Disclaimer: The information provided in this article does not, and is not intended to, constitute legal or financial advice; instead, all information, content, and materials available in this article are for general informational purposes only. Please seek a CPA or Attorney in your jurisdiction to answer any questions or concerns you may have before embarking on your freelancing opportunity.
The gig economy is a bit like the Wild West. Opportunities abound, but the rewards often come with a substantial dose of risk. Fortunately, it’s easy to dabble in most freelance work without making any major commitments. You can practice graphic design in the evenings, walk dogs in the mornings, and write on the weekends. This gives you valuable experience and some extra income to boot.
If you’re thinking of taking your freelancing career full-time, though, there are some things that you’re going to want to consider beforehand — especially where finances are concerned. Here are five specific financial questions that you should ask yourself before you ditch the 9-to-5 in favor of a freelance career.
1. Freelancing Can Require Professional Help
The first thing you should consider before going freelance-full-time is your professional lifelines. For instance, while this humble author has extensive personal financial freelance experience, the five tips presented here are more general in nature and should always be discussed with a financial professional who knows your particular situation.
Typically, the professional help that you should have “on tap” as you launch your career can be boiled down into three categories:
● A lawyer: Do you have a good lawyer that you can go to with legal questions? Having a lawyer can ensure that you safeguard yourself against any unnecessary personal or workplace liabilities.
● An accountant: Again, while these general tips are a good starting point, a CPA will be aware of state and local tax codes and the more detailed nuances of running your business finances successfully.
● Another professional in your field: It doesn’t matter if you’re a rideshare driver or a writer, a musician or a software developer, if you’re going to survive the full-time freelance gig, you’re going to want to ask someone with experience when questions inevitably arise.
If you don’t have professional help lined up, your freelance efforts can quickly spin out of control.
2. Are Your Finances Healthy?
Next up, consider the current state of your finances. Ask yourself a few questions:
● Are you responsible with your money?
● Are you able to live on a budget?
● Have you considered how you’ll pay the bills early in your freelance career?
● Do you have healthy credit?
As you grill yourself, consider what you can do to improve your current financial situation in preparation for the financial stresses and strains that often come with the freelance life. How much money do you need to make each month at a minimum? Can you improve or repair your credit? Do you have an emergency fund saved up to cover expenses if you have a lull in income?
3. Have You Considered the Extra Costs?
While adding up your personal expenses is a good start, you must also consider additional costs that come with your new independent career.
For example, if you’re an aspiring author, have you considered the costs involved with self-publishing? If you’re going into a service-based freelancing gig, do you need to pay to build and upkeep a website? If you’re going to be a rideshare driver, have you added up the expense of keeping your car on the road every day?
Strive to challenge yourself with critical questions like these before you make the leap into full-time contracting work.
4. Can You Handle Your Own Taxes?
Of course, the biggest financial elephant in the room is taxes. As a freelancer, you won’t have things automatically withdrawn from your paycheck. Heck, you won’t even get a “paycheck” in the first place. You’ll just get paid.
With that said, have you considered what it takes to do your own taxes as a contractor? It isn’t rocket science, but freelance taxes do take a bit of your time and focus. Make sure you’re aware of all of the major details, such as estimating taxes or filing returns, and that you have that CPA readily available so that you’re ready to put everything into action once you start generating a full-time income.
5. Are You an Organized Person?
Finally, consider if you’re organized enough to go full-time in the gig economy. This includes everything from beginning to end of the work process. Are you ready to perpetually feed and organize your workload? Have you equipped yourself with the proper financial tools, such as a budget calculator and business bank account, that are required to make and receive payments, maintain a budget, and set aside taxes on a regular basis?
If you aren’t organized from the get-go, it can hamstring your ability to ultimately succeed, you know, with the actual work that you’re getting paid for.
Financially Flourishing as a Freelancer
There are many financial considerations that should take place before you commit to full-time contracting. However, none of the above factors should be seen as a barrier to entry.
Rather, they can and should serve as initial starting points and opportunities to prepare yourself for the oft-overwhelming but ultimately exciting journey ahead. If you can start your freelancing adventure on the right financial foot, you’ll be better able to handle whatever curveballs your professional future may throw your way — and ultimately be financially better off for the change.
Indiana Lee is a writer and journalist from the Pacific Northwest with a passion for covering workplace issues, social justice, environmental protection, and more. In her off time she enjoys hiking with her two dogs. You can follow her on twitter @indianalee3, or reach her at email@example.com