Why You Probably Won’t Make as Much Freelancing – and Won’t Care

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Happy Monday, everyone! Today we have a post contributed by freelance writer and blogger, Alicia Rades of The Writing Realm. It’s a great look at some financial factors you need to think about before leaping into self-employment and freelancing – and also discusses why, in the end, the financial shortcomings may be totally worth it. I’ll let Alicia take it from here – enjoy!

Four Reasons Why Freelancing is Worth a Cut in Pay and Benefits

Freelancing has become a huge trend lately, and Intuit estimates that by 2020, 40 percent of the workforce will be freelancers. That could certainly be you. Along with more people switching to freelance work, businesses are hiring fewer traditional employees and more freelance contractors. Of small businesses alone, 22 percent are now more likely to hire independents than employees.

And it sounds great. You’re probably thinking that you’ll sleep in until 10 am, work in your pajamas, and sip coffee in front of your computer without anyone to tell you what to do. And then you’ll shut down your computer at 3 pm and it won’t matter because you’ll be raking in the cash, right?

Eh, it’s possible, but not probable. At first glance, your gross income may lead you to believe your freelancing gigs are making double or triple your hourly wage from your 9 to 5 job. But sometimes, you won’t be making as much as you think. Consider these four reasons why:

1. Not All Your Hours are Billable

It’s pretty awesome when a client comes to you with a $150 project that might take you only three hours to complete. Holy crap! That’s $50 per hour. Pretty nice, huh?

Except it doesn’t take you three hours. You also have to consider the time it takes to email the client back and forth about the project, the time it takes to write up a contract, and any extra work the client comes back with to polish the project. Pretty soon the three hours it took you to write that article or design that website turns into five (or a full eight!) hours of work and your hourly rate has gone down drastically.

2. Your Taxes Don’t Come Out of Your Paycheck

One issue with seeing a huge paycheck hit your bank account is that what you’re seeing isn’t a realistic comparison to your old job. When working as an employee, your taxes get taken out of your paycheck before you see the money. When you’re self-employed and working as a freelancer, no one is there to take withholdings from your earnings. If you don’t account for your tax obligations and consider both your gross and net income, what looks like the few extra dollars you’re raking in with your freelance work may be eaten up by taxes at the end of the year.

3. You Provide Your Own Benefits

As a freelancer, no one is going to help contribute to your retirement fund or your health care. That comes out of your own pocket. If you were getting a 3% employer match in your 401(k) at work, for example, that extra 3% of “free” money won’t follow you into the self-employed world. You’ll have to make up that difference yourself if you want to keep pace with your contributions. Additionally, your health insurance coverage and costs may change as you’ll need to start providing your own.

When you start freelancing, you’ll want to account for those numbers. That means you need to subtract the additional expenses of your benefits from your gross to get an accurate picture of your income that is more comparable to the salary you made as an employee working for someone else.

If you were taking home $3,500 per month at your 9 to 5 job and you suddenly start making $4,000 per month freelancing, you might actually be making less money since you’re seeing all your freelance income as a gross number – and not accounting for both taxes and the cost of providing your own benefits like retirement and insurance. With your paycheck, you see the numbers after all the withholdings are taken, so it can be deceiving if you’re not paying attention.

4. There are Other Business-Related Expenses

A lot of the money you make will go back into your business, so you won’t even get the chance to count it as personal income. Here are a few extra expenses you might encounter as a freelancer:

  • Office supplies
  • Legal fees
  • Accounting services
  • Software costs
  • PayPal fees
  • Membership to professional organizations
  • Web fees (including things like hosting, security, design work, and more)
  • Marketing costs

Despite All That.. You Probably Won’t Care if You’re Making Less

Clearly there’s a difference between what you make as a freelancer and what you make as an employee. But will making less money even matter? Most people don’t think so.

FoxNews.com reports on a study by Harris Interactive, which found that 78 percent of temporary and contract workers say their experience has been positive working as a freelancer. Eighty-six percent of freelancers (compared to 73 percent of permanent employees) agree their current job satisfaction is very good or excellent.

But it’s not just about happiness. More freelance workers feel better about their finances than regular employees, with 60 percent strongly agreeing that they get paid what they’re worth (whereas only 42 percent of permanent workers agree with the statement).

Another study from 2011 found that 61 percent of freelancers are happier working independently than as a traditional employee. Better yet, 80 percent feel more productive.

Why won’t you care? Because freelancing gives you more freedom, and to most people, that’s worth a cut in pay and/or benefits. Here are just some examples of the freedom you get:

  • You get to set your own rates
  • You can create your own schedule
  • You choose which projects you want to work on and can say no to those that will only cause a headache
  • You don’t have to deal with office politics, which means you can choose which drama and gossip to focus on in the world without having it thrust upon you
  • You can work wherever you want and don’t have to commute (unless you’re conducting in-person meetings or working freelance on-site)

Personally, this freedom matters a LOT to me. I would rather work for myself making enough to get by comfortably than working a job I despise. The amount of income and benefits you give up by switching to a freelance career is worth it if you value this freedom.

Then again, freelancing isn’t for everyone, and not everyone does value the freedom. What do you think? Would you give up some of your income for more freedom with your career? Tell me in the comment section.

 

aliciaAuthor Bio: Alicia Rades is a freelance writer and blogger. When she’s not writing for clients, you can find her updating her blog at TheWritingRealm.com or reading other blogs and books. Learn more about her at AliciaRadesWriter.com, and connect with her on Google+ or Twitter.

 

27 Responses

  1. DC @ Young Adult Money

    March 31, 2014 7:47 am

    Great explanation of some of the downsides of freelancing. I think the most important thing to remember is that not all hours are billable. My first freelance spreadsheet job I charged very low, but now that I have some experience I definitely am conservative in my pricing because I know that there will always be a lot of ‘non-billable’ work for each job. You have to factor that into your rate or you will end up working for very little.

    Reply
  2. John C @ Action Economics

    March 31, 2014 8:17 am

    These are really important things to remember. Over the years I have had several friends working in different industries as independent contractors who haven’t thought about taxes. At the end of the year they are screwed because they set nothing aside. Even if there is no federal tax liability, 15% self employment tax is always owed.

    Reply
  3. Tonya@Budget and the Beach

    March 31, 2014 10:00 am

    I’ve been a freelancer for almost six years and I’m pretty much done with it. I did love some of the perks with having a flexible schedule, but the wear and tear of all thing above things you mentioned, plus the financial roller coaster has become too much for me. I think I would have enjoyed it a lot more if I had a fall back person (aka husband) who had something steady where I could be on his insurance, or just not worry so much, but the less money I’ve made as a freelancer is actually not OK with me. I live in LA where it’s very expensive so money was/is a constant concern. I don’t want to sound negative or scare people off from trying it, but there is a dark side to freelancing that not many people talk about or fully understand.

    Reply
  4. Taylor

    March 31, 2014 10:25 am

    This is a great list for someone like me just starting out in the industry. I also really appreciate Tonya’s comment above giving her experience with freelancing. Before I make an 100% switch I’ll likely get a part-time job just to make the transition financially smoother. Even from a few months of marketing I can tell it’s a LOT of work, but I can’t wait for the day I won’t have to put in a request to live my own life.

    Reply
  5. Mortgage Free Mike

    March 31, 2014 11:12 am

    Really nice post. As a new freelancer, I am enjoying it because I have a lot of work lined up. I haven’t gotten into a slow period yet.
    I think financially (and mentally) preparing for those times is key.

    Reply
  6. Becky

    March 31, 2014 12:23 pm

    It is good to know the ups and downs of freelancing. I would love to be my own boss someday, but definitely need to take all of your points into consideration. Thanks for the great post!

    Reply
  7. Debt and the Girl

    March 31, 2014 10:28 pm

    Very interesting article. I freelance on the side so I don’t depend on it like other people. I find it works for me but everyone is different. I happen to need a little bit more stability and I am glad that my job provides that.

    Reply
  8. DEBt DEBs

    April 1, 2014 8:33 am

    You make some excellent points showing how it’s not easy, and I would imagine, quite competitive. I wonder if it would take the joy out of writing as well.

    Reply
  9. Broke Millennial

    April 1, 2014 5:18 pm

    I feel like I’m one of the vast minority of bloggers who isn’t interested in freelancing full time. You make great points about why you like it, but I just enjoy it as a side hustle. I don’t have interest in leaving my “real job” right now because one, I like the social aspect of an office. Two, the cost of paying for my own health insurance disgusts me and three, I find value in taking jobs where I can be pushed, learn and grow from others instead of being on my own. Granted, if I didn’t live in NYC and cost of living were way lower it might have slightly more appeal. But end of the day, I would get bored. I already get too antsy just working remotely from home for a few days.

    Reply
    • Alicia Rades

      April 1, 2014 5:29 pm

      Thanks for sharing your experience. It’s certainly not for everyone, but those who do love it usually don’t mind if it ends up being less money in the long run.

      Reply
  10. Daisy

    April 2, 2014 12:04 am

    You also sometimes incur a lot fewer expenses when you are a freelancer, as opposed to working for a company. For instance, if you work from home you don’t have to pay for gas, insurance, etc to get to work. Some companies even charge for parking, so that’s something you wouldn’t have to pay for. Also, the office lunches and all of the costs that go into working with a group of individuals.

    I have a great job right now with amazing benefits and lots of vacation, plus pension, so I won’t be giving it up any time soon but I do sometimes crave the freelancing life!

    Reply
  11. NZ Muse

    April 2, 2014 8:52 pm

    I’ve blogged about this a few times, but I love the employee life, so see no reason to freelance and have no desire to. Like Tonya, I also live in a very expensive country/city, so money is a HUGE factor for me. Luckily I love what I do.

    Reply
    • Alicia Rades

      April 2, 2014 8:58 pm

      ‘s great.That I certainly wouldn’t advocate that freelancing is “the way to go.” After all, where would we be if everyone worked for themselves? That’s just silly. So it’s great that you still love what you do.

      Reply

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