasing yearly. That part is harsh, but the job has some huge benefits and suits my families lifestyle.

 So that said - am I hoarding too much cash ? Here is what I have:

Cash, effective 4% interest: 17.5K   (average increase of £700 p/m, more will reduce the average interest as I am at the limit of the good deals)
P2P, very low risk 3% interest: 3.5k
Cash in my company, 0% interest: 9k

Shares ISA: 19k
Company owned Shares: 5k (will increase by 1k p/m from new 'sales' of my services)

Our budget in a no-job scenario: 1.6k p/m. Other non-job income -- guess £600 p/m.

 I cannot get the cash out of the company without a hefty tax hit, and no one wants company loose cash - so gaining interest on that 9k is not realistic.

 So if I lose my role and fail to find another:

 Year 1      ) First live on the cash in the company. Then sell the index funds it holds.   
 Year 2 & 3) Live on cash in my own accounts.
 Year 4 & 5) Sell my S&S ISA funds

 So what do you think folks ? Should I dump more cash into shares ? I feel both too cautious at keeping so much out.... and too adventurous given my role could vanish with just two weeks notice and new jobs have always eluded me.

[cerat0n1a]

I feel both too cautious at keeping so much out.... and too adventurous given my role could vanish with just two weeks notice and new jobs have always eluded me.

I think planning on the basis of not earning anything at all for 5 years seems crazily pessimistic. Having enough cash to tide you over for 3-6 months seems sensible, more than that doesn't make sense to me.

[Playing with Fire UK]

Wow, we think about risk really differently. My thoughts are:

Your business income isn't increasing, not even with inflation(?). This would concern me, assuming you are doing a similar amount of work. Is the business sustainable, what are the competing technologies, how secure is the business/industry you contract for. Cash, even for 5 years, won't save you from this risk. Is your business going to age out (think typewriter maintenance) or is there something you can do to pivot to a growth area? You could still keep working for yourself but look for other contracts. The transition from contractor/owner to employee is often not smooth, which could be weighing against you in applications.

However, you don't have to stay in the same line of work. If you lost your contract, what do you think the likelihood is that you could find ANY job? Would this be acceptable to you?

If you aren't interviewing well, try Ask a Manager, watch out for things that are US-centric, but it's a great resource.

Based on your situation, I agree that you should hold more cash than average. I still think you are holding too much. The question I'd be looking to answer is: if the market is down when the income stops, how long do I want to be able to spend cash while I'm waiting for a recovery. For me, that feels like a year, max. You may also want to think about your ability to spend some non-company cash first to get the company cash out in the next tax year.

Do something with the cash, when you factor in inflation, you aren't getting a whole lot back, especially as you run out of the best accounts to put it into. Any money that you don't need to spend within 2 years should be doing something useful IMO: I'd send it to the S&S ISA. If that makes you nervous then drop your monthly surplus into the S&S ISA as you go.

Have you looked into the risk of P2P lending? The risk / reward ratio doesn't do it for me unless there is something sweetening it for me. I'm not convinced that it is guaranteed to stand up in the event of a big market crash - and that's effectively why you are holding cash: to allow you to wait for your shares to recover.

There might be space to trim your spending if you are interested? Is the £1.6k your 'bare bones' budget rather than your current spending? For how many people and where? Consider going through your current spending: highlight everything discretionary that you wouldn't spend if there was no income coming in. Look at the list and really think about whether you'd feel more relaxed about your contract if you were saving a little more.

[ExitViaTheCashRamp]

Thank you for your comments, sorry for the very slow response.

 

Your business income isn't increasing, not even with inflation(?). This would concern me, assuming you are doing a similar amount of work.

 I am on a daily rate. The same one since Jan 2014 when I started my contract in fact. There is no realistic probability of change here.

Is the business sustainable, what are the competing technologies, how secure is the business/industry you contract for. Cash, even for 5 years, won't save you from this risk. Is your business going to age out (think typewriter maintenance) or is there something you can do to pivot to a growth area? You could still keep working for yourself but look for other contracts. The transition from contractor/owner to employee is often not smooth, which could be weighing against you in applications.

 I was an employee for most of my working life, changing to be an employee again wouldn't be a big issue in itself - my role as a contractor isn't really that much different to my role when I was an employee ! In fact... it is the same end company that I provide services to. The risk you talk about is my big concern - but with my contract very recently renewed for another 6 months, I am at the complacent end of the emotional rollercoaster. I provide IT services and needed to pick up new skillsets every couple of years, but being bone idle never get around to getting certified and therefore MOAR MONEY.

 With luck I am 5 or 6 years from FIRE so incentive is low to either change job or upskill.

However, you don't have to stay in the same line of work. If you lost your contract, what do you think the likelihood is that you could find ANY job? Would this be acceptable to you?

If you aren't interviewing well, try Ask a Manager, watch out for things that are US-centric, but it's a great resource.

 I don't even get as far as interviewing really - it is more likely my CV is ballz, I guess getting a professional services company to help me out here.

Based on your situation, I agree that you should hold more cash than average. I still think you are holding too much. The question I'd be looking to answer is: if the market is down when the income stops, how long do I want to be able to spend cash while I'm waiting for a recovery. For me, that feels like a year, max. You may also want to think about your ability to spend some non-company cash first to get the company cash out in the next tax year.

Do something with the cash, when you factor in inflation, you aren't getting a whole lot back, especially as you run out of the best accounts to put it into. Any money that you don't need to spend within 2 years should be doing something useful IMO: I'd send it to the S&S ISA. If that makes you nervous then drop your monthly surplus into the S&S ISA as you go.

 Yeah, I think you are right. I need to give a couple of credit card companies their money back next month, the 0% deals are ending and I've harvested all the interest I am going to get. Once that is all settled, I'll recalculate what money is 'loose' (i.e. not in 5% regular savers).

Have you looked into the risk of P2P lending? The risk / reward ratio doesn't do it for me unless there is something sweetening it for me. I'm not convinced that it is guaranteed to stand up in the event of a big market crash - and that's effectively why you are holding cash: to allow you to wait for your shares to recover.

 It's almost all with Rate setter, which has a fund that coughs up if loans go bad... in exchange for some of the loans interest.

There might be space to trim your spending if you are interested? Is the £1.6k your 'bare bones' budget rather than your current spending? For how many people and where? Consider going through your current spending: highlight everything discretionary that you wouldn't spend if there was no income coming in. Look at the list and really think about whether you'd feel more relaxed about your contract if you were saving a little more.

 2 adults, 2 kids - our normal budget is £1950 - but that includes a fair bit we give away in lieu of the tax I don't pay as a contractor.

Again, thank  you for your time :)

[UK Dancer]

I am on a daily rate. The same one since Jan 2014 when I started my contract in fact. There is no realistic probability of change here.

 with my contract very recently renewed for another 6 months

These two statements are the ones that concern me slightly... Your contract is getting renewed every 6 months but you've not negotiated your contract rate at all in that time? At the very least you need to be approaching your contract manager a month before each renewal (or maybe every second renewal, so annually) to propose small rate increases in line with inflation when the contract is renewed, even if you're not able to justify a general pay increase...

I don't know your situation specifically in terms of whether you've tried to get increases etc, but based on helping friends in similar situations, you'd be amazed what you get with just asking the question. As a starting point for this negotiation, make sure to have a look at what the market/going rates for your role are, review how well you think you're doing and how good your feedback has been, try to spot any areas where you can add value to the business so you can point at those to justify your proposed increases.

[SpreadsheetMan]

I am on a daily rate. The same one since Jan 2014 when I started my contract in fact. There is no realistic probability of change here.

 with my contract very recently renewed for another 6 months

These two statements are the ones that concern me slightly... Your contract is getting renewed every 6 months but you've not negotiated your contract rate at all in that time? At the very least you need to be approaching your contract manager a month before each renewal (or maybe every second renewal, so annually) to propose small rate increases in line with inflation when the contract is renewed, even if you're not able to justify a general pay increase...

I don't know your situation specifically in terms of whether you've tried to get increases etc, but based on helping friends in similar situations, you'd be amazed what you get with just asking the question. As a starting point for this negotiation, make sure to have a look at what the market/going rates for your role are, review how well you think you're doing and how good your feedback has been, try to spot any areas where you can add value to the business so you can point at those to justify your proposed increases.

I agree, that is bonkers - the OP needs to be increasing rates in line with inflation at least.

My business employs a load of freelancers and they all, without exception, increase their rates with inflation. The less organised ones don't remember every year, but even they have done a couple of increases since 2014.

[Jintana]

Might have more to say when I’ve read the thread fully, but just wanted to let you know that Virgin currently have a business savings account paying 1%, or a 2 year fixed account paying 1.75% for your 9k.  I use a current account for the bills and transfer any extra to the savings account each month.

[ExitViaTheCashRamp]

A raise in my daily rate is really, really unlikely. The company that I provide services to is in real trouble, many of the perm staff have not had a raise in nearly a decade - some of my colleagues have actually had their rates cut. The company is very large, it will probably implode one day but it will shamble on for many years to come.

 That said, I probably do deserve a facepunch or two for not trying at least.

 I've you folks advice and brought 10k of a index fund.

 Thanks for the suggestion of Virgin business - I'll look into that.

[skip207]

Do you have a SIPP?  If so is the LTD making any payments?

How are you paying yourself?  TFA + Divi or TFA+PAYE?

Anyone else a shareholder in your company?  Does your wife work?

[Playing with Fire UK]

The Ratesetter loan guarantee scheme is great while the going is good (ie when very few people are defaulting), but it's relatively small compared to the total loan book. If there was another big crash (like the one some people are speculating will happen when UK interest rates rise) when a lot of people were defaulting the guarantee scheme wouldn't be enough.

It might be fine for you, but having a guarantee scheme doesn't make it risk free.

However, you don't have to stay in the same line of work. If you lost your contract, what do you think the likelihood is that you could find ANY job? Would this be acceptable to you?

If you aren't interviewing well, try Ask a Manager, watch out for things that are US-centric, but it's a great resource.

 I don't even get as far as interviewing really - it is more likely my CV is ballz, I guess getting a professional services company to help me out here.

Don't use a professional services company until you've had a solid go yourself. Many of the "professionals" are just following the latest buzz bullshit and will overcharge for a crap service. Seriously, you'll just be pissing money down the drain.