Setting your own hours, choosing your own projects, potentially boosting your income: The perks of the freelance life have changed the workforce.
About 38% of the U.S. workforce engages in freelance work -- that is nearly two out of every five U.S. workers who are now embracing this independent path.
While it can be convenient and flexible, there are financial factors to consider before going full-time freelance.
And freelancers often make financial mistakes.
The biggest? Not planning for an unpredictable pay schedule.
Unlike a full-time gig, you might not get compensated regularly. So, you’ll need to manage your budget carefully and figure out how much you need to get by.
“Knowing your numbers is what would help you the most as a freelancer,” said financial planner Zach Keister.
Another mistake? Not budgeting for health care and retirement. Neither of which is a covered benefit if you freelance.
Another mistake: Mixing business and personal accounts. One survey found only 22% of freelancers said they had a credit or debit card dedicated solely to business expenses.
Also, make sure your rates are competitive.
“Maybe reach out to some peers that are in the same group and say, ‘Hey, what are you guys charging?’ and kind of run off that,” said Keister.
Not putting away enough money for taxes is another problem. Experts recommend that you set aside about 25% to 30% of your income to cover taxes.
And not investing in your education is another error freelancers commonly make. Different courses or conferences can help you grow your skillset and make more income.
So, a good way to finance this is to not only have an emergency fund, but also an opportunity fund to invest in your own personal growth.
One final crucial tip: Have a contingency plan for slow periods. This could involve having a marketing plan to generate new leads, diversifying income streams, or having a more robust emergency fund to cover a longer period without consistent income.