Do you alone? You’re not alone. Hundreds of thousands of workers are quitting their jobs and choosing to work for themselves. But if this is your first self-employment experience, you might need a few tips to survive self-employment.
Why? The human resources department that handled complex things like withholding taxes, FICA taxes, and health insurance is now gone – replaced by you. Plus, the safety nets employees take for granted – unemployment insurance and disability insurance, for example – are largely unavailable when you’re self-employed. And forget about regular paychecks. Even if you find a steady job, clients don’t always pay quickly. Sometimes they don’t pay at all.
Of course, the benefits of self-employment – flexibility, independence and increased income potential – are well worth the challenges. But a brief guide can help you avoid some of the trickier problems. These five tips can help you survive and thrive as a self-employed person.
1. Know your options
Most people don’t quit a full-time job until they have a client or two ready to hire them. However, nothing about self-employment is certain. So it helps to know that there are many online job sites that can help you find new clients, if and when you need them.
And it’s not a bad idea to register on these sites – and ideally, accept a few gigs – well before you run out of work. This is because many sites promote your profile after you have successfully completed your work there. And the more work you’ve done, the more likely the site is to give you a marketing boost.
Granted, adding concerts to an already busy schedule could make your first few months of freelance work extremely busy. But there are worse ways to start your own business. And working more early on will also help you with another of the key tips for surviving self-employment: increasing your emergency fund. (More on that later.)
Good job sites
Which job boards should you use? It depends on what you are doing. For professionals, the best job platforms specialize in a few job categories. For example, recruiting giant Robert Half specializes in finance, accounting, law, and healthcare. SMA Inc. offers many opportunities for engineers and project managers. For those looking for tech jobs, Braintrust and Catalant are good choices. And WorkingNotWorking and Creatively are great options for those looking for marketing, design, and film gigs.
However, broader employment platforms, such as Fiverr and TaskRabbit, are often better choices for people looking for projects in areas such as writing and human resources. Fiverr largely specializes in remote working, so it’s a great place to offer CV writing, translation, or nutrition consulting services, for example.
TaskRabbit, on the other hand, has a strong focus on in-person work in a number of trades such as personal shopping, building furniture, and hanging pictures. Both sites allow freelancers to set their own rates and determine the nature of the services they offer.
2. Be covered
If you cannot get into the health plan of a traditionally employed spouse, you will need to purchase health coverage. Yes it is expensive. But it’s cheaper than trying to pay an unexpected hospital bill yourself.
The loss of health insurance as a result of job loss is generally a “qualifying event” that allows you to purchase coverage through state and federal health exchanges any time of the year. . (Normally, you have to wait for open enrollment periods.) And, if your family income falls below certain levels, your health insurance premiums are reduced.
Notably, a company called Stride Health can help streamline the research process. Stride uses artificial intelligence to match workers with affordable insurance coverage in their states. It also provides information on the discounts you can receive through the Affordable Care Act.
3. Build up emergency savings
None of the tips for surviving self-employment are as important as building up emergency savings. Why? None of the safety nets you had when you were employed extend to the self-employed. Vacation time? No. Sick days? Forget. Unemployment insurance? Only during the pandemic, by the grace of emergency legislation.
Additionally, many self-employed workers say work comes in waves of âfeast or famineâ. When you have slack times – or slow paying customers – emergency savings keep food on the table.
Indeed, your emergency fund is your first safety net when you are independent. So an amount of emergency savings that seemed reasonable when you were an employee is likely to be insufficient now. The amount you need will depend on your family situation. However, it makes sense to have at least six months of living expenses in emergency savings. And saving more never hurts.
4. Execute contracts and invoices
Most clients are reputable and can be trusted to honor their verbal contracts. Some are not. You are well advised to set up structures that accommodate both. A straightforward contract that spells out the nature and extent of the work, time frames and terms of payment can help avoid misunderstandings and assert your rights, if necessary.
It’s also not a bad idea to include cancellation clauses that protect you if a client changes their mind about a job halfway through.
Keep the terms of your contract, including when payments are due, clear. And send invoices on a predictable schedule to help you and your customers budget.
5. Don’t forget about taxes
New self-employed workers often forget that no one withholds tax from their pay. This can cause you to owe taxes and penalties when you file your return.
In addition, when you are self-employed, you pay both employee and employer contributions to the social security and health insurance systems. This can significantly increase your tax burden.
As a business owner, you also have access to a lot more deductions and credits than a regular employee. And the taxes you pay are only on the bottom line of your business, the profits after deducting all of those expenses.
Some things that the self-employed can deduct that employees cannot deduct: health insurance premiums for you and your family; office equipment and, potentially, all expenses associated with operating your home office; Business trip; membership fees and contributions; marketing costs; and more.
However, the allowable deductions for business owners often depend on facts and circumstances. This is one area where it is always wise to hire a professional to make sure you get all the deductions and credits you are owed. The good news? Tax preparation costs are also deductible.
Kristof is the publisher of SideHusl.com, a freelance website that reviews money making opportunities in the gig economy.