People who want to become freelancers are often blinded by the major perks of the gig; working for yourself, working from home, wearing whatever you want, and eating lunch in front of your tv.
But there is much more to being a legitimate freelancer, and that should be what you’re aiming to become. No one wants to work with the freelance equivalent of the creepy guy in the office. In order to become a professional freelancer, you need to be aware of the hidden costs of freelancing. You may need to spend some money on things besides new sweatpants to wear around the house.
Filing a Business
You can start accepting money as a freelancer immediately under your own name. This is called being a sole proprietorship and it’s totally legal. It just might not be the best choice for your business. Sole proprietors have no legal distinction between their personal and business finances, and they have no legal protection as a business.
LLC’s, (Limited Liability Companies) offer some legal protection to their owners, and there is a legal difference between your personal and financial assets. But of course, it costs money to form an LLC. How much will depend on which state you’re in- check your Secretary of State website to see your local fees.
Getting paid late by clients can be a nightmare for new freelancers. And trust that it will happen.
Having an invoice software set up that can send invoices and reminders on your behalf will cut down on the late payments. However, it’s vital to have savings set aside to pay for your monthly expenses before you take the freelancing leap. You should aim to have two different savings accounts; one for personal expenses (like rent or groceries) and one for business expenses (like filing for that LLC or printing costs.)
Having those liquid savings will keep you from falling into debt, which too many freelancers carry.
Freelancers have to be more than just hired help today– they have to be a brand unto themselves. That’s why many freelancers have their own websites, social media followings, and newsletters. But some of these softwares cost money.
You’ll pay for hosting if you have your own website with a .co or .co address. You may choose to pay a designer to create a custom logo or design your website as well, to help you stand out from the crowd. Email service providers charge for using their platforms (and the more email subscribers you have, the more expensive it gets). Invoicing softwares also charge for you to use them.
That’s it’s important to keep track of your monthly expenses as a freelancer. You need to know how much it costs you to keep your business running, so that you can can your rates as needed. (Or seek out higher paying clients.) Simply getting the software systems that you need to do business can be one of the hidden costs of freelancing.
Freelancers are their own accounting office, HR and marketing departments, as well as the talent. You have to keep an eye on where every dollar you earn goes. You need to have enough money to keep the business afloat and to pay your personal bills. Understanding where some of the hidden costs of freelancing lay will keep you financially fit.