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Leadership

Freelancing Won't Help You Build Wealth, But Doing This Might

Freelancers rarely own a stake in the work that they do, which can make it harder to build wealth over time.

Freelancing Won't Help You Build Wealth, But Doing This Might
[Photo: Hannah Wei via Unsplash]

The gig economy is here, it’s real, and it’s global. According to a report by the Freelancers Union, 34% of American workers can now be classified as freelancers. And while that number is a subject of some debate and includes your Uber driver, it encompasses a growing number of white-collar workers as well—people who offer legal, financial, accounting, or design services on demand.

This isn't strictly because people are coming around the to upsides of independent work and flocking to it voluntarily. While many do, that growth is also a consequence of recent instability in once-staid industries like law and finance, which have pushed many professionals out of firm life and into consulting roles. As a result, software giant Intuit projects that temporary workers will represent 40% of the workforce by 2020. It seems that in the future, nearly half of workers—no matter the color of their collars—will be free agents.

Gigging has proved a boon for many consumers and small business owners, but it isn't universal good news for the folks providing all these services. It's true that freelancing often offers flexibility and a home for workers displaced by the changing labor market, but it also suffers from a fundamental flaw: When you’re a freelancer, there is no company stock plan. You get paid based on the hours you work and nothing more. You seldom have long-term ownership over any of your projects, since even big, time-consuming jobs have end dates; once you hand one off and file your invoice, that's that. There's no possibility of owning a share—even if it’s a small one—of something that can grow in value over time.

This all presents some major conundrums for full-time freelance workers, particularly when it comes to personal wealth and finance. How can you make the most of your work in the gig economy, in a way that lets you build wealth over the span of a career?

Think Like A Business Owner

When you’re a freelancer, you are also, in a fundamental sense, an entrepreneur. Over time, you will build a list of clients, expand your network, and assemble a track record of achievements that are your own.

In that sense, freelancing can offer a path to building your own firm, so it’s never too early to establish credibility before the wider world. That means taking some time to create a brand, build a website, design a logo, and order slick business cards—things legions of independent workers already know how to do. What's changing more and more, thanks to the sharing economy and inexpensive online platforms, is that they're easier to accomplish than they were just a few years ago. You can now invest just a few days and a couple of hundred dollars into personal brand and platform building that previously took far greater resources.

You can also legally incorporate your company quickly and easily with a minimal investment of capital. Even if you’re not yet sure whether you plan to work for yourself over the long term, why not hedge your bets? If you do, you’ll always have these resources in case you want to moonlight on the side.

Seek Out Sweat Equity

Don’t restrict thinking like an owner to your own firm, either. You can acquire stakes in other people’s businesses as well. You already have the flexibility in your schedule, so put it to good use: Devote at least 10% of your time and energy to offering your services in exchange for shares of a company, commonly known as earning "sweat equity."

This practice is relatively common for a simple reason: Most startups have more to offer in the way of equity than they do in cash. As a result, there are many services, like advising on a business plan or legal documents, making critical introductions, or creating a logo or website, that young businesses will consider as an in-kind capital contribution in exchange for stock.

While it's naturally riskier than simply walking away with a pocketful of cash, getting paid at least partly in equity can be surprisingly lucrative. Take the case of David Choe, the graffiti artist who took stock in Facebook as payment for murals he painted at the company's headquarters. Today, those shares are worth hundreds of millions of dollars.

With freelancing here to stay, thinking like an owner—with respect to your business as well as others'—can be a powerful strategy for building long-term wealth in an economy that otherwise makes that pretty tough. Not every company you work with is going to be the next Facebook, but as you gain experience, you'll learn to spot the companies that are poised for growth. Not only will these companies become reliable clients, but if you earn sweat equity, they can also become long-term partners.

Patrick J. McGinnis is a venture capitalist and private equity investor who founded Dirigo Advisors, after a decade on Wall Street, to provide strategic advice to investors, entrepreneurs, and fast-growing businesses. He is the author of The 10% Entrepreneur: Live Your Startup Dream Without Quitting Your Day Job.

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