The Financial Need-to-Knows Before You Become a Freelancer
Being your own boss, setting your own hours and wearing sweatpants to work are all common reasons people give for wanting to go freelance. But before you bid adieu to your salaried job and take the plunge into self-employment, be aware that, sweatpants aside, there are also some very overwhelming downsides to the freelancing life. No paid vacation time, no sick days and an extremely erratic income stream are just some of the disadvantages of being independently employed.
I should know. I’ve been self-employed as a writer for nearly a decade now—and boy, have there been some wonderful highs and some terrible lows. So permit me to drop some wisdom on you and give you my hard-won essential tips for freelancers.
Don’t Leap Without a Nest Egg
Don’t suddenly go freelance on an impulse. It takes disciplined, consistent financial planning BEFORE you make the switch from salaried to self-employed. To succeed, you’ll need to put aside an “I’m-going-solo” nest egg that would cover anywhere from 3 to 9 months’ worth of expenses. I like to err on the side of caution and suggest 9 months. These savings will get you through the hard times (and yes, there will be hard times) when you’re just starting off and your cash flow is tight.
It doesn’t matter what kind of freelancer you want to be—a graphic designer, a digital nomad travel blogger or a professional Instagram influencer—you need to have a nice chunk of change set aside before you leap. Truth time: I made only $8000 in my first year as a freelancer, but because I had saved 9 months’ worth of living expenses beforehand, I made it through to survive (and thrive) in the following years.
Be Smart About Money
Here’s a funny story. When I first started working as a self-employed writer, I did mainly travel and lifestyle writing. The competition was fierce and starting out I faced little to no income for weeks (and sometimes months) at a time. I soon realized that one of the key facets of maintaining a freelance career long-term was financial savvy.
I started doing everything I could—reading finance books, listening to podcasts, taking courses—to learn more about managing my money. Becoming a freelancer turned out to be the push I needed to get my financial life in shape. My personal quest to improve my finance savvy not only made me debt free and turned me into a serious saver, but it also put me on a whole new writing career path. Fast forward a few years and next thing I knew I’d added personal finance to the list of topics I could write about.
Freelancing in any career is hard. Even once you feel you’ve “made it” there will be unexpected slow periods or life setbacks that require you to drain some of your emergency fund. It’s not enough to just set aside funds before you start self-employment; you need to be continually smart with your money, because saving a few extra hundred dollars a year can make the difference between success or failure.
There are myriad resources out there to boost your money mojo. Small incremental shifts and increasing your financial awareness in even just a few areas can make a huge difference. Rethink your bank, download handy mobile apps, get smarter about your credit card usage (I earn over $600 a year on cash-back credit cards alone), tackle any lingering debt and learn about low-fee ways to start investing.
Plan for Your Future
Being self-employed means you’re your business’s manager, marketer, invoicing department, customer service specialist and more. It also means that no one is taking care of your retirement plans but you. You won’t be getting a pension or have an employer match your RRSP deposits. So learn everything you can about TFSAs and RRSPs to make the most of your saving potential and ensure a smooth transition into retirement.
Treat it Like a Business
Many freelancers aren’t use to thinking of themselves as a business; but if you go freelance full-time, you can’t treat your work like it’s a hobby. You’ll have to get comfortable asking for contracts, setting payment rates, invoicing, following up with slow-to-pay clients (the biggest downside to freelancing in my experience) and more.
Get an Accountant
As you start making more money, managing your own taxes can get complicated and you’ll have specific legal tax responsibilities. A professional accountant can answer questions like: what expenses can I deduct, do I need an HST number, when do I charge tax on my invoices? Besides, in my experience, you’ll likely make back the few hundred you’ll pay an accountant on tax deductions that only a professional can figure out; regardless, the money is well worth it to stay on the good side of the CRA.
Believe me, no matter how much you prepare, there will be a hundred things you don’t consider when planning for self-employment. Should I charge per hour or per project? What do I do about a difficult client? How much should I spend on a website? The best way to get answers to many of your questions is to ask someone who’s been there. Go to networking events relevant to your industry. Join forums and Facebook groups. Connect to people who excel in your field and find out all you can about their experiences.
Leave the House
OK, OK, I’ve talked a lot about the financial aspects of going freelance. I honestly believe that being smart with money (along with hard work, discipline and lots of caffeine) is a key determining factor as to whether you’ll make it on your own. But I’ll admit it’s not all about the money; mental health matters too.
It can be easy to lose yourself in the hustle of making your freelance life work. Taking time off, especially in the beginning, may seem like an indulgence you can’t afford. But trust me, learning to balance your working life with your personal life is essential for long-term success. Turn off the computer, get out of your pajamas and make time to hang out with family and friends. After all, what’s the sense of working solo if it’s not making you happy and improving your overall quality of life?