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The Finances of Transitioning to Freelance Work
You know you are ready to start freelancing and you are determined to be successful at it, so now it is time to get serious about it. With proper planning, you will be able to say good-bye to the constraints of a wage earning job and be free to earn money freelancing. One of the first things you will need to do is to determine how much you really make at your wage earning job. Then you can estimate what your freelancing income will be and how much you will need to save to survive the transition. In addition to financial considerations, you will need to be skilled at more than the work you will do freelancing, you will need to to have other skills to be successful.
Know Your True Income
You know how much you make an hour, but when transitioning to freelance work, you'll need to know your actual hourly income. When determining your true hourly income, be sure to include the following:
- Vacation time - how long do you intend to take on leave every year
- Insurance contribution - how much was contributed by your previous employer?
- Bonuses you receive - did you get any quarterly or annual bonuses linked to performance?
- Discounts you qualify for - were you able to receive a discount on work related goods or services?
- Company matches for pensions, stock, and anything else - did your employer pay in to any financial scheme?
Add the above benefits to your hourly pay. Once you do that, you can determine how much per hour that you need to earn freelancing.
Estimate Freelance Income Potential
You know what you can charge for your work and about how much you can make per week, but to estimate your true income, you'll need to know the expenses you will have as a freelancer. When you have your own business, you will need to calculate your expenses and that amount will need to be subtracted from your freelance income. Consider the following expenses when estimating what you can earn:
- Taxes (local, state and/or federal) - work out what you'll need to set aside to cover tax
- Business licenses - if your area of work requires a license to operate, factor in how much it costs
- Advertising - if you need to build up your clients, you'll need to advertise your services to them first
- Rental or purchase of property, equipment, vehicles, etc. - what will you need to run your business?
- Insurance (personal and for business) - do you need personal liability cover for your line of work?
- Accounting - a good accountant might be more expensive per hour, but they can save you a lot of money and headaches
- Business loans - will it take some seed capital to get started, and if so, what interest will you be paying on it?
Depending on the type of freelance business that you have, when you take time off you may need to have someone fill in for you. You will need to include that as an expense, also.
Skills Needed to be Successful
When you do freelance work, you won't have a boss to tell you what to do, this can be a blessing or a curse. Successful freelancers will need to do/be the following:
- Customer service - you're front of shop now!
- Set goals - you have to motivate yourself to get stuff done
- Manage time - you've got to be able to stop yourself from working long hours on projects that don't pay well
- Self-motivated - nobody will tell you to get back to work when you're your own boss
- Be organised - without proper organisation, you'll waste time and make less money because time is money for any freelancer
- Be decisive - beating round the bush doesn't help anyone, especially you!
- Work well alone - working by yourself can be challenging, especially when you have long and arduous tasks to do
- Avoid distractions - online it's so easy to get distracted for long periods of time, so it's up to you to stay focused
- Accounting - you should probably get an accountant to do your books, but it's down to you to track expenses and keep receipts now
Evaluate what you depend on those above you to do and be responsible for at your wage earning job, and develop the skills needed to do yourself so that you have those skills when it's your responsibility.
Saving Before Transitioning to Freelance Work
Once you know your true wage earning income, actual expenses of freelancing, and are confident you have the skills needed to be a successful freelancer, you can start your business part time and save for the day you can do your freelance work full time. Before you can set savings goals, you will need to know the amount you need to save. You should have enough saved to cover living expenses, business expenses, and pay bills for both for three months. A separate savings for unexpected expenses will be needed, this one should be about the equivalent of 1 month of your income.
It will take some time to prepare, but you when you plan wisely, the transition to freelancing can be a successful transition.
Freelance Budgeting Tips
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