For many, the American dream is no longer a corporate job, but working independently as a freelancer. The numbers are huge and continue to balloon — over a third of US workers have been identified as part of the gig economy (around 57 million people), with predictions that freelancers alone will comprise over half of American workers by 2027.
Yet one thing has traditionally held some back from ditching their day job and going full-time as a freelancer: financial fears. Freelancers often get lumped in the collective psyche as part of the “starving artist” category, with the vocation considered one that people do for love more than for money.
Research shows, though, freelancers make more than nine-to-fivers in most countries, and some freelance jobs can command six figures, such as independent artists, writers, and performers, whose annual mean wage was over $104,000 in 2018, according to the Bureau of Labor Statistics. Other types of freelance jobs can also be lucrative, from web developer to graphic designers and more.
Even knowing that you have the potential to rake in more money than you do in traditional employment, though, making the shift from a regular, reliable paycheck to independent, client-based work is tricky. There’s a lot you need to understand first — from infrastructure and budgeting, to finding new clients and setting up a support system.
For behind-the-scenes guidance, Business Insider surveyed a wide range of freelancers in various industries who make more money now than they did in their previous staff position. Read on to learn what the process is like from start to finish, and what you need to know to make the leap from having a boss to becoming your own.
What infrastructure do you need to put in place to become a freelancer?
The freelancers we surveyed agreed that it’s not smart to go cold turkey when making the transition to independent work. Creating a sustainable infrastructure should include a solid financial position, as well as setting up several standard business systems to avoid reinventing the wheel.
- Financial footing. Kenzi Wood, writer and owner of Kenzi Writes, emphasized the importance of getting out of debt before quitting a full-time job. “I knew this would help me grow the business without fear of my personal finances,” said Wood. “That meant putting full-time writing on the back burner for a year, but today I’m more successful because of it.”
- Administrative systems. Wood also recommended creating systems for accounting, client communication, task tracking, and building up a stream of regular clients, so that you can rely on solid processes rather than approaching each project in a piecemeal fashion. Hannah Attewell, who recently transitioned to becoming a freelance success and business coach, agreed with the importance of automation: “Automate everything you can — admin can eat up a lot of time that you then can’t use to profit from.”
- Tools of the trade. Equipment is another vital part of your infrastructure, and this will vary depending on your industry. Stacey L. Vaselaney, a public relations and social media freelancer who quit her job as a senior PR specialist with a large Cleveland advertising agency in 2013, said a computer, printer, scanner, and website were all she really needed to launch. Attewell explained that she was able to get started after setting up some solid SEO on her website, along with PR for backlines and carefully placed advertising. Many freelancers also recommended investing in accounting software before you begin freelancing.
What resources do you need before leaving a full-time job to go freelance?
Being prepared rather than naive about what’s to come is critical to getting your freelance business started on the right foot.
- Cash reserves. In addition to getting out of debt, many freelancers honed in on the importance of building up some cash reserves before collecting your last paycheck from your employer. Marc Andre, founder of personal finance blog VitalDollar.com, set aside about $30,000 as an emergency fund when he left his full-time job as an auditor. “We didn’t have any kids at the time and my wife was still working, so that money would have lasted us for a while if needed,” explained Andre. “I’d recommend having at least a few month’s worth of living expenses, and I think it’s good to be more cautious if you have dependents.” Lance Beaudry, who previously worked in youth ministry and now owns a small SEO and content strategy company called Avalanche Creative, advises having at least six months of your desired income in the bank, not just six months of expenses.
- Support system. When you leave an employer to become a freelancer, you also abandon an in-house support system that you may have taken for granted. Kathleen Osborne, who recently gave her notice at her full-time job and is preparing to kick off a freelance business, said ensuring that she had positive references was her initial priority. “The first thing I considered before making the decision was deciding on whether or not I had the strong network I needed that would vouch for me in terms of the quality of work that I do and/or be a resource for me with networking for new business,” said Osborne. Max Kops, who left a job as an IT consultant to freelance in the area of blockchain, agrees with the importance of ensuring that you can obtain initial references when starting out. “What is most important is that you are not only an expert in your field, but you can also convey your value to your prospects,” said Kops.
- Understanding of benefits and tax implications. You’ll be leaving behind employer benefits and tax structure as well when you give your notice, so an important consideration is how you’ll account for these changes. In terms of health insurance and other benefits, some independent workers opt to join freelance unions for group plans and advocacy, but most of the freelancers we spoke with didn’t feel this was a necessity. “I don’t belong to any freelance unions at the present moment and I don’t really think it’s necessary when starting out,” said Drew DuBoff, whose freelance specialty is online business management. It’s critical, however, to have a strong understanding of the difference between being a W2 employer and a 1099 contractor when it comes to tax preparation. “There can be a fine line with laws of employment versus contractor,” said Nicole Gallicchio, whose freelance background includes serving as a virtual operations consultant. “It is important to account for taxes as soon as you get an invoice paid. I have learned that you should put away at least 35 percent of each check.”
What’s the process like of leaving your job to start a freelance business?
Once you have your ducks in a row in terms of infrastructure and resources, be prepared for some potential challenges as you shift your work life from employee to freelancer. Our panel shared a variety of experiences in leaving their employer, some of which were difficult. Many entered the situation with jitters and reservations, but pushed through the fear and did it anyway.
- Weighing costs and benefits. Beverly Friedmann, who works as a freelance content manager, noted that it was a difficult choice to leave her former corporate position to embark on an untried path as a freelancer. Friedmann was among those who found themselves tallying possible pros and cons before deciding to take the plunge. “I was told by friends, colleagues, and even family that I was making quite a risky move,” she explained. “The obvious downsides? Potentially losing benefits without joining a union, including health insurance, workers comp, and unemployment. The upsides? Setting your own hours or working additional hours if desired, increased autonomy, the potential to make even more money by taking on more clients, less travel (depending on your position), and the ability to actually thrive in an industry you enjoy.”
- Facing politics. Telling your employer that you’re quitting can be uncomfortable even when it goes well. Some respondents shared that while they personally were excited about delivering the news, it was met with mixed results from their unsuspecting boss and teams. “I absolutely loved leaving my job,” recalled Attewell. “There was definitely a big drama with the job I was in — I imagine because they didn’t see it coming. In my case it was more exciting than scary because I was right at the beginning of my career, so [I] didn’t feel returning to full-time employment would be too tough if it didn’t work out.”
- Losing healthcare. Vaselaney too had a difficult time pulling the plug on her steady job, paycheck, and benefits — particularly due to a health situation. “It was a very difficult decision,” she said. “As a cancer survivor I am considered high-risk for insurance coverage. Ensuring I’d have healthcare coverage was my biggest concern. After I discovered that I’d be able to be on COBRA for 18 months, I felt confident enough that I could quit my job.”
How do you budget your money and time?
The specter of a paycheck-to-paycheck existence is often evoked when freelancing is mentioned, but the vast majority of freelancers queried avoided this fate through proper budgeting and planning. Having enough time to get everything done as a freelancer, though, was flagged by many as a significant issue.
- Put clients on retainer agreements. To avoid feast-or-famine syndrome, some respondents said that they seek retainer-based client relationships to ensure a steady stream of income. By requiring clients to agree to a retainer fee, it allows you to receive a rate that’s either fixed or variable, but is negotiated in advance. Freelance SEO consultant Brett Downes referred to retainer contracts as “peace of mind as I know I get a minimum payment each month.”
- Save to avoid overreliance on current payments. While Friedmann admitted that she has occasionally found herself living paycheck to paycheck, she mitigates this possibility by ensuring that she always keeps a savings account as well-funded as possible. “I would definitely recommend freelance workers take on as many clients as they can and always save,” she said. “Savings accounts become key when you’re in freelance, as months can be very hit or miss.”
- Master self-discipline. With no boss breathing down your neck for that assignment, it’s easy to let things slide too much and then find yourself in a constant last-minute crunch. Our sources noted that successful freelancers are savvy about building in time to manage their whole business — including invoicing, marketing, accounting/taxes, and other administration. Tom Wills, who shifted from a sales role in a digital agency to freelancing as a PPC and SEO specialist, says it’s vital for aspiring freelancers to learn to manage their time successfully. “You need to be very self disciplined,” said Wills. “So if you don’t have this trait I would seriously reconsider going freelance, as getting up for work is easy when you have to, but much more difficult if you are your own boss.”
How do you find clients and get recurring gigs?
Once your freelance business is off the ground, you have to find ways to keep it up and running. According to our experts, there are a variety of ways to generate a steady stream of new business.
- Build up referrals. Many of the freelancers we spoke with get most of their repeat clients through word-of-mouth referrals. This requires first doing outstanding work so that you stand out among a crowded field of freelance talent. “Just do a Google search to remind yourself that freelancers are a dime-a-dozen,” said freelance marketing consultant Kristi Grigsby. “You’ve entered a field where you are truly replaceable — within hours. That reputation of exceptional talent and integrity starts now and is crucial to your success as a freelancer.” “It comes down to being a good person to work with,” agreed Wood. “If you deliver a quality product on time with a smile on your face, you’re a unicorn: it’s so hard for businesses to find that in a freelancer. Be so good that they want to keep working with you.” This strategy can lead to multiple positive outcomes, noted writing, marketing and communications specialist Alice Donoghue: “If you do great work you’ll get repeat business from your clients, plus referrals.”
- Use Facebook groups. Some freelancers — including DuBoff and Lindsay Stead of Gilded Blooms Communications— have found all or nearly all of their clients by networking online through niche Facebook groups. “People are always shocked by this, but almost every single client of mine has come from being active and engaged in Facebook groups,” said Stead, who left her job with the local school board five years ago and now employs a core team of seven. “Having said that, in order to find new clients you need to get very clear on who your ideal client is, and go hang out where they hang out.” For example, since Stead’s ideal client is a female entrepreneur who is a wedding professional, a coach, works with a not-for-profit, or is a creative entrepreneur, she found Facebook groups that support these women. “I show up regularly, I give value freely, and I make connections,” Stead said.
- Get creative. By necessity, freelancers are a driven bunch — complacency in identifying new opportunities can leave self-employed workers with little to no income if they lose a key account. Respondents highlighted a wide range of additional ways that they gain new and repeat business, including traditional in-person networking, researching companies that they want to work for and offering services to them, joining industry associations, attending events, offering thought leadership, and using different freelancer platforms such as Upwork and Fiverr.
How do you make more money than you did in your full-time job?
After all is said and done, the bottom line still matters, since if you can’t pay your bills as a freelancer then you may end up back in the rat race. Fortunately, we found many freelancers who report having the opposite experience. “Within six months I was earning more than my full-time job, and within a year I had more than doubled my earnings,” said Attewell, whose timing of rapid income ascension was typical of those surveyed. Our experts shared thoughts about how they managed to make more than they did before, and how others can too.
- View freelancing as a business. Attewell pinpointed her approach toward her vocation as the key to her financial success as an independent worker. “So often people diminish their position by calling themselves ‘freelancers’ and not treating their freelancing as a business that needs marketing, budgeting, and proper systems like any other business,” she said. “The key to making money was that I tracked what I did and reinvested in avenues that were producing clients and revenue streams. Similarly I would regularly trim out anything that wasn’t making enough money to justify the time and expense.”
- Parlay freelancing into an actual business. Some freelancers go even a step further. Andre added $20K to his salary in his first year of freelance writing but felt that he could make even more money by managing his own websites — so he used freelancing as a bridge to get him to that point. “It’s been a great full-time business for more than 10 years now,” said Andre. “I had a salary in the low $40,000s at my old job when I left in late 2008. In 2009, I made about $60,000 in my first year of self-employment. Every year from 2010 to 2018, I had a six-figure income.”
- Find a niche. While some freelance fields are very specialized by nature, others like copywriting or graphic design leave the door open to many possibilities. By identifying a target niche market that you can specialize in, you can potentially build your income faster than you could as a generalist. “I think the key to making money freelancing is niching down,” explained DuBoff. “When I first started, I offered a lot of services, but I didn’t do any of them particularly well. Once I refined my offerings, I began to attract the right kinds of clients that valued my expertise and skill.”
With all of the advice above, keep timing in mind, both in your financial and emotional readiness to make such a big change in your career path. “It doesn’t matter how cruddy you think your full-time job is, or that the work isn’t fulfilling,” said Wood. “If you jump off to freelance at the wrong time, there’s a good chance you’ll have to go back to a full-time job working for someone else.” If you time it right, though, the sky can be the limit: “Being a freelancer has been great for me,” said Vaselaney. “I can’t imagine ever going back to an office job.”