Contracting is my favored path to Tech Financial Independence. I’ll explain why I like it so much by sharing some stories of how I’ve used it and how I’ve seen others use contracting to get ahead.
In a previous post I shared how permanent work, contracting and startups can all be valid paths to Financial Independence if timed tactically. Contracting does stand out for me as it’s the tool that’s pushed me financially along the fastest. Tech Contracting also stands out as an anomaly among most other professions. Temporary workers in industries such as hospitality, healthcare, construction are not typically paid much more than their permanent colleagues. When they are paid more it’s usually because the temporary worker has been hired to perform a very specific task or because they are required to work anti-social hours such as a nurse doing nightshift or a bartender working till 3am. For some reason, this isn’t the case in Tech. Most Tech contractors do exactly the same work as the person sitting next to them, they work the same hours and, due to contract extensions, often stay for years at the same company. However, they get paid more. Often a lot more. It’s an odd situation that plays perfectly into the pursuit of financial independence. I’ve worked as a contractor many times in my tech career and I’ll relate a couple of these below as examples of how I got into the contract and the benefits that I got from it.
Contract 1: Hong Kong Mercenary
I began my contracting journey in 1996 Hong Kong. I was 22 and I was one year into my tech career. I had been working as a PowerBuilder developer for Hewlett Packard on a project for the Hong Kong Housing Authority. The Housing Authority decided to dump HP and do the job themselves. They needed to hire a bunch of contractors to do the work that they’d just previously been paying HP to do. I was contacted by a recruiter who asked if I’d like to switch to being an independent contractor and go work for the new team that the Housing Authority was setting up. HP was paying me HK$14,000/month as a permanent staffer, and no doubt was charging me out for five times that. The contract gig was going to pay me HK$28,000. It was a pretty easy choice for someone young and desperately poor like I was then. I left HP and came to work on the same project the following Monday on a 6-month contract with a 100% pay increase. After the 6 months, the contract was extended and then extended again. The savings from that job allowed us to move to New Zealand 18 months later and put down the deposit for a house. Jumping ship to a client is a very mercenary thing to do but I knew I wasn’t going to stay in Hong Kong long so it was worth the reputational risk and gave me my first inklings of the advantages of tech contracting.
Contract Two: Luxembourg
After leaving Hong Kong we bought a house in New Zealand and I found myself a permanent job at a medium-sized software agency. 18 months into the job I was getting itchy feet and I asked for 3 months unpaid leave to travel to the UK and have a try at contracting there. This was 1999. The Internet bubble was at its height and there were stories everywhere of crazy hourly rates being paid in London. Finding a job wasn’t exactly easy but after a few weeks, I found a 3 months contract at a satellite company in Luxembourg, doing PowerBuilder again. Those 3 months of summer in Europe were fantastic as I was able to travel every weekend and get to know a whole new culture. Over those 3 months, I was able to save more money than my entire annual salary in New Zealand, which was about NZ$60,000 at the time. Needless to say, our mortgage took a tumble.
I’ve done these ‘contracting runs’ to Europe from NZ twice since. We moved the whole family to Luxembourg to live in the year 2000 and we stayed there through 4 years of contract extensions. By this time I had transitioned to being a Peoplesoft Financials contractor. In 2007 I found a Peoplesoft contract in Amsterdam for 3 months and spent another summer over there. Altogether these 4.5 years of contracting in Europe have made the single biggest financial impact on our lives. They enabled us to pay off our mortgage after only a few years and invest a chunk of money at a young age. It wouldn’t be an exaggeration to say that contracting has easily been the biggest influence on our FI journey.
I’ve made contracting sound pretty awesome so far but there are a few things to keep in mind. Your skillset should be relevant to the current market and preferably suited to large scale projects where contractors are in most demand. When PowerBuilder work was dying I made the switch to Peoplesoft. I switched from Peoplesoft to Mobile development and later to Project Management when work started to dry up in that field. All throughout I kept my Oracle RDBMS skills relevant and I found several contracts as an Oracle developer. All these tech skills were in-demand on projects around the world by large corporates that could pay high rates. I never received any formal training, everything was learned on the job. It’s obviously hard to get a contract in an area that you don’t have skills in so switching to a permanent role for a few years to give yourself some exposure to a new piece of tech or pickup soft skills such as management is a perfectly valid strategy.
It makes sense to stay alert to what is paying the most in your local market. Native mobile developers were able to command very high rates a few years ago but now demand is waning as all the big companies have finished building their ‘halo app’. Other the other hand Agile seems to be the big thing around town these days so selling yourself as a Product Owner, Agile Coach or any one of the other Agile roles could be lucrative for the next few years. However, sometimes the best skills are the most boring. Systems like Oracle and SAP are solidly bedded into many large corporates and don’t require the constant upskill investment that something like front-end web development needs. From a pure FI perspective, these make sensible but highly unsexy skills to pick-up.
One last oft-mentioned benefit of contracting is that it usually makes participation in office politics optional. The contractor has no vested interest in water cooler discussions about who got promoted to what position and no obligation to stay late to impress the boss. It gives space for a certain detachment from what, for many people, makes work frustrating and allows the contractor to focus on the work at hand.
There is also a myth that contractors get all the boring jobs and the interesting work is given to permanent staff. In my experience, this hasn’t been the case. At all the places I’ve contracted I’ve been treated like everyone else on the team and have never once been told otherwise.
Later I’ll write some more posts about how to get a contract, how to structure yourself for tax and why it makes such a great lifestyle choice.