Making your own hours. Setting your own deadlines. No more supervisor breathing down your neck. You’re your own boss. You’re in control; you take the reins of your career, working where you want, when you want, how you want.
Yes, extolling the virtues of self-employment is one of the best things about going freelance. There’s no doubt it can be lucrative and profitable when you’re disciplined, driven and goal-oriented, but a large part of your success as a solopreneur comes from managing your finances well, like handling your own taxes and making sure your clients pay up.
If only that was all you had to worry about, you could just watch the bucks roll in as you grow your business. But freelancing comes with its share of hidden and unexpected costs, and if you don’t budget for them, going it solo can seem more like a labor of love and not of money.
Avoid any financial surprises by keeping these expenses in mind:
Marketing and promotional materials
It would be great if word of mouth alone got you more freelance gigs, and that may happen someday, but only after you’ve promoted and marketed the heck out of yourself and your business.
To do that, you’ll need to invest money on your brand to get your name out there, like printing business cards. VistaPrint is a good place to start; a pack of 100 standard cards goes for $100, but expect those costs to rise if you want more cards printed and better quality paper and ink.
You’ll also need to build a website to showcase your portfolio and advertise your services. Designing a quality homepage can cost an average of $1,000, not counting the fees to hire a web developer or designer if the DIY route isn’t your forte.
(If you’re the Saul Goodman type, you’ll need your face plastered on every bus stop bench and billboard in town, but that’s for another story.)
Computers and digital tech
Desktop/laptop. Check. Smartphone. Check. Internet connection. Check. If you work remotely from home, as I do, it’s imperative that you have all these tools in place to do your work efficiently, but also to communicate with your colleagues via email, voice or chat.
It’s when your laptop or cell phone is a bit outdated or slow that it can cost you money. It makes a bad impression on employers when your 10-year-old computer keeps crashing and cutting out of a Google Hangout editorial meeting, or your PC or Mac doesn’t have the necessary bandwidth or memory to support new programs and software.
And if you’ve worked with and observed freelance colleagues who’ve stayed on top of the latest tech, apps and software, you can’t deny that keeping current on their tech may play a role if they’ve commanded success in their field. You don’t need to invest in the best there is, but brace yourself that you may need to plonk down money for a brand new laptop and smartphone if you want to keep the pace in your business.
You’ll also want to make sure your internet or WiFi are up to speed (literally); upgrading to a faster speed or switching carriers could come at an extra added monthly cost. Luckily, you may be able to make a tax deduction on the switch.
You can become so used to your employer’s health insurance plan when you work on staff that it’s easy to forget that being self-employed means another hidden freelance cost: Funding your own private insurance.
Obamacare open enrollment may officially be over for 2017 until later this year, but don’t fear, there’s still a chance to buy health insurance on the open market if you qualify for a special enrollment period.
Even though the annual average health insurance deductible for a single ratepayer is nearly $4,400 (without a subsidy), it’s better than paying out of pocket -- or going into credit card debt when you can’t afford to pay out of pocket -- for medical costs your insurance could be covering for you. Some good news is that you may be able to qualify for tax credits when shopping for your own policy, making health insurance more affordable than it might seem.
As one of the self employed, health insurance is just the start of the insurance products you need to consider to protect your financial health and wellness. You might consider purchasing a life insurance or long-term disability policy, especially if you once had that coverage through an employer but aren’t covered being on your own. You can use our insurance checkup to find your insurance gaps in under five minutes.
Slow periods and dry spells
It’s the nature of the freelance beast. When work is booming, you’re booked to the hilt; when it’s slow, it’s like your clients dropped off the face of the earth. And going through a freelance slow period isn’t relegated just to the end of the year; lulls, dead spots and dry spells can happen at any time of year.
This might come as a surprise if you’re a supremely ambitious solopreneur, most of all because it carries big financial consequences. A lack of work means a lack of income. When bills need to be paid, you’ll run the risk of dipping into your own reserves and depleting your savings.
These unexpected disruptions to your cash flow, as some experts call them, can be offset by making sure you have several months’ worth of savings in your emergency fund to keep you afloat during lean times. Starting your freelance career on the side in addition to your full-time job allows you to begin saving for your buffer, so when it’s time to make the transition to full self employment, you’ll have funds to fall back on.
Professional development and travel
The best employers want to see their employees grow and evolve in their roles, and when you’re self-employed, you should do the same, since you’re the boss and employee rolled into one.
Part of achieving this is taking the time to network and attend professional meetings, groups and conferences, all of which may come at great expense, taking into account registration fees and travel costs, including airfare and hotel costs.
Minimize cutting into your freelance overhead by anticipating which conferences or events you’ll be going to during the year. Tickets purchased in advance often come cheaper, as do airline tickets and hotel reservations bought months ahead of time. Within reason, some of these travel costs may be tax deductible if the expenses are relative to your job or profession.
If it’s just too cost prohibitive, opt for more affordable webinars or local professional events (especially those that are free). Your industry professional organization (like the Freelancers Union) should keep you up to date.
Yes, you can be one of the worst hidden expenses to your freelance career. Look at this way:
- Time is money.
- Money is wasted when time is wasted.
- Time is wasted when you procrastinate and fail to focus on freelancing. (Say that five times fast!)
If you work from home, it can be remarkably simple to get distracted from work when all the comforts of home don’t feel like you’re at work. The fridge is beckoning you to get up and fix a snack, that load of laundry begs to get washed, and those Facebook notifications won’t stop notifying you -- all of which can keep you from working and earning money.
To encourage productivity and save time, take some steps to stay disciplined. Schedule breaks throughout the day to get work done in blocks with time to rest in between. If devoting a dedicated workspace helps you to buckle down, work on creating your own home office. And set your alarm to wake up in the morning as you would a normal workday. Look at it as a way of investing in yourself to maintain your bottom line. You are your brand, after all.
Freelancing can be challenging and rewarding all at once -- part of what makes it attractive to so many professionals in the world. (It’s estimated that 54 million people are independent workers.) By staying aware of some of the hidden costs associated with going solo, you’ll know how to manage your finances and plan for any expenses that come your way, both expected and unexpected alike.