Stepping away from your full-time job to go freelance or become a contractor is the dream for many people. Free from the shackles of an office chair, you’re able to work when you want, where you want and almost completely on your own terms. While you may think this career path can save you a lot of money, without the cost of commuting, eating out at lunch and after work drinks, there are many important costs to consider before you take the plunge and go freelance.
Premises and Equipment
You’ll probably start working from home and think this won’t cost anything. After all, you already pay the rent or mortgage, own a laptop and most other things you need. Yet working from home means you’ll be using more electricity and spending more on bills, while you may need to invest in software, hardware and web hosting that was all included at your old job. Plus, you might need to rent office space at certain times to meet with clients or just benefit from a better working environment.
Working Hours, Holiday and Sick Pay
A massive financial change going freelance brings is that you will no longer be entitled to any holiday or sick pay. This means you’ll probably have to work even harder in the run-up to a holiday, to firstly afford it but also cover your lost earnings when you’re away. The same is true if you get ill and are unable to complete some of your work. In some cases, you may need help either to get started or through a tough period. Good budgeting is essential to make freelancing work. You should make sure you are on top of all your existing personal finance payments before you go freelance.
For those aiming to go freelance for the long-term, pension planning also needs to be considered. Working for a company means they’ll control most of your payments, but with a self-employed pension, you’ll have to make the contributions yourself. This means shopping around for the best options and factoring in monthly payments to your earnings, something that many new freelancers can forget. There are still tax reliefs available, even with self-employed pensions.
Legal Protection and Taxes
Taking care of your own income tax and National Insurance is one of the most important costs. As well as budgeting in tax payments to your monthly earnings, you need to register for a self-assessment tax return. Some freelancers fill this in themselves, but it can take a lot of time, so for greater convenience and to make sure it’s done correctly, hiring a professional accountant may be best. This introduces extra costs, while you will want to look at public liability and other insurance types to protect yourself as a self-employed worker too.
Going freelance isn’t literally free, there are many costs to consider. If you feel this is still the best option and you can cover them all, then go for it. You can read my other lifestyle-related posts here.