The American workforce is changing. According to projections from a survey done by the Freelance Union, 50 percent of the U.S. population will be freelancing in 10 years. By 2027, the majority of U.S. workers will be freelancers.
Without question, the “free” part of “freelancer” is the most enticing aspect of working for yourself. When we picture being our own bosses, we envision a career based on our own terms. Vacations whenever we want, setting our own hours, working from home — sounds like a dream, right? Going freelance sounds like the ideal, but it’s not without its setbacks.
Like anything, freelancing suits some individuals better than others. If you’re thinking of becoming one of the 57 million freelancers in America, here are a few things to consider before taking the leap.
1. Put aside plenty of tax money
Did you know you have to put aside between 20 and 30 percent of your freelance income for taxes? Unfortunately, most freelancers don’t realize this until it’s tax season and they owe thousands to the IRS. Another mistake freelancers make is actually waiting until tax season to pay their taxes. Ideally, you should be sending in estimated quarterly payments every three months — basically, paying your taxes as you go. In some cases, the IRS penalizes you if you don’t pay quarterly. To learn more about quarterly taxes, visit IRS’ website.
2. Budget for healthcare
According to Health Markets, “The average national monthly health insurance cost for one person on a benchmark plan is $477, or $207 with a subsidy.” Location and age can play a role in how much you pay, but some in some states the costs are as high as $600 a month without a subsidy. That’s a huge chunk out of your monthly freelance income. Of course, the best way to get an accurate quote is to call a licensed insurance agent.
3. Get ready to write lots of invoices
When you’re on the payroll, you can count on a paycheck arriving bi-weekly. When you’re freelance, you have to be on top of invoicing your clients or else you won’t get paid. Some clients require you send a PDF invoice so they can send a check via snail mail, others require sending them digitally via PayPal or Bill.com. Thankfully, invoices aren’t complicated — you can either draft up your own or use a template. It’s important to create invoices so you can keep track of the work you’ve done and the payments you’ve received for it.
4. Become familiar with contracts
When you start a business relationship with a client, you need to be on the same page about your work. Over-communication will help you understand their expectations, but also attend to setting good boundaries. The main purpose of a contract is to outline the scope of your project so the client can’t demand work outside of your agreement. In other words, it protects you. In your contract you can state your daily availability, the methods of communication you prefer, and when you must be paid by.
According to a survey done by Bill.com, 54 percent of freelancers say they don’t get paid on time. When you’re dependant upon your freelance work to pay your bills, not getting paid on time can be a serious problem. In your contract, be sure to give a timeline of when an invoice must be processed by. Some freelancers even charge a fee for late payments. Your contract is an opportunity to make sure the working relationship is on your terms. Try this free contract template.
5. Have a backup income in the beginning
Developing a successful freelance business doesn’t happen overnight. Figuring out finances takes time, but bills don’t wait. Acquiring a substantial client list can take weeks of networking and pitching yourself. Once those clients are on board, it also takes time to get into a consistent workflow with each one so you can count on them for income.
When you’re just starting out, make sure you have backup income or a substantial amount of savings you can fall back on. This could mean moonlighting for a few months before going entirely freelance or working part-time just to have some financial security.
Unless your freelance career is wildly successful, the trade-off for being your own boss is the risk of always struggling to make ends meet. With taxes, healthcare, and the uncertainty of regular payments, it’s a risk many aren’t willing to take. The upside of freelancing, however, is the autonomy to do what you love. And for some, that’s well worth the risk.