If you are toiling away on the clock, working for someone else, and dreaming of being your own boss, you are not alone. Millions of Americans are freelancing these days. Roughly one in three Americans is self-employed in today’s economy and those figures are expected to rise to 50 percent in a few short years.
Things to Consider Before Freelancing
While there are many benefits to working on your own – whether full time or as some sort of side hustle – there are some serious challenges, too. Here are three things to consider before you set out as a freelancer.
Feast or Famine
While your current 9-to-5, 40-hour a week current job may be a soul-crushing drag, it does provide you with one sure thing: a stable and certain weekly income that you can plan against. If you walk away from that job to be a self-employed freelancer, you are more than likely kissing that stability goodbye. Depending on what you are doing as a freelancer, you will likely experience boom periods where you have more work than you can take, followed by dry spells where there is no work to be had whatsoever.
It will be on you to plan your finances accordingly, to ensure that you can meet all financial obligations and stay out of trouble. If you are preparing to take the leap into freelancing right now, it may be a good idea to save significant cash reserves first, so you have a buffer prior to leaving your current job.
You may also want to consider a “beta-test” of your freelance profession prior to taking the leap to self-employment; try out your freelance work part-time, and determine its viability as your sole employment before leaving your current job.
Another important consideration that comes with self-employment: is marketing. In order to ensure a steady stream of business (and revenue), freelancers have to be able to market their services effectively and keep business coming in. This may require you to commit to new expenditures you may not have considered previously, like advertising.
If you plan on working as a freelancer in your current field, you may want to consider signaling this to some of the clients of your boss’s business (in a way that keeps you out of trouble). Finally, if you want to ensure maximum exposure when first starting out, it may be worthwhile to consider using a market-maker service, such as Upwork, to help you connect with clients until you have built up a substantial reputation as a freelancer. Upwork and sites like it may charge a transaction fee, but they can connect you with clients and get you established faster than you will likely be able to do on your own.
Financial Planning is on You
If you currently work for an employer, whether a corporation or government at some level, you more likely than not had some major financial planning requirements baked into your employment contract. You probably have a retirement account of some sort, a federal income tax withholding plan to keep you in ship shape when April 15 rolls around each year, and maybe even some sort of medical insurance for you and your family. Once you are a self-employed freelancer, all of this planning falls to you.
It will be your responsibility to prepare for your retirement and determine the best way to save your money for a secure financial future. Fortunately, there are numerous options for this. Additionally, as a freelancer, it will be important to understand not only what your tax liabilities are, but also what options you have for deductions and other benefits to shield you from an undue tax burden. Again, there are resources out there that can help you navigate this complex issue.
Finally, you will have to determine the best way to ensure you (and your family) have adequate medical coverage as well. This may involve you working more than you expected to pay for sufficient health insurance.
Again, doing the research, especially if health laws change after the Trump Administration comes online in January 2017, will be a major planning consideration for new and experienced freelancers alike.