Working as a freelancer has many perks, allowing you to enjoy a flexible schedule, pick projects that interest you, and work from the comfort of your own home. However, there are some drawbacks you must consider before making the decision to start working for yourself. In this article, we cover some of the financial disadvantages of being a freelancer.
Leaving your current job in order to work for yourself as a freelancer may be tempting, but there are certain financial aspects you must consider before handing in your resignation. Freelancing may give you the opportunity to create your own schedule, but keep in mind: you’ll be solely responsible for finding clients and negotiating your compensation. As if these aspects weren’t enough, you’ll also have to manage your finances with more responsibility. We’ve gathered five financial aspects to consider before quitting your current job and starting to work on your own.
You Need an Emergency Fund
There’s no guarantee that you will always find work as a freelancer. One week you might be juggling three projects, the next you find yourself with nothing to do. It’s also possible for a client to drop your services without any warning, which is why it’s mandatory to have an emergency fund that covers your living costs for at least three months. Without a fixed income, planning and creating a budget to cover your expenses will also be more difficult.
No Employer-Provided Benefits
As a freelancer, you’ll no longer enjoy any employer-provided benefits, particularly health insurance – you will have to provide your own insurance or pay for it out-of-pocket. Furthermore, you may find yourself working at inconvenient times, such as when you’re sick or on vacation.
Think About Retirement
It’s never too early to start thinking about retirement, which is especially true while working for yourself. You will have to open an Individual Retirement Account (IRA) and start saving every month. Do your research beforehand, analyzing different factors such as IRA bank rates to find one that best suits your needs. For more information about freelancers and retirement, take a look here.
No Job Security
Salaried employees get paid even if business is slow. As a freelancer, you don’t have that luxury. You must also learn how to attract clients and market your services. In order to attract clients and start building a reputation, you’ll most likely have to settle for lower rates when you start out.
It’s Harder to Get a Loan
According The New York Times, freelancers face more difficulty securing loans. This is mainly because income depends on temporary contracts that can end at any time. If you want to apply for a loan or a mortgage in the future, you will have to work harder than a regular employee to get approved.
If you don’t want to give up the perks of having a stable job yet, but are still toying with the idea of working for yourself, you always have the possibility of freelancing on the side. As long as your employer allows it, this can be a good way to earn some extra cash and figure out if you are really ready to make the transition. Either way, be sure to keep these points in mind as you make a decision.