An estimated 39% of the U.S. workforce currently freelances in some way, shape, or form, according to freelancing platform Upwork. The 100 million American workers who aren’t earning a living in their pajamas really don’t know what they’re missing.
In addition to a closet full of sleepwear, a freelance career has many benefits, among them:
- Working when and where you want
- Exercising underutilized skills and passions
- Earning more money (potentially)
But whether you choose to take up freelancing as a relatively low-stakes side hustle or you vow to never work a “normal job” again, the transition into self-employment is, unfortunately, more complicated than empowered stock photo models might suggest.
Spoiler alert: They don’t call it a “hustle” for nothing.
Erika Taught Me
- It’s wise to experiment with a side hustle while retaining your day job, rather than diving into full-time freelancing right away.
- Creating a diversified client network takes time, particularly if you have limited experience in your chosen side hustle field.
- Start with friends, ex-coworkers, and non-profits as your first clients. Work at a discount if necessary to get experience.
- Freelancing’s tax implications and occasional dry spells make diligent saving even more critical than it is for salaried employees.
Planning the transition
There are two ways to enter the swift-moving currents of freelance work:
- Dive right in by quitting your day job to become a full-time freelancer.
- Dip your toe in by experimenting with a side hustle while retaining your regular employment.
Experienced freelancer Thomas Blake recommends the latter approach. He started freelance projects for private clients and developed his own freelancing blog, This Online World, as a side hustle while he worked full-time at a marketing agency. Blake quit his office job entirely to focus on his freelancing business only after accumulating six steady clients and more than a year of side hustling.
“I think the greatest mistake people make when starting out with freelancing is to jump ship into full-time before having a diversified roster of clients,” says Blake. He cautions workers against hasty transitions, even if a side hustle is profitable early on.
“It can be tempting to ditch your office job once you begin seeing some success with freelancing. However, leaving a full-time job means ditching a safety net to some extent. And if you only have one or two clients paying most of your monthly freelancer income, this can be a risky move.”
Starting a side hustle is a great way to experiment with professional tracks or industries you aren’t exposed to in your day job.
That said, it does take experience to get experience. And the further you wander outside your professional wheelhouse, the longer it will take to build up a client roster. Patience, flexibility, and realistic expectations are the name of the game as you grow your freelance network.
Freelance platforms may be a good way to test the waters and get a sense of potential clients. Also, starting with people you know is an easier way to get started. Don't worry about prices so much when getting started. Find someone you can help and help them. Optimize for price once you have some experience.
Related: How to start a side hustle
Check out the nonprofit sector
Nonprofits have limited budgets and a wide scope of professional needs, which often include event coordination, graphic design, videography, web development, cooking, and a slew of other vocations that may align with your freelancing foray.
Going temporarily pro bono for a good cause will help you develop your portfolio and/or resume, building experience that will be appealing to prospective clients. It will also give you a sense of personal satisfaction that you won’t always experience once you start freelancing full-time and taking “money gigs” to pay the mortgage.
Blake is a strong believer in creating a digital presence that can ultimately both talk and work for you. He initially hoped his blog and YouTube channel would simply help him develop the content portfolio he needed to approach new freelance clients. Over time, those platforms positioned him as an authority in his field, and they became both indispensable marketing tools and profitable digital assets for his freelance business.
“My blog and YouTube channel have grown into their own businesses that now generate monthly revenue on the side of my freelance work,” Blake says. “And both blogging and YouTube have helped me get more freelance clients and brand deals organically, so I don't have to always stress about finding new work each month.”
Worried that you don’t have the digital chops to pull that off? Blake insists that enthusiasm and an open mind can help overcome technical deficiencies. “I was new to WordPress and had never edited videos or made graphics before I started blogging and uploading clips to YouTube,” Blake explains.
Convert your employer into your client
If you want to continue working in the field you’re already in, there’s a soft-landing approach to the freelance leap.
Set up a meeting with your managers and pitch the idea of changing your relationship from full-time, salaried employee to part-time independent contractor. If they love you, they’ll want to continue collaborating with you in whatever framework they can, and they’ll probably be open to maintaining your relationship while adjusting its level of mutual commitment.
Just remember: No matter how much history you have with your current employer, there’s no guarantee that the relationship will last after you go freelance. Decisionmakers change, businesses go kaput, and you should never put too many eggs in one basket.
If you plan to freelance in the same line of business you’ve already worked in as an employee, you can use your current salary as a reference point for calculating hourly rates. But rather than simply dividing your base monthly salary into an hourly rate, remember to factor in meal compensation, 401(k) matches, health insurance, paid days off, and any other benefits you get from your employer.
If you’re moving into a new field, establishing your rates will be less intuitive. But there’s no shortage of resources at your disposal. Blog posts and YouTube videos abound with successful freelancers sharing their experiences of getting started.
Become a freelancer: Ask colleagues
It’s a good idea to join one or more Facebook groups for specialists in your field. Fellow group members are great resources to turn to for freelance opportunities and when you encounter professional dilemmas, including the question of what rates you should charge. Just search the group’s discussion history before posting, as there may already be long threads dedicated to rates.
As an added bonus, Facebook groups for freelancers in your geographic area may host in-person networking events. If you’re accustomed to working in an office and you switch to being a fully remote freelancer, you might be surprised by how much you miss the social element of on-site employment. Regularly attending in-person events for your industry can help stave off the loneliness of freelancing.
Become a freelancer: Use rate crowdsourcing
If Facebook group members are slow to respond, you can also check sites like Glassdoor and Payscale for ballpark rate estimates. These platforms survey professionals across the country in a variety of fields and then collate their responses into estimated rates based on location and experience level. However, anyone can enter unvetted information into these platforms, so estimated rates may not be accurate.
Become a freelancer: Temper your rate bias
When you first start your freelancing career and you’re trying to put together a full roster of clients, you might take a gig for lower pay than the project and your talent warrant. But be cognizant of the need to produce the same level of quality that you would for any client, no matter what you’re being paid.
Deliver a great product, and you’ll have the necessary leverage to increase your rate with that client in the future; deliver subpar work, and you’ll be stuck at the same rate for that client — if they book you again at all.
Managing time and productivity
Time management tricks are very personal, and useful habits vary from one freelancer to the next. But there are a few basic productivity guidelines that most seem to agree on:
- Set consistent working hours. The “I’m a freelancer now. Who needs an alarm clock?” route is typically unsustainable.
- Skip the commute; dress for the office. Throwing on proper attire, even if you’re working out of your apartment, can mentally formalize your work hours and get you into a business state of mind. It’s the same line of thinking as always working from your desk and never from your bed.
- Hide distracting devices. As Blake notes: “Locking my phone away during my morning work session has helped me increase productivity. I find myself checking emails and social media far less when my phone isn't right on my desk, and the end result is more writing and content.”
Related: How to make money on TikTok
Recalibrating your finances
New tax protocols, unpredictable income streams, and more limited investment options make freelancing a different financial beast in every respect.
If you’ve made it this far, you might be pretty jazzed about the prospect of being your own boss. But this is the part where people usually run screaming back to their cubicles.
In addition to regular income tax, anyone who makes $400 or more in annual freelance income also needs to pay self-employment tax, which is currently 15.3% — that’s 12.4% for Social Security and 2.9% for Medicare. For salaried employees, that stuff is automatically taken out of a paycheck, and half of it is covered by your employer. As a freelancer, you’re on the hook for all of it.
Furthermore, freelancers who expect to earn $1,000 or more in annual taxes must make quarterly tax payments, which can be tricky to estimate, particularly for new freelancers.
Fortunately, there are ways to reduce your tax burden and simplify your filing process as a freelancer:
- Get a business checking account. Run all your business expenses and income through your business checking account. This will keep your personal and business finances separate and make tax time much easier.
- Know which business-related expenses are deductible. If an expense is for your business, then you should use your business checking account to pay for it. These may include the costs of web hosting, computer equipment, research materials, professional association dues, and many more. The IRS allows you to write off necessary business expenses that are “helpful and appropriate for your trade or business.”
- Make copies of your expenses, preferably on the same day they’re incurred. Taking a photo of a receipt and transferring it into a Google Drive folder takes approximately 30 seconds. And it’s a less painful experience than sifting through a messy mountain of paper receipts come tax time.
- Log your invoices in a spreadsheet, including the amount, client name, and payment status.
- Consider working with a tax professional. Filing your own tax return as a freelancer can be a major headache, and the time needed to decode tax laws may be better spent completing paid projects or finding new clients. A CPA may charge a few hundred dollars to file a freelancer's return; reputable tax software may cost as little as $100.
Budgeting for freelancers
Managing your monthly expenses as a freelancer requires some planning. Freelancers should also save more scrupulously than their salaried peers. Why?
- Extra taxes: Employers pay half of their employees' FICA taxes, which as a freelancer you'll have to pay now yourself. Plus, you'll no longer be having taxes withheld from your pay, so you'll have to start setting aside taxes each month. It's recommended to set aside 25 to 30% of your income for taxes.
- Less help with retirement: According to the U.S. Bureau of Labor Statistics, many employers match their employees’ retirement plan contributions up to 6% of their earnings. That’s a sizable amount of free money you’ll forgo as a freelancer.
- Slow months: Clients come and go, and freelancing’s feast-or-famine nature makes a well-stocked emergency fund critical. Remember, freelancers have no unemployment benefits to fall back on.
Related: How to budget: 5 Simple steps
Is freelancing worth it?
“For me, freelancing has been incredibly rewarding, as it eventually helped me improve my work-life balance while allowing me to travel the world,” says Blake. “I think freelancing is worth it from a financial perspective when your freelancer income approaches your day job's income and increases your overall income potential.”
But he warns those who are considering self-employment against naivety and the idealization of the freelancer lifestyle, noting that the first two years of his transition into freelancing were characterized by 60-hour work weeks and “a lot of stress.”
“I don't think freelancing is the golden ticket for everyone. If you find that freelancing worsens your work-life balance and doesn't yield as much income as a regular job in your industry, even after a year or two of trying, returning to traditional employment might be worth considering,” advises Blake.
What is a freelancer?
Freelancers are self-employed workers. A freelancer may have a traditional, long-term contract with a primary employer while pursuing additional vocations in their spare time. Or they may work for many clients without any long-term contracts.
How is being a freelancer different from being an employee?
Being a freelancer is different from being an employee in many ways, including:
- Location: An employee’s contract may require them to work at a specific site or within a specific time zone; freelancers are more likely to engage in fully remote work from any location they choose.
- Taxation: Employees' taxes are withheld; freelancers manage their own taxes. Consider hiring a tax professional for seamless filing and compliance with the IRS.
- Compensation: An employee receives a defined salary and benefits according to their contract; a freelancer’s income varies based on market demand, the projects they choose, and the rates they negotiate with clients.
What is a side hustle?
A side hustle is a job performed by a worker in addition to their primary employment. Workers may pursue side hustles to increase their income and develop new or favored skills.
Related: 15 Side hustles from home