Freelancing is a growing type of work in which artists, writers, designers, performers and other professionals provide work directly for a company or individual and make money on a contract basis for that work. There are many ways to make money with freelancing, and the opportunities continue to grow in new areas like information technology, customer service and other ways to make money online.
As with any kind of work, freelancing has pros and cons. The main benefits of freelancing are working according to your own schedule, usually in your own home but sometimes in an office or at an event venue, and being able to choose both the amount and the type of work you want to do. The main drawbacks are a lack of job security and not getting benefits like paid vacation, health care, or a retirement plan.
A Growing Number of People Want to Work From Home
Those who choose to freelance are drawn to the flexibility and control it affords them, and feel that the benefits outweigh the drawbacks of this type of work. Freelancing can be ideal for mothers who want to work part time while they take care of young children at home and for disabled workers who want to earn income but can’t keep up the pace of a full time job outside the home.
The draw of freelancing has extended far beyond these groups, however, and has grown to 57.3 million people in 2017, according to an Upwork study, which predicts that the majority of workers will be freelance by 2027. As a group, millennials are flocking to freelancing in large numbers because of their strong desire for work/life balance and their distrust of large companies. In many cases, freelancing is the best way to do what you most enjoy and get paid for it.
Making Money With Freelancing
Although freelancing may look like the ideal way to work, the realities of the lifestyle may be different from what many people see from outside. While ideally, freelancers can set their own hours and work as much or as little as they want, many end up taking on work they don’t especially like just to be able to pay the bills, especially at first. Financial realities may dictate that a writer do ad copy or paid blog posts when they really want to write a novel, for instance.
Freelancers should realize that they are in essence a small business, and should have a plan for how much money they need to make and how they will do so while still accomplishing their personal goals for their careers. As freelancers gain experience and discover more opportunities in their fields, they are often able to work out a situation that allows them to earn the money they need from work that they can be proud of doing.
Financial Considerations of Freelancing
Working from home as a freelancer means that you will have to handle certain aspects of your finances differently than those who have a full time job with an employer. The two areas of finances that are most affected are your monthly budget and your yearly taxes.
Budgeting for Freelancers
Freelancers typically don’t get a regular paycheck like those with traditional jobs, so budgeting can be tricky because you don’t know exactly how much you will get in any given pay period. It is especially important for freelancers to have an emergency fund so that waiting for payment on an invoice or losing a client will not mean that you can’t pay your bills.
The best way to budget as a freelancer is to list your expenses in order of importance, with the ones you most need to pay first, down to the optional expenses. As money comes in, you can pay the essential expenses like rent or mortgage, utilities, and food first, then see if you have enough to cover a night out with friends or a vacation by the end of the pay period.
Ideally, you will always have enough to pay everything on the list, but if you don’t, you have at least covered the essentials so you can keep a roof over your head and food on the table. When your freelancing earns you more money than you need for your budget, it’s good to save it so that when the next lean period comes, your expenses will still be covered.
Paying the Tax Man
Traditional jobs usually take taxes out of your paycheck every time you get paid, which both gives the federal, state and local governments a steady income stream and lets you not worry about your taxes until closer to April 15 when they are due.
Freelancers do not have any taxes taken out of their pay, however, so they need to take care of all tax-related tasks themselves—or hire help to do so, which is often recommended.
The first step to taxes for freelancers is to realize that your pay is not all going to be yours, in the end. Some of it will go to taxes, so you need to put aside an adequate percentage in order to cover taxes when they are due.
The higher your income, the more taxes you will need to pay. Current tax rates are available here, so you can see the percentage you may end up paying based on how much you think you will make in a year. It’s also important to consider your entire household income—if you make $50,000 freelancing and that’s the only income your household has, you will pay a lower rate on your freelance income than you would if that $50,000 is the second income and your total household income is $100,000, for instance.
Most freelancers will receive 1099s from the companies they did work for during the year, which list the amount they were paid. These 1099s are also reported to the government, so be sure that you claim all the income on these forms or you will be charged penalties for not filing correctly and maybe even face criminal penalties for fraud.
People whose sole income is freelancing will be asked to pay quarterly installments to the federal and state governments so that the government doesn’t have to wait a whole year to get their cut. Freelancers also have to pay the full social security and Medicare taxes on their income—traditional employers pay half of these taxes and only take the other half out of their employees’ paychecks.
It can be beneficial to get professional help from a CPA (not a seasonal tax service) to be sure that you are filing your taxes correctly and getting the maximum deductions to which you are entitled as a freelancer.
While freelancing does have its challenges, it can provide many benefits to those who choose to make money at home rather than punch a time clock. For many, the challenges of freelancing are well worth the flexibility and self-determination that come with making money from home as a freelancer.