How to Compare Freelance Income with Salaried Income

Updated on October 28th, 2021

Is freelancing more profitable or is working a single job more profitable? It’s a hard question than it seems. The following post will dig into what needs to be considered when comparing freelance income to salaried income. The numbers may surprise you.

When You Work in a 9-5 Salaried Position, the Math Is Pretty Simple

Here Are Things You Need to Consider:

  • How many hours per week are you working? Don’t assume 40 – if you stay late, you should account for this.
  • How much money are you receiving in employee match for retirement?
  • How much are your benefits worth to you (comparing what you could get on your own or through your partner’s plan(s))?
  • Miscellaneous perks like paid lunches, free golf outings, company car, rewards when you use your personal credit cards to travel, etc.
  • Cost of commuting.
  • Cost of professional dress.
  • Any lunches out which you wouldn’t otherwise do as a freelancer.
  • Paid vacation.

What to Consider When Looking at Freelance Income

  • How many hours you work.
  • The amount of money you can put towards retirement in a solo 401(k), SEP IRA or similar – consider how much more you can put in as an employee and employer and also Roth option benefits.
  • Possibly hiring an accountant at tax time because your taxes are more complicated.
  • No paid vacation (but working from anywhere can be relaxing).
  • Subtract business income that you will reinvest back in your business for things like business cards, attending conferences, getting licenses, hiring, etc.
  • Less money spent on professional dress (probably).
  • Less money spent commuting (probably).

It’s Rarely Clear Cut

I used to work a 9-5 before becoming a freelancer and getting freelance income. Is the money better? Absolutely. But it’s not as great as it would first appear. That’s why the above bullet points need to be considered. For instance, I may start my day and make more money in the first four hours than I made all day at my 9-5. But what isn’t accounted for is the time it took to get me to that point. The day before, I may have made $0 while I was corresponding with perspective clients, hiring a graphic designer for a site redesign and wondering if I should buy an ergonomic keyboard. All of these things need to be considered.

Keep Track

One thing I’ve found to be helpful is to keep track of how much money I earn on a daily basis. I then tally the dollars monthly and yearly and so on. First off, I always want to be beating what I made in my old job. Second off, I want my income to grow month after month. I find this measuring process to be extremely motivating. After all, if you can’t measure something, how can you improve upon it?

Consider Worst Case Scenarios

What will happen if you’re unable to work? What would happen at a 9-5? What would happen as a freelancer? Becoming disabled is something many people deal with at least once in their working career. Make sure that if this happens, you’ll be okay.

You may want to consider getting disability insurance. You may also want to consider starting an agency and hiring staff so they can work when you are unable. Finally, you may want to look at passive income streams. This way, the money will keep flowing even without anyone doing much work.

Freelance or Full-Time?

The right answer is different for every person. Though I will have to give an edge to freelancing. The dollars per hour can just be a LOT higher than working a salaried position.

William Lipovsky

William Lipovsky

William Lipovsky owns the personal finance website First Quarter Finance. He began investing when he was 10 years old. His financial works have been published on Business Insider, Entrepreneur, Forbes, U.S. News & World Report, Yahoo Finance, and many others.

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