10 tips for freelancers (or those planning to be)

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NEWS: With freelancing on the rise, estimates are that the majority of the workforce will be freelance by 2027. 

WHAT THIS MEANS FOR YOU: If you freelance, or want to, there are a lot of financial balls to keep in the air to make it work.

No matter what you call it – freelancing, independent contractor, self-employed, a side gig, the great resignation – it comes down to the one fact that you’re your own boss. Doesn’t it feel great? It’s supposed to be, and more people are jumping aboard. A Forbes article earlier this year even proclaimed, “It’s tough to be pessimistic about the freelance revolution.”

There’s nothing new about freelancing – “get a side gig” or “work for yourself” has been offered for years as a solution to paying down debt, saving up for a house, moving away from a career or job that’s unsatisfying, and more. What’s new is the fact that there are ever-increasing opportunities and support for people who work for themselves. What hasn’t changed though, is the fact that if you work for yourself, it’s ultimately up to you to be successful.

Whether you’re already doing it, or just considering being your own boss, here are some top things to keep in mind:

  1. It’s a business. Put it on a post-it on the bathroom mirror if you have to in order to remind yourself of this. It doesn’t matter if it’s a side gig that’s only a portion of your income – if you are making money by doing something yourself, it’s a business. This means keeping accurate and professional records of revenue, income, expenses and more. It means, if you provide a service, sending professional invoices and signing contracts. Records aren’t only important for when tax time comes around, they also help you keep the business on track and signal to those you’re doing business that you’re a professional who will do a good job.
  2. Be wary of high expectations. Don’t be fooled by articles or TV news reports that make it sound easy to get out there and make money on your own. Whether you have an in-demand skill or want to add to your bank account by driving an Uber, research how much you can actually make before telling your employer to take this job and you-know-what it. While driving an Uber sounds great, you may end something like $12 for several hours of work. Selling a craft or publishing a self-help book? Without marketing and a platform for selling, your only customers may end up being your family and friends. Even with marketing, that can happen. Offering your editing skills? The industry is saturated with people doing the same thing. Don’t overestimate what your freelancing will bring in. If you are offering a service, it helps to have at least one reliable client that will bring in a majority of the income you need before you put yourself out there. If you have promises for work, nail them down and make sure they’re serious ones. Research the costs and the realistic revenues before changing your life to be dependent on freelancing.
  3. Know what the costs are. Related to the mistake of high expectations, many people don’t consider what it will cost to go out on their own. Driving an Uber? Consider gas, car maintenance, car cleaning and detailing, and more. Making something to sell? Don’t underestimate the cost of materials and marketing. Even “no-overhead” gigs like accounting, writing and editing have costs. Every single freelance worker has to pay their own taxes, including self-employment tax. Unless you can get on a spouse’s health insurance plan, you also will have to pay for that. Don’t rely on refinancing your home or getting a home equity line of credit to fall back on if you’re struggling. In most cases, you must be self-employed for two years before you can refinance, even if your mortgage is in good standing. You also may have trouble getting a car loan, even with a good credit score. If you’re planning on going it alone, make sure you take care of any borrowing needs before you quit your day job. 
  4. Know what you’re worth. It’s easy when you’re trying to build a new business to undervalue yourself in order to get work. Research what the standard rates for the service you are providing, or product you are selling, is. Then charge that rate. Don’t rely on Google and random articles from uncredible sources to determine your fees – find a professional organization for people who do what you do and join it. Many organizations, like the Editorial Freelancers Association, have rate scales on their website. If you undervalue your worth, you will end up working long hours for little pay.
  5. Don’t be afraid to make it about money. You are a business, and even though it may be your “passion” or your “dream,” you still have to make a living. Potential clients may want to talk about other things than what you will be paid. Put aside any squeamishness you have about talking about money and bring it up. They are paying you to perform a service and it’s a topic they should expect and be prepared to discuss. So should you. Settle on a firm rate before you have the discussion, then stick to it. If you are selling a product, charge what it’s worth. Don’t be guilt-tripped by people who say, “If I had the time, I could make that myself.” They couldn’t and you both know it. What you have to offer, no matter what you are doing, is worth compensation. You are running a business. When you buy a cup of coffee, you pay the posted price. You don’t get to pay half just because you don’t think the coffee is worth what they’re asking. Depending on what you offer, a deposit or paying upfront may be the norm. If it is, don’t let them try to convince you that it’s not. Also, if you’ll be invoicing, find out where and how to send the invoice, whether they send a check or direct deposit (and if it is deposit, be sure they send you the forms for it), and how long it takes to get paid. You’re not being mercenary or greedy – you need to know this because you have bills to pay. That’s why research is important – you’ll have a solid foundation for your rate, fee or price and pay timeline.
  6. Sign a contract. If you provide a service, don’t agree to provide it without a professional contract, signed by you and the client. It should include clear expectations of work you will provide, timeline and rate as well as contingencies for missed deadlines or disagreements. It doesn’t matter what service you are providing – whether it’s editing someone’s book for them, mowing a homeowner’s lawn, painting a house, cleaning homes or offices, building someone’s website, acting as a business consultant – you name it. Verbal agreements are easily misunderstood, the details forgotten or ignored. Get it in writing. There are few things more disheartening as a freelancer as not getting paid after putting in hours of work because the client remembers something differently, or getting add-ons and phone calls that eat up your time for things that you didn’t think were part of the job. This is another area where a professional organization comes in handy. Many have sample contracts, as well as discussion boards and resources.
  7. Don’t be afraid to say no. Walk away if a client is pushing to pay you less than you’re asking or is putting off talking about pay, doesn’t want to sign a contract, doesn’t want to (or can’t) be specific about the work, seems to be unclear on expectations, seems to think they employ you or anything else that hampers your ability to nail down the job duties and compensation. These are red flags that mean your time and paying you for it aren’t important to them. Don’t kid yourself that it will be worth it once you get paid. If you’re not spinning your wheels with a difficult client, you’ll have time to find one who treats you like the professional you are.
  8. Know the rules. You may be the boss, but there are still rules to follow:The IRS has strict rules for what it means to be an independent contractor and the relationship with clients. Understand what your role is and what you can and cannot do as an independent contractor, particularly if you are providing a service to a business. While business managers are supposed to know the rules, they often skirt them and want to treat you like an employee. Why is this important? Because as a freelance worker you pay self-employment tax to cover the things an employer would pay if you were an employee. A business that treats an independent contractor as an employee is getting away with not paying its fair share and taking advantage of you. Meanwhile, you’re paying a big tax that you wouldn’t have to be if you were an employee and being treated like an employee while getting none of the benefits. No matter what your business is, find out if there are restrictions in your area (for instance, if you’re making and selling food or manufacturing a product), rules about selling, distribution, and more.
  9. Taxes. Taxes are a whole new ballgame when you are freelancing.If you make more than $400 from one source, you are required to pay self-employment tax, even if you also have a full-time job with an employer. Self-employment tax is 15.3% of your net self-employed earnings. It covers Social Security (12.4%) and Medicare (2.9%). This is in addition to income taxes. Taxes are supposed to be paid AS  you earn (who knew?!) – that’s why employers take them out of your paycheck every pay period. As a self-employed worker (again, even if you also have a job working for someone else), if you expect to owe more than $1,000 in taxes on your self-employed income, you must pay quarterly. If you pay too little or miss the deadlines (April 15, June 15, Sept. 15, Jan. 15), you may have to pay a penalty. In New Hampshire, you don’t have to worry about a state income tax, but if New Hampshire isn’t your official state of residence, don’t forget about that, either.

     The IRS has a self-employment tax-payer page that tells you everything you need to know. Still, it’s a good idea to hire a reliable tax accountant to help you sort it all out. An accountant will save you way more money than it will cost you. Pro tip: Don’t rely on Turbo or other online tax software to do y our taxes – they aren’t free if you have to pay self-employment taxes.

  10. BUDGET. If you’ve never been big on budgeting, this is the time to start. If you’re considering becoming self-employed, do one before you quit your day job and determine how much money you will have to make to stay afloat. If you’re already self-employed, it’s not too late. A budget should be your most-used tool as a freelancer. Since you will have to pay taxes, possibly your own health insurance, retirement savings, have an emergency fund, pay the expenses of doing business, have money in the bank if you want to go on vacation and won’t be working, must keep credit cards up to date, and… Geez, there’s a lot, isn’t there? You don’t need fancy software to budget. A legal pad and pen, a Google doc, a spreadsheet – whatever works best for you is the best way to do it. You want to keep track of income and of all your monthly expenses. Think of it as an evolving document that you can change as circumstances do. It’s always best to err on the conservative side, so you have slack for emergencies. Set up separate savings accounts solely for taxes and deposit a percentage of every check (or Venmo or cash) you get into that account. It’ll make it a lot easier to pay when your quarterly tax day hits. An emergency savings account in case you get sick (no paid sick days for the self-employed!) or have another unexpected expense is another must. And don’t forget about retirement. Include all your expenses on the budget and try not to exceed the discretionary ones. If you’re making more money than you expected (good for you!), be boring and put it into your tax, emergency or retirement account.

These tips aren’t meant to scare you. Most people who work for themselves will tell you it’s the best move they ever made. Treating it like the business it is ensures you can enjoy being your own boss until your well-earned retirement.


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About this Author

Maureen Milliken

Maureen Milliken is a contract reporter and content producer for consumer financial agencies. She has worked for northern New England publications, including the New Hampshire Union Leader, for 25 years, and most recently at Mainebiz in Portland, Maine. She can be found on LinkedIn and Twitter.