4 Things I Wish I Knew Before Becoming Self-Employed

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Discover one writer’s four crucial lessons learned from transitioning to self-employment. Dive in for insights for how to get ready for your journey. [[{“value”:”

In 2015, after six engaging-yet-exhausting years as a gossip reporter fresh out of college, I decided to leave the predictability of a 9-to-5 job behind. The allure of freelance life beckoned with promises of freedom, flexibility, and the opportunity to carve my own path.

While the transition has been rewarding in countless ways, it has also introduced me to the intricate dance of managing my finances and budget without the safety net of traditional employment. Here, I share key insights gleaned from navigating the unpredictable seas of self-employment.

1. Taxes can be complicated

One of the first — and most daunting — challenges I encountered was the complexity of taxes, especially after setting myself up as a business. Unlike the straightforward tax deductions from my days as a W-2 employee, my freelance venture plunged me into the murky waters of quarterly payments and business taxes.

For instance, one year, despite diligently making a quarterly tax payment, the IRS failed to account for it — even though my bank statement clearly showed the withdrawal. What followed was weeks spent in bureaucratic limbo, trying to secure a refund.

2. Flexibility is a double-edged sword

The allure of self-employment often lies in the flexibility to take time off at will. Yet, the reality is that time away from work directly impacts earnings. This flexibility is a double-edged sword: while I have the freedom to take a vacation without requesting permission, it also means that taking time off requires careful financial planning.

The illusion that freelancers have unlimited free time is just that — an illusion. In truth, I’ve found myself working through vacations, often tethered to my laptop, addressing client needs, or catching up on projects. The notion of “working from anywhere” morphs into “working all the time,” highlighting the challenge of striking a work-life balance when the boundaries between personal and professional life blur.

3. Planning for retirement isn’t easy

The absence of employer-sponsored retirement plans like 401(k)s, complete with matching contributions, thrusts retirement planning squarely onto the freelancer’s shoulders. Learning the ins and outs of individual retirement accounts (IRAs) was daunting but necessary. With the annual contribution limit set at $7,000 for 2024 (or $8,000 for those 50 and older), I took it upon myself to max out my contributions each year.

This proactive approach to retirement planning meant familiarizing myself with investment options, understanding the tax benefits of IRAs, and committing to regular contributions. This discipline paid dividends in ensuring my financial future. It also highlighted the importance of viewing self-employment not just as a job but as a business that requires comprehensive financial planning, including for the days when work is no longer on the horizon.

4. An accountant is key

Investing in professional financial advice, specifically from an accountant familiar with freelancing, has been a game-changer. The annual expense of a couple thousand dollars, initially considered a luxury, has become a cornerstone of my financial strategy. Beyond tax preparation, my accountant provides strategic advice on expense tracking, maximizing deductions, and navigating the ever-changing tax laws that impact freelancers.

This partnership has not only ensured compliance with tax regulations. It has also afforded me peace of mind, allowing me to focus on growing my business rather than getting bogged down in financial minutiae. The few thousand dollars spent annually on accounting services is a testament to the adage that sometimes, you must spend money to save (or make) money.

Embarking on the freelance journey transformed my approach to work and life. The lessons I learned through experience (and not without their share of trials) have helped me become a confident, financially savvy self-employed freelancer.

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