Financial Preparation
There is a range of financial issues you need to address when moving from full time work to a part time or contracting role. Some of these issues may be critical to you, and you may not even know about others.
This summary is designed as a guide to help you maintain control over your financial position through this transition, and avoid the pitfalls and traps that may lie ahead.
Do you have a plan to manage cashflow?
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You may be concerned about maintaining your current lifestyle when embarking on a new work pattern. Having a clear picture of your current spending patterns is important.
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You should be informed of new ways of managing your cashflow – especially if your income is reduced or paid irregularly. This is particularly important as your financial commitments are likely to remain unchanged.
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There are strategies available that may provide significant benefits to you - do you know what these are?
Do you understand the taxation issues?
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Understanding how PAYG (Pay-As-You-Go) withholding tax may affect you if you contract directly with an organisation, or if you are employed by your company, is important.
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Alternatively, you may be liable to pay PAYG tax instalments, requiring you to lodge Instalment Activity Statements or Business Activity Statements. Will this affect you and your cashflow?
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Will you need to register for and charge GST when you contract services through a company or trust?
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Understanding the laws surrounding Personal Services Income and how they affect the way revenue from your contracting activity can be diverted and what you can claim as a deduction is critical.
Is your debt structure optimised?
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If you have a mortgage or loans, you should consider how your expected cashflow will impact the management of your debt in the future
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In particular, it is important to review all non-deductible debt, such as mortgages and credit cards, to determine how best to reduce these commitments under your new financial arrangements
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Depending on your circumstances, options to consider may include consolidating or paying out minor debts or reviewing how a mortgage re-draw or line of credit facility may assist cashflow
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You should review banking, debt and loan arrangements and restructure these to best suit your new circumstances
This self audit checklist is designed to prompt thought in relation to these and other key areas of your financial situation. Completing the checklist will assist you to develop an action plan.
Now that you have identified how confident you are in each of these areas you will be able to select the tools you can find here to address specific financial issues relevant to you.
