Think you’ll make less money as a freelancer? Think again
You might be surprised to learn how well the self-employed are doing.
- New data reveals that most freelancers earn more now than they did in their previous jobs.
- While you can do well as a freelancer, there are some financial moves to make before taking that leap.
When I transitioned from salaried employee to freelance writer, my biggest concern was money. While I knew I had the potential to replace my old paycheck by making this switch, I also knew it might take time to build up a decent client base and secure a steady stream of income.
Luckily, I finally reached a place where I was able to not only replace my old salary, but surpass it. If you are considering going freelance, you should know that it is a distinct possibility.
A recent report by Don’t Do It Yourself found that 65% of freelancers make more money working for themselves than they did with their previous job. And an impressive 31% of freelancers earn over $75,000 a year. If you’re worried that becoming self-employed means dooming you to a drop in income, that might not be the case.
That said, he is important to make sure you are on a solid financial footing before embarking on self-employment. Here are some essential things to do before embarking on this path.
1. Make sure you save well
It is important to have a good amount of money in your savings account before becoming self-employed. That way, if business is slow to start, you’ll have a way to pay your bills.
I made sure I had about a year of living expenses on hand before quitting my salaried job and going into self-employment. I didn’t have the biggest customer base back then, but having so much money in savings gave me the freedom to find quality customers with less stress.
2. Rework your budget
You may need to rethink your spending as you adjust to freelancing life. Review your budget and see if there are any expenses you can or should cut temporarily, whether it’s canceling cable or suspending a subscription box. Remember that you can always remove certain luxuries when you first start out and reintroduce them as your income increases.
3. Calculate health insurance
Becoming self-employed often means having to scramble for health insurance. Now, if you’re married and can afford a spouse’s health plan at an affordable price, great. Otherwise, you’ll have to factor the cost of insurance into your budget, and it could be a significant expense. You’ll need to make sure you have enough savings in case you need to dip into it for a while to cover your premiums.
But please don’t make the mistake of going without health insurance. You might think you can do without it for a few months, but you never know when you might get sick or injured.
When I started freelancing full time, I was unmarried and had to pay for health insurance out of pocket. It cost me a good $500 per month since I opted to keep my old coverage for several months rather than find a new plan.
On several occasions, I considered giving up my cover. But one evening, I ended up in the emergency room because of an unexpected problem. While I was only responsible for a copayment of a few hundred dollars, my total hospital bill was several thousand dollars, so my insurance paid for itself.
There’s no reason to assume that becoming independent means taking a step back financially. Just make sure you’re prepared for a temporary drop in income while you work to grow your business and carve out an exciting new career.
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