Freelancing can be a liberating and lucrative way to take ownership of one’s work. Here are some key aspects of freelancing to keep in mind when deciding whether to pursue self-employment.
The biggest difference between freelancing and full-time job is that a freelancer only gets paid when they work, and work requires clients. Unfortunately, most freelancers don’t have many clients when first starting out. That’s why many new freelancers make use of work platforms to form connections with new clients. After working together with a client and building up enough trust, some elect to continue developing their professional relationship off-platform.
“Freelancing also requires ‘wearing many hats’ so to speak and a personal touch that may be new to some professionals,” says Northwestern Mutual Omaha-based Wealth Management Advisor Taylor Royal, CFA, CPA. “Unlike some traditional workplaces with specialized teams, in freelancing there are no colleagues specialized in sales or relationship management to rely upon—it’s up to the freelancer to manage their relationships with clients.”
It’s a good idea to talk to a tax professional when going freelance. That’s because freelancers are responsible for their own taxes—money isn’t withheld from a paycheck. As a result, most freelancers will owe quarterly estimated tax payments. That means freelancers have to set money aside on their own and be ready to pay when tax time comes around.
Freelancing means accounting for the benefits that full-time employees typically don’t have to think about. Freelancers need to find the benefits that work for their priorities and financial situations. This can often mean finding their own health insurance and dental coverage. Freelancers are also on their own when it comes to saving for retirement. Accounts like IRAs offer tax advantages when used to save for retirement.
Another benefit that’s often offered through work is life insurance, which provides a payout for loved ones if a breadwinner passes away. Term life insurance is the most affordable way to get a death benefit. However, although it’s more expensive, some freelancers elect to purchase a permanent life insurance policy like whole life insurance or universal life insurance. Among other perks, these policies have a lifelong death benefit and a cash value component that can grow over time. Policyholders can borrow against the cash value for any reason. This can be used to strategically increase cashflow if needed, cover unexpected expenses, or help a freelancers take advantage of an opportunity.
Many people are drawn to freelancing out of a desire to set their own schedule. However, time management can be one of the most challenging parts of many freelancers’ workday. The supervisors and internal deadlines present in a traditional workplace don’t exist for the self-employed, so it’s vital to develop the ability to effectively plan and prioritize the work that needs to get done. Conversely, no managers or colleagues means there are no institutional guardrails against burnout. That’s why successful freelancers learn to work at a sustainable pace and take time off to recharge.
Beyond creating work-life balance, taking time away from work is also important. This could be in the form of scheduled vacation days or even just taking some time during the day to step away and relax.
Taking breaks combats burnout and keeps freelancers motivated and productive when working. Vacations and time away can help freelancers recharge and come back to their projects with fresh eyes and new perspectives.
The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value will reduce the death benefit and may affect other aspects of the policy.
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM) and its subsidiaries in Milwaukee, WI.
Source: Northwestern Mutual