Being a freelancer comes with a lot of perks. After all, you have the freedom to choose where you want to work each day and the clients with whom you want to partner. You’re living the dream, right? But even when you find your footing, freelancing can also mean working long hours, struggling to land your next client, chasing down paychecks and dealing with the overall instability that comes with not having a 9-to-5.
At some point, you’ll probably wonder what’s better: being self-employed vs. employed at a traditional job. Here are some factors you should consider when measuring the pros and cons of being a freelancer.
Choosing the Right Lifestyle
At best, a 9-to-5 job can give you a sense of community and shared purpose. You may even be lucky enough to work at a mission-driven organization that shares your ideals. There’s the opportunity to attend fun company outings and build lasting connections and friendships with your co-workers. On top of that, you might get to enjoy perks like free lunches and snacks. At worst, you may have a dreadful commute, a poor culture fit and a bad boss. And don’t forget that there are expectations for how to act, what to wear and the correct way to do your job.
But as a freelancer, you get to enjoy a more independent lifestyle. You wear what you want, work when you want (well, as long as you meet your deadlines) and get the job done how you see fit. You can skip the daily commute and have your coffee at home — plus, you don’t have to deal with co-workers that remind you of characters from “The Office.” But there are the distractions of working from home, like Netflix, family members and the call of the fridge. You’ll still need to concentrate to get your work done.
Ask yourself: Do you work better when you’re around others and have more structure to your day? Or do you prefer the autonomy of doing your job your own way? If you know how to free yourself from distractions and work diligently, the freelance lifestyle may be for you.
Managing Your Health and Retirement Benefits
When people evaluate the pros and cons of being self-employed vs. employed at a traditional job, they often think about benefits first. There’s no doubt about it: Working a 9-to-5 can be better in this arena. You share the health insurance bill with your employer, and you may even get a little help with your retirement savings. Oh, and don’t forget that all of your technology needs are covered, on top of paid vacation and sick time. And you may even be able to receive transportation reimbursements.
On the other hand, as a freelancer, you are fully responsible for your own health insurance costs and retirement savings — which can add up quite quickly. You’ll also have to tackle some other major payments solo, like technology and disability coverage. And there’s no paid vacation or sick time, which can make it hard to take days off. To find out if you’re ready to go freelance, estimate the amount of money you’ll need to put into your own benefits, and compare that with how much you can expect to make. Doing so can help you determine whether you’re ready to go solo right now.
Paying the Bills
While the freedom that comes with the indy lifestyle is a big draw, you have to make sure that you’re able to pay the bills, too. According to Payoneer, the global average freelance rate is $19 per hour, while the United States Bureau of Labor Statistics found that the average hourly rate for workers in the U.S. is $26.63.
Of course, when looking at these numbers side by side, you need to remember that you get to set your own rates as a freelancer. There’s no limit to the hourly wage you can request for a particular project, as long as you have the experience to back it up and your clients are willing to foot the bill. Meanwhile, a traditional employee’s income is capped at a certain level, and they need to earn a promotion or a raise in order to get a payment boost.
Now for the cons: Pay as a freelancer can be inconsistent, and that high hourly or project rate suddenly doesn’t seem so steep when you factor in all the expenses you cover on your own. As a 9-to-5 employee, you know exactly how much you’ll get paid and when. But while working a traditional job offers security and consistency, it’s also risky. If you’re laid off, you’ll need to search for a new job, and you may struggle to make ends meet in the interim. As freelancers get to work with multiple clients, a setback on one project likely won’t affect your finances and lifestyle as much as losing your full-time job.
Keeping Up With Your Taxes
We’ve all heard Benjamin Franklin’s famous saying at least a dozen times: “In this world, nothing is certain except death and taxes.” When weighing the pros and cons of freelance life, it’s important to remember that instead of dealing with tax time once a year, indys are responsible for making quarterly payments. Luckily, there are plenty of financial professionals who can help you organize your budget and set aside money for taxes.
As a freelancer, you might be in luck with the new GOP House tax bill. “This provision would allow a pass-through business to characterize a portion of its income as ‘profit’ and enjoy a potentially lower rate of 25 percent on it.” The new changes may lower the amount you pay in self-employment tax, but take note: The Los Angeles Times states that only people above the 25 percent tax bracket will benefit from this provision.
When you work a 9-to-5, all you need to do is fill out a W-2 and your taxes are taken care of for you. As a traditional employee, you don’t have to track your own business expenses, and tax time only comes around once every April. That being said, you may not be able to take advantage of the wide range of tax deductions for which an indy can qualify.
There’s no doubt about it: There are pros and cons to both freelancing and traditional employment. While the potential financial pitfalls that can come with inconsistent payment may discourage you from switching to the freelance lifestyle, it’s important to think about the major benefits, as well. Overall, it’s important to consider all these factors so that you can choose which employment model works best for you and your career goals. If you’re yearning to set your own rates, have a flexible schedule and be able to pursue your own projects, it may be time to take the freelance leap.