The number of freelancers in the U.S. is steadily rising. In 2017, there were 57.3 million freelancers. In 2023, there were 73.3 million. By 2028, Statista projects there will be 90.1 million freelancers. That is an increase of over 40% in a little over a decade!
Freelancers have a unique set of financial circumstances in that, unlike employees, they often do not have a steady pay schedule. In addition, the average freelancer earns between $48,750 and $68,268 annually, compared to an average U.S. salary of $63,795.
Special needs, special strategies
Freelancers need to learn how to juggle their finances so they can pay their bills, save for the future and pay their taxes. Here are four steps you, as a freelancer, can follow to help secure your financial future:
- Calculate your income. How much do you earn annually? Look at last year’s income and consider this year’s projections. As part of this assessment, ask who your clients are and how much you earn from each. If all your income comes from one client, what will you do if that client no longer needs your services?
- Understand your monthly expenses. This step can be eye-opening. Add up the expenses that must be paid monthly, such as rent, health care, transportation, utilities, student loans and personal loans. Then, track how much you spend each month on food, clothing, entertainment and other similar expenses. If you have credit cards or other debts, include the amounts that need to be paid monthly. If there is a lot of debt, consider whether a debt consolidation loan would be advantageous.
- If the amount in item 2 exceeds the amount in item 1, think carefully about where you can cut expenses. For instance, many of us pay subscription expenses without giving it much thought. Do you really need both Netflix and Hulu? What are other ways you can cut your discretionary spending? Is there something you can do to earn more income, such as drive for Uber or Lyft?
- Savings are important. As a freelancer, you do not have the perks and benefits traditional employees have. If you get sick, there is no paid sick time to fall back on. A good rule of thumb is to save 10% of your earnings each time you are paid. You may be surprised how quickly that adds up.
- Plan for taxes. As a self-employed individual, you are generally required to pay estimated taxes quarterly. Further, you are responsible for self-employment tax. The self-employment tax is a 15.3% tax that covers your Social Security and Medicare taxes. Employers pay half this tax for their employees, but as a freelancer, you are responsible for the entire amount.
- Plan for the future. As you accumulate savings, consider getting professional advice about investing for the future. A financially secure future is the ultimate goal.
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