- Say goodbye to your employer-subsidized benefits, like health insurance, paid time off, and a 401(k) plan.
- But say hello to flexibility and greater happiness.
- Hiring an accountant can ensure that your taxes are manageable, as they'll get more complicated when you're a freelancer.
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I started freelancing as a writer and editor last year, and ended up quitting my W-2 job altogether to pursue this life full time at the beginning of 2023. It's largely been a positive experience, but there have definitely been some changes to my work life, personal life, and indeed, my finances, as a result. If you're ready to become a freelancer, here's what you can expect.
1. You'll lose employer-subsidized benefits
One of the reasons many people work as employees for a company, rather than as a freelancer, contractor, or other non-employee is the benefits. As an employee, you'll often get to take advantage of subsidized insurance coverage (health, life, dental, and sometimes even vision and pet insurance). You might also get access to a 401(k) retirement savings plan, and if you're very lucky, your employer may match a percentage of your contribution to that account. You might even get tuition reimbursement, cash back for a gym membership, or other fun perks.
But if you become a freelancer, you'll kiss all these benefits goodbye. If you have a spouse and children benefiting from your employer's benefits, it could end up being quite expensive to pay for all of them on your own, so this is something to be aware of (and plan for) before turning in your letter of resignation. You might want to use your health insurance benefits one last time before you quit. And don't forget to roll over your 401(k).
2. You won't have paid time off
Let's face it: You're not going to miss pointless meetings when you quit your job. But you will likely miss getting paid vacation and sick time. Freelancers don't get paid time off of any kind; if we're not working, we're not earning. That said, taking time off is still really important. Get in the mindset of maximizing your working hours so you can earn enough to take the time and not worry too much about missing paying work.
3. You'll get more flexibility of all kinds
For me, this is where freelancing really shines. Everything about my working life is flexible now. My work is fully remote, so I can work from wherever I want — other countries included. And I make my own work schedule every day, fitting work into my life, rather than the other way around.
This flexibility could cause struggles for some, however. If you can't work effectively without a manager looking over your shoulder to ensure your work gets done, you might not be productive enough as a freelancer. After all, ideally you're not just earning enough to cover the expenses you've budgeted for, but also enough to stick in your retirement and savings accounts for future goals.
4. Your taxes will get more complicated
I was already a bit intimidated by filing my tax return even before I was a freelancer, so when I decided to make this move, I wondered how much more I'd have to worry about taxes. As it turns out, if you work with the right financial professionals, they'll do a great job of setting your mind at ease. My financial planner has been a great source of wisdom (especially since he's been working for himself a lot longer than I have), and I also hired an accountant to handle my taxes.
As a freelancer, you'll owe quarterly estimated taxes in January, April, June, and September every year, so you'll need to stay on top of those payments — or be penalized. Having an accountant or other tax professional handle your annual return for you will help ensure you get all the tax deductions coming to you, such as a home office deduction if you have a dedicated work space at home.
5. You might be happier
Ideally, you're quitting your W-2 job because you think freelancing will improve your life. And part of that improvement should be increasing your happiness. It's very tiresome to go through the motions at work, never feeling as if you're appreciated enough or getting a chance to learn new skills. Becoming a freelancer can be the impetus for more and different professional development.
Plus, as you grow your skills and client list, you can become more and more selective about the projects you take on. One of my colleagues here at The Ascent says this is the best thing about being a freelancer.
And remember that flexibility I discussed earlier? That can lead to happiness too. Nothing improves my mood and sense of wellbeing like a sunny afternoon walk, and thanks to freelancing, I can get out for one every single day if I want (weather permitting, of course).
All things considered, quitting your job to freelance will change your life. It might complicate your tax and health insurance situation, but ideally, the happiness and opportunities you'll gain will more than make up for that.
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