44% of Freelancers Earn More Than They Did With a Traditional Job — Should You Make the Switch?
Amid the Great Resignation, some workers are looking to change how they work. Twenty percent — or around 10 million Americans — are considering switching from full-time to freelance, with 73% citing the ability to work remote or flexibly as a reason why, a recent Upwork survey found.
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And this might not be a bad idea — a separate Upwork survey found that 44% of freelancers said they earned more freelancing than they did with a traditional job in 2021. This is up from 39% in 2020 and 32% in 2019.
However, if you’re planning on making the switch, it’s best to be fully prepared for what this new way of working entails. Here’s what experts say you should do before taking the plunge.
Test Out the Waters First
Freelancing is very different than having full-time employment, so Archie Payne, president of CalTek Staffing, recommends taking on a side hustle before quitting your job.
“The idea of being your own boss is appealing, but freelancing is not for everyone,” he said. “It is a whirlwind of managing multiple projects, and you no longer have the fallback of your cushy 9-to-5 job when things go wrong. Not to mention you need to stay focused and motivated. My advice is to test the concept out before switching roles. Start a small side hustle and decide who your clients will be and what service you will provide. It is also a good idea to connect with freelancers, as they often have great advice. Once you have dabbled in the world of freelancing, you can decide whether or not freelancing is for you.”
Build Up Emergency Savings
As a freelancer, your income will likely fluctuate from month to month, so it’s important to be prepared for the times when you will make less than is ideal.
“Freelancing can be rewarding but precarious,” said Paul French, managing director of the executive recruitment firm Intrinsic Search. “Make your transition less stressful by putting aside enough money to cover your main expenses. Three to six months’ worth of savings is a good place to start and will give you peace of mind as you kickstart your freelance career. Of course, you should start saving before you leave your full-time job.”
Find New Health Insurance
Since you likely have health insurance through your employer, you will need to find new coverage.
“Set up your health insurance before your job-related one runs out,” French said. “Unexpected health emergencies can put a dent in your pocket and potentially derail your freelance career. Check the federal and state public marketplace for insurance plans with the lowest premiums. Be sure to consider your and your family’s healthcare needs to select a suitable health insurance plan.”
Open an IRA
Working for yourself means you will no longer have a 401(k), so you need to open an IRA to ensure you keep up with your retirement savings.
“Before exiting, ask your employer to roll your employer-sponsored retirement plan into an individual retirement account,” French said. “Determine how much you want to put in your retirement account for the year and budget for a monthly contribution that will allow you to achieve your goal.”
Put Aside Money for Income Tax
Income taxes will no longer be automatically deducted from your paycheck, so you need to be extra mindful that you set money aside throughout the year.
“When you start working as a freelance contractor, you are responsible for paying your own income tax,” French said. “You will need to keep track of your income and then as a general rule, deduct 30% of your total income to pay for taxes.”
Make Sure You Have a Good Network
“Your network is everything,” said Matt Lally, founder of TheGiftYak, who switched from full-time to freelance in 2020. “Do not switch to freelance work if you don’t have a solid network that can support you. You will need introductions, new projects and more opportunities.”
Keep in mind that you will be responsible for finding and maintaining relationships with clients, so your network is essential.
Consider If Now Is the Best Time for You To Go Freelance
If being able to work from home is the only reason you want to go freelance, take a step back and really consider the financial implications of this decision. In some cases, it can pay off to go freelance, but in others, it can put you in a bad place financially.
“If you have gained considerable expertise in a certain field, switching from full-time employment to freelancing might be a worthwhile transition,” French said. “If you have been freelancing on the side and you can see yourself doing this full-time without taking a huge pay cut or if you see yourself earning more freelancing, then the switch might pay off. I would suggest delaying your plans to freelance if you have a lot of debt; you could use a regular paycheck to first pay off your debt to a manageable level. If you or a family member are dealing with a serious health issue and you benefit from employer-funded insurance, you might want to think twice about diving into freelance just yet.”
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