The freelance economy is on the rise. But while contract work or entrepreneurship can be incredibly lucrative, offer more flexibility, and allow for more creativity, there are some drawbacks to working for yourself that most people don’t consider before leaving their steady paycheck.
One of the most overlooked aspects of freelancing–and the most important–is ensuring you’ve established your new freelancing career as a legal entity (such as an LLC) to protect yourself from any liabilities that may occur as part of your work. Separating yourself from your work as a business is critical in the rare event a client sues you for your work–this way, they can’t go after your personal assets or your bank account.
Gena Shingle Jaffe, a former corporate attorney who started her own online legal business in 2015, called Damsel in Defense, explains that “legal protection is the first thing a business owner should invest in, yet it is the last thing an entrepreneur really wants.” She also explains that having contracts in place for every client is critical, as well as certain legal terminology on your website.
Freelancing is also known to cause depression and anxiety. One of the benefits of freelancing is the opportunity to work from home, which can be ideal if you have kids or an erratic personal schedule. But the social isolation can easily lead to that depression and anxiety. At the least, it’s important for freelancers to get out of the house as often as possible–scheduling coffee with friends and others in the industry almost daily was a sanity saver early in my career. Others rely on coworking spaces, which offer an office-like environment with networking opportunities yet the flexibility freelancers crave.
Jaffe also finds networking online–especially via Facebook–has helped reduce feelings of isolation as an entrepreneur.
“When you work at a job, you are surrounded by people and have opportunities to connect. When you work from home, you just have you! I’m lucky that my wife is an entrepreneur and we work from home together, but it was definitely an adjustment [after I left my 9-5]. I have become much more of a homebody, but I connect with hundreds of people a day online in my private Facebook group that I run,” Jaffe explains.
Another adjustment most freelancers have to make–but don’t realize it until they’re already in the trenches–is the impact freelancing has financially. Not only do you leave behind health insurance, retirement, and 401(k) benefits when you start freelancing, you also no longer have an employer taking out taxes every paycheck. As health insurance is now legally required of everyone in the U.S., this can be a large expense every month–and if you want to open up your own savings accounts, such as a Roth IRA, that will require you to set aside a significant chunk of any money you make freelancing as well.
Taxes can be the biggest burden on new freelancers, as most fail to set aside enough money during their first year to pay the 20-30% of income they made. Knowing what you can write off and having a good accountant can significantly reduce what you owe to the IRS, but it can still be a shock.
Jaffe admitted she was shocked when she had to pay taxes after her first year working for herself, and now has advice for others: “It was horrifying! I was smarter in my second year and have a separate business savings account where I put aside money every single time I get paid. This is not to be touched except for taxes.”
If you’re thinking of making the leap from a full-time job to freelancing, being as prepared as possible for the lifestyle switch will not only help keep you sane, but also more successful. It’s also important to keep in mind why you’re leaving your job, which is likely for more work-life balance and to enjoy more of what life has to offer.
While you can protect yourself legally, socially, and financially, you also need to take care of yourself, too. Jaffe advises, “Self-care and mind-set work are crucial in running a successful business. Take a little bit of time each day just for you. Meditate, practice yoga, take a hot bath, journal, nap, etc.”
She adds that while you can be as prepared as possible, “Entrepreneurship is not for the meek-hearted. It can beat you down, but surrounding yourself with positive energy and people will carry you through.”