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I’ve been a full-time freelancer for over 18 months, and I’ve enjoyed the experience so much, sometimes I wonder why I was initially afraid to do this full time. Then I remember all the personal finance and budgeting intricacies that freelancing entails.
If you’re considering joining the ranks of freelancers, here’s a handy list of questions to ask yourself to decide.
How good am I at self-management?
First and foremost, becoming a successful freelancer hinges on your ability to set tasks for yourself and complete them in a timely manner. You may have someone to report to you at your clients’ worksites, but you won’t have a “boss” or manager in the traditional sense.
If you currently have a boss and struggle to stay on-task in your traditional W-2 job, think long and hard about cutting those strings. Since your income will directly depend on your productivity every day, you can’t be easily distractible — and if you are, you’ll need guardrails.
One example you could rely on is the Pomodoro Technique, where you work in chunks of time and also build in breaks for yourself. If you work from home, it can be easy to step away from your desk for a quick errand or household chore and struggle to make it back. So you might also want to establish set working hours and then do your best not to do anything else during those hours.
Can I be my own HR department?
If you’re kissing W-2 employment goodbye, you’re going to lose some benefits in the process. But good news! The HR department will be you now.
Instead of having taxes taken out of every paycheck, you’ll be responsible for paying the IRS (and your state, if it collects income taxes) 25% of your year’s estimated taxes on Jan. 15, April 15, June 15, and Sept. 15 every year. (If those dates fall on weekends, they’re moved to the next business day.) It’s a good idea to save money and plan for your taxes all year. I highly recommend hiring an accountant to handle your actual tax filing, but it’ll be on you to remember to save the money and keep good records for your accountant.
For health insurance, if you don’t have a spouse with a traditional employment situation who can add you to their company’s plan, you’ll need to use your state’s healthcare marketplace to find a suitable plan. And depending on how much you earn, you may or may not qualify for subsidies to help defray the cost. I pay over $700 per month for my health insurance premiums, with no help.
Freelancers don’t get paid time off either. My solution to this problem was to start putting aside post-tax money in a sub-account of my savings account to cover me if I needed or wanted time off. As of this writing, I have two and a half weeks’ worth of post-tax pay in my PTO fund.
Can you handle doing all these tasks for yourself? If not, freelancing may not be for you.
Will I turn into a workaholic?
What if your potential problem isn’t avoiding work but throwing yourself into it too enthusiastically? You might be thinking, “Wait, how can that be bad?” Well, this has been the biggest pitfall I’ve encountered since I started freelancing.
In my defense, I spent more than a decade in a low-paying (if emotionally and mentally satisfying) career where jobs came with set annual salaries. So even though I spent years giving up evenings and weekends regularly, I rarely made extra money for the privilege.
Becoming a freelancer meant being paid for my time, either with hourly or per-project compensation. So I got a little carried away and overworked myself. I still struggle with this, but I’m happy to report that I’ve gotten much better at stepping away from work when I need and want to, and my budget hasn’t suffered as a result.
Saving my own post-tax PTO money has helped, too. If you think you might struggle with overworking, set some firm guidelines for yourself — and ask the people you love to tell you when it seems as if you might be overdoing it.
Am I ready to use the best tools to manage my money?
If all of this sounds like gloom and doom to you, don’t worry. A lot of people freelance (64 million of us in 2023, according to an Upwork study), and it’s a safe bet that most of us are managing it well. Relying on the best tools available can help.
For instance, opening a high-yield savings account was one of the smartest things I did in the run-up to cutting the W-2 employment strings. It’s been a great place to keep my tax money as well as my PTO fund. Oh, and my emergency fund lives there, too — having emergency savings is even more crucial as a freelancer. If you’re seriously considering becoming a freelancer, I highly recommend opening a high-yield savings account.
Freelancing can be a great way of life and work. If your answers to the above questions are encouraging, then I recommend considering it.
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