If it seems like a growing number of freelancers are invading your local coffee shop with their laptops and endless lattes, you're not alone. Freelancers now make up 35% of U.S. workers and, in 2015, earned an estimated $1 trillion collectively.
If you're thinking of going the freelance route, you should know that it certainly has its share of advantages and drawbacks -- take it from someone who's self-employed. Here are the various points you'll need to consider before leaving a salaried position to become a freelancer.
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Benefit #1: Making your own schedule
Though you'll still be required to complete your work in accordance with your clients' deadlines, as a freelancer, you'll typically have the option to set your own hours. Need to schedule a medical appointment smack in the middle of a Tuesday? No problem. This not only gives you more flexibility, but allows you to double up on projects as needed to generate more income.
Benefit #2: Choosing which projects to take on
There's nothing more mind-numbing than doing the same tasks over and over again. Thankfully, as a freelancer, you don't have to. Whereas permanent employees don't always get a say in how they spend their time, if you work for yourself, you have the right to choose which projects to accept or reject. Of course, if you turn down too much seemingly boring work, you might run into some cash flow problems, but ultimately, the choice is still yours.
Benefit #3: Working from wherever you please
You know those people who are constantly complaining about their terrible commute? As a freelancer, you don't have to be one of them. When you're self-employed, you get the flexibility to work from home, your local coffee shop, or even abroad. And while you may run into a situation where a client wants you on site, if that sort of arrangement doesn't work for you, you can simply pass on the opportunity and find one that better suits you.
Benefit #4: Claiming business deductions
Salaried employees don't get to write off the cost of commuting to the office or going out to lunch on a regular basis. But as a freelancer, you get much more flexibility as far as business deductions go. Any time you travel for work-related purposes, you can claim the cost of your transportation, lodging, and a portion of your meals. You can also take a mileage deduction if you use your vehicle for work, as well as a home office deduction if you meet the right criteria. These deductions can help reduce your taxable income and put more of your hard-earned money back in your pocket.
Drawback #1: No job security
While going freelance has its perks, one of the greatest disadvantages is the relative lack of job security. Though most permanent workers these days are employed on an at-will basis, it's still more difficult to terminate a salaried employee than a freelancer. And if you're working for a company that faces budget cuts, you may be one of the first to go.
Drawback #2: Unpredictable income
Whereas salaried employees know how much money to expect in their paychecks every month, freelancers often deal with sizable fluctuations in income. As such, you may find it far more difficult to budget properly and save money consistently. You also risk running into trouble if you have a month in which your earnings come in much lower than expected.
Drawback #3: No company benefits
Permanent employees often enjoy perks such as subsidized health insurance and paid time off. As a freelancer, however, you'll pay for your health coverage in its entirety (though you can deduct your premium costs on your taxes). Furthermore, if there's a given day or week when you don't work, either due to illness or a scheduled vacation, you won't have someone paying you for that time away from the office. Furthermore, freelancers aren't eligible for unemployment benefits, so if your stream of income dries up, you won't collect a dime from the government as you attempt to re-establish that pipeline.
Drawback #4: Self-employment taxes
Not only are freelancers required to pay self-employment taxes (which means shelling out double what salaried workers pay for Social Security), but the burden of figuring out how much money to give the IRS is on you. Sure, there's software that can help you arrive at the right numbers based on your earnings, but if you underestimate your quarterly taxes, you risk getting penalized down the line.
Clearly, there are plenty of good reasons to become a freelancer. The key, however, is to be equally aware of the downside of that particular lifestyle, and make sure it's really the right move for you.
