Why Your Freelance Earnings Don’t Stack Up to Employed Income
When you work for an employer, the amount you earn doesn’t match the amount you take home. If you think back to that terrible, terrible time (don’t worry—we won’t stay there long), you may remember having funds withheld for taxes, Social Security, insurance and other employer-related stuff like parking.
Most freelancers understand that when they transition into self-employment the income their writing brings in can’t just match what they brought home from their last employer. Instead, they have to make more than that in order to cover their own taxes, Social Security and insurance. There’s more to it than that, though, and if you don’t figure that out soon, you’re going to be pulling your feet outta slippers and back into employer-approved stilettos* before you can say, “bankrupt writer.”
Freelancer Income Considerations
- Your employer paid an extra 6.2 percent for Social Security, on top of what was taken out of your checks. Now you have to earn enough to pay the full 12.4 percent.
- Your employer might have subsidized your health and other insurance premiums or gotten special group rates. Now you have to find out how much your insurance will be without that assistance.
- Your employer gave you business supplies. Now you have to buy all your own supplies and equipment, including a chair that’s suitable for gobs of hours of butt time.
- Your employer handled stuff like liability insurance, property insurance and maybe charged you a teensy amount for a disability policy. Now you’ll need to find your own policies and pay for them. (Find out whether your home insurance company will add special coverage for commercial property—some do.)
- Your employer might have provided you with sick and vacation time. Now you need to set funds aside each week or month in order to continue paying yourself while you’re off.
- Your employer might have matched some or all of your retirement contributions. Now you have to set it all aside on your own.
- Your employer had a budget for marketing and advertising in order to keep the business running. Now it’s all on you, and that takes either money or time—and since you still need to pay yourself during the time you spend marketing, the time will cost money.
- Your employer handled miscellaneous business expenses like legal fees, educational materials, website hosting, research and development, etc. Now you have to have enough business income to cover these expenses and others you might not be expecting.
It’s so easy for a freelancer to fall into the trap of seeing gross revenue as interchangeable with personal income, but that’s not how businesses run. Your business revenues need to cover more than just your income. They need to cover all the things an employer would cover, because that’s your role now. Hey, they don’t call it self-employment for nothing.
*Or loafers, which would clearly have sabotaged the alliteration.