Last year, a historic number of Americans resigned from their jobs in what economists are referring to as the “Great Resignation.” Numerous individuals who bid farewell to their office spaces and daily commutes transitioned into freelancing, aiming to realize their desires for increased flexibility, freedom, and more satisfying work.
However appealing freelancing may be, proceeding without a plan can result in additional challenges. These include the same issues of an inadequate work-life balance and insufficient payment that prompted you to resign from your regular job, as well as new hurdles such as managing self-employment taxes.
The future revolves around freelance work. It’s not just a passing fad or unusual choice compared to traditional employment, but rather it is rapidly gaining acceptance in society.
Freelancing has gained increasing popularity with each successive generation. A survey revealed that 29 percent of Baby Boomers expressed an inclination towards freelancing, compared to 31 percent of Gen X, 40 percent of millennials, and 53 percent of Gen Z. In the year 2019, approximately 57 million Americans were engaged in freelance work.
Now comprising nearly five percent of the U.S. GDP, these workers, who are considered unconventional, surpass the construction and transportation sectors in terms of contribution, resembling the information sector more closely in statistical terms.
Businesses benefit from hiring freelancers because it allows them to find skilled professionals without the need to hire them as full-time employees. Therefore, the majority of freelancers work in skilled professions such as programming, business consulting, marketing, information technology, and more.
Furthermore, these employees enjoy several advantages.
The median rate of pay for freelancers is $28 an hour, which is higher than the pay of 70 percent of regularly employed workers.
Freelancers have the ability to work from various locations, whether it be their home, a coffee shop, or while traveling.
Freelancers have the freedom to select their clients, without being obligated to the corporate power structure, unsympathetic management, or controlling supervisors. They have full autonomy to decide which clients to work with. In the event of an unsatisfactory partnership, freelancers can effortlessly separate from the client.
The reason why forty-six percent of freelancers prefer their work pattern is because they can’t work for a traditional employer due to personal conditions such as illness, injury, or other reasons.
Although the freelance life is not without challenges, it is important to note that setting and maintaining your own schedule, as well as meeting deadlines, can be more challenging than it sounds. If you are accustomed to the structured nature of a 9-5 job, adapting to the uncertainties of the freelance economy may require some practice.
In the following paragraphs, we have discussed several effective approaches to simplify your life as a freelancer.
Create a Workspace
Creating a workspace, whether it’s a spare room converted into an office or a corner of your living room transformed into a distraction-free work zone, is beneficial for your well-being in various ways.
- A dedicated workspace helps you get down to business when it’s time to work.
- Physically compartmentalizing work and home makes it easier to transition into relaxation time when the workday is over.
- Creating a separate space exclusively for work is necessary to claim the home office deduction on your taxes.
When you are a new freelancer with limited profit margins, it is advisable to keep your expenses low by not overspending on your office setup. Initially, all you need are essential items such as a computer, internet connection, desk, and office chair.
As you expand your business, make sure to allocate funds for improving your workspace in the future. This could involve investing in ergonomics to enhance your workstation, upgrading your technology to increase productivity, and furnishing your office with storage options or decorative items such as plants, aiming to create a comfortable and motivating environment.
Market Yourself
Freelancers must allocate time to market their services, aside from finishing their work and administrative tasks, communicating with clients, and doing bookkeeping. Although there is no universally applicable strategy for marketing, here are a few fundamental methods to expand your business, attract more clients, and increase your earnings.
- Consider freelancing platforms. Third-party platforms such as Fiverr and Upwork have a massive selection of entry-level freelance work. Many of these jobs are low-paying gigs with lots of competition, however, so it isn’t common to jump onto a freelance marketplace and immediately earn a full-time income. Still, many freelancers start on these platforms and branch out to higher-paying work after building experience and amassing portfolio samples.
- Don’t overlook LinkedIn. You may have luck finding responsive clients with large freelance budgets on this work-focused social network. The key to success is creating a stellar LinkedIn profile, complete with a professional headshot, a complete profile and portfolio samples. You can pitch clients via the messaging feature or search for contract positions through the job search tool.
- Set aside time for marketing. Avoid gaps in income by committing time to building your brand and finding new prospects. Freelance work can be feast or famine, but finding new leads before work runs dry helps. Try scheduling time each week to brainstorm, adjust your marketing strategy, send pitches or schedule social media updates.
Plan Ahead for Taxes
Remembering to account for taxes is crucial for freelancers as it is easy to neglect them while focusing on the balancing act of freelancing. Understanding the workings of freelancer taxes is essential to maintain positive cash flow. Freelancers are required to make quarterly tax payments to the IRS to cover estimated income and self-employment taxes. Failure to meet the payment deadlines can lead to penalties and interest charges.
For new freelancers, failing to allocate sufficient funds for taxes is a major mistake. If you are accustomed to your employer withholding taxes from your pay, you may find yourself short of funds when it is time to meet tax deadlines.
Learn to Budget
Budgeting wisely is crucial for maintaining financial well-being, a task that is especially challenging for freelancers due to their unpredictable income.
Here are some suggestions for freelancers to effectively budget, ensuring a positive cash flow and savings for the future.
- Create a minimum earnings goal. Add up all your expenses to come up with your basic cost of living, and then use that figure to determine the absolute minimum you’ll need to bring in, after taxes, to come out even each month and avoid going into debt.
- Keep meticulous books. You’ll need a complete record of all your business income and expenses to estimate and file taxes accurately, and this information also helps you determine how profitable your business is. You can use a spreadsheet or tax software to keep track.
- Separate your business and personal income and expenses. Consider opening a special bank account for all your freelance income and expenses. Then, transfer money for personal use into your regular bank account. You can think of this as paying yourself a salary.
Deposits and Contracts
Although asking for deposits is not a common practice among freelancers, it may be necessary for sizable projects that entail significant risks in terms of payment. Rather than requesting a deposit, a more suitable approach would be to withhold a portion of the final product until payment is received. This could be accomplished by adding watermarks to artwork or taking screenshots of web designs. However, the most crucial aspect is to establish a contractual agreement before commencing work.
Working for clients without a contract poses a risk as they can easily exploit inexperienced freelancers by demanding additional work for reduced compensation. Having a contract not only safeguards you legally, but also establishes a clear agreement on the scope of work, price, and additional compensation if requested by the client. Creating a contract is remarkably simple, and the freelancer’s union provides a valuable tool with their free contract creator.
In conclusion, it is important to communicate via email, even if you have a contract. After conducting a phone meeting, it is advised to send a summary of the decisions made to the client through email in order to ensure accuracy. This not only helps to stay focused, but also provides written evidence of the expectations in case of any complications.
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