The Complicated Financial Lives of Freelancers
npr.org
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There are all sorts of great resources about how to business online, but it didn't even cross my mind at the beginning that that would be important. Once I started learning how to business freelancing became waaay easier.
Things like how to invoice, how to negotiate, how to talk to a client, how to schedule your time, how to budget, how to market yourself, how to network, etc etc etc are not at all related to programming, but can make the difference between a happy freelancing existence and a miserable career.
I've been fortunate to have a pretty lovely freelance web development career. My key has been finding clients that are smaller companies and not full time, with a long ongoing project.
Smaller companies allow you to build a relationship with the owner of the business, and to position yourself as not just a pair of hands to write code, but a trusted advisor who takes the business's actual needs into account when writing code (which is how you compete with global talent).
Not full time means you can have multiple clients at once to give you a nice advantage over a full time job: if one source of income dries up, your income doesn't go to zero.
Most of my clients have been multi-year projects. I'll slowly build their webapp for around 10 hours a week at most. I've worked about 20 hours a week for the last 8 years, lived in lower cost of living areas, and spent the rest of my time on doing whatever I feel like.
Some resources I'd recommend:
* The Personal MBA by Josh Kaufman - a nice overall summary of how to run a business
* The corpus of Kai Davis's material (https://kaidavis.com/), including his super valuable/highly entertaining podcast Make Money Online (https://makemoneyonline.exposed/)
* How to Win Friends and Influence People by Dale Carnegie - how to interface with fellow humans (freelancing/business is mostly a human activity)
Happy to help anyone who's interested in freelancing if I can, send me an email.
Regarding the 20hrs/week, everybody should know: That's the productive time, for every human being. Charge accordingly.
I found it's study of status quite good. So much can go wrong for people when they fail to maintain a harmonious exchange of status when interacting with others. This book describes how important status is in comedy and breaks down some old Marx brothers skit to analyses the humour in seeing somebody have their status diminished.
It's been a while since I read it, but it's stuck with me and I remember developing a new sort of awareness of my interactions with others.
American here. I’ve found that the friendly “American way” of doing business lets my team seal deals faster than their European competition. I initially got pushback from my UK team. “That isn’t how it’s done.” But human nature is human nature, and taking people’s personal aspirations into mind is never a bad strategy.
You won’t be able to run a business the American way in Germany, not would you be able to it vice versa.
Nor you should be able to be.
(There is nothing historic about being able to capture 20-25% of the world’s GDP either — England (1800s), Turkey (1600-1700) and China (European dark age through Middle Ages) has all achieved the same economic power US enjoys as of today.
This thread is incredibly vague. I bet there is significant if not majority overlap between the two.
Back to Dale Carnegie, his advice about not telling people "you are wrong" and getting to know them is some of the best and simplest advice I've ever received, and transcends time and space.
The exact way you do these things depend on the culture for sure, and the book is written by an American. From what I understand Germany is less directly "friendly" than the US so the pleasantries may not carry over, but I have to imagine that considering the other person more than yourself does carry over.
I picked a middle-of-the-pack "silver" option in new jersey with no subsidy, its costing me ~450/month.
It's gotten better with the beginning of the federal marketplace, but it still is true that better coverage is gotten from a full time job. Though, I guess it depends on what you are looking for. I pay $350 a month for a decent plan in Chicago. But, I'm a mostly healthy 30 year old so YMMV.
Some options you might consider for further coverage:
1. Have a spouse that has insurance. Easy mode, but seems to be an option for some people.
2. Part time job that has benefits. I have a friend doing exactly this - 20 hours a week working at a university and the rest of the time freelancing. Provides a little human interaction too.
3. Medical tourism? I only half joke that I may up and go to Lithuania if I ever need not urgent major surgery (though I might do that even with good insurance). Being freelance opens up that option.
But as more and more people become freelancers, I have to imagine this situation will change. I really hope that in the next 10 years we'll get more options, whether full fledged socialized healthcare or even just the ability to get the same plans as employees. If you were needing a reason to vote in the upcoming elections this is probably the one that most directly impacts freelancers.
So for example, let's say you're a web developer reaching out to owner of an ecommerce store. "Value upfront" could be giving them ideas of how they can capture and recover more purchases: cart abandonment, loyalty points, etc. so they want to hire you to build it for them.
Some good templates I came across for this sort of outreach: https://artofemails.com/sales-freelancer
Also useful, how to go from hour based pricing to value based pricing: https://www.freshbooks.com/assets/other/Breaking-the-Time-Ba...
Congrats! If everybody did that we would be halfway through solving the climate problem.
* Be a digital nomad
* Experiment with building apps and products
* Think and make better decisions
* Actually get 8 hours of sleep without hurry
* Save my body from RSI and go to the gym
Etc, etc. It's especially doable as a programmer since that is a very much in-demand service right now.
I'd love to see everyone have 20 hours a week to do whatever they wanted with.
Building specific frameworks/systems to work within is absolutely the solution IMO. So, like Xero but with a focus on an exact industry/locale. One-button follow up of unpaid invoices, automatic setting aside of money for paying taxes, automatic advice on rates. Too often, people try to fit the tools to their way of working when I think they'd be better off fitting their work to the tools.
If they don't take those terms, then they don't get your services.
If that means you have to wait tables until you find a few legit clients, then so be it.
In my experience the vast majority of businesses will not entertain the idea of cash up front, period. I bet that you wouldn't either. If you were building a house, and the builder demanded cash up front, you'd laugh in his face.
Finding good clients is important, but if you demand to be paid in advance, get used to waiting those tables because you're going to be doing it a long time. Note: you will not be paid in advance for waiting those tables, either.
That's how a lot of builders work - if you're having a custom built home, you're going to need to put down a deposit.
If you’re doing work for clients upfront without a deposit, you are taking a huge risk. Which is probably why out of more than $2 million billed, I’ve only had a single client not pay me, and that was a startup that went under completely.
Then the time-tracking component would strongly warn against commencing work until the invoice was paid, etc.
So, basically, a very opinionated business framework web app.
It basically happens in real time, but a weekly check is still tolerable compared to net-60.
And then you learn to spot warning signs, and avoid clients/projects like that again in the future. Getting some deposit up front is often a good thing, but also not something you can always manage. I've done work for govt agencies - that's generally not going to happen, but once I have a contract or PO, I've got a pretty high confidence the money will come through - it just may take weeks or months to get paid.
Whoa, whoa, whoa. You're doing something very wrong if you've lost track of $100,000s of payments.
In the early years, aggregating staff time sheets was manual and easy to put off. We ended up building https://usepunch.com to handle that which is a massive help.
In web development and with 100+ clients, it can be quite difficult to track things like hosting and domains when they're spread across multiple providers, renewing at different times of the year, etc. We ended up building an internal web-app that interfaces with Xero to help manage this, but this was 18+ years in...
And yeah, I can appreciate I've done something very wrong. I've found that all too easy when spread so thin.
After that I phoned after every invoice - which was a pain in the ass for me and for AP, but the money (mostly) arrived on time.
It's really, really easy to miss how important admin and cashflow are. They're boring AF, but also too important to ignore.
Even worse is the realisation that sometimes you are going to be paid late, sometimes you are going to be offered partial payment, and sometimes you may never be paid at all - and these are all absolutely normal in business and you should expect them and have contingencies for them.
As a rule, any freelance work where you rely on timely payment from a single client to cover your outgoings is incredibly risky and dangerous and can easily become very stressful - because you are literally flirting with financial death.
It's great that you could do it.
I'm not saying it's impossible to do it OK, I'm saying it's easy to get it wrong and fall behind. I mentioned the idea of an opinionated business framework to a friend (freelancing very occasionally 1-2 years) and they said "Oh YES, absolutely." And that's for someone who'd send 2-3 invoices a month, not 50+.
There is a very very narrow set of rules that you absolutely have to follow to even be able to live peacefully here. Be born at least middle class, go to good schools, pursue the right degrees, go to corporations, make no mistakes in life and then finally retire in a retirement home paying thousands a month.
Steer from the above path and you'll start seeing things like mistakes in IRS filings or a medical issue or a pre-existing condition or a divorce or a bankruptcy or an unmangeable debt or a gap in career.....you know, normal human problems, you are screwed.
And then there are man-made problems like jail without bail, lawsuits flying around, guns, crime.
Notice there is no place in society for teachers, small-time healthcare professionals, career in arts etc.
Yeah,its a very funny phenomenon. For some reason, Americans like to downvote anything true about their society. This is what you would expect out of communist societies.
But this isn't politics. This is the societal reality of the home of tech industry. There are many people around the world who are blown away by the stories of Silicon Valley.
When we share stories of SV parties, VCs, lifestyle, homelessness, then why not about life and reality here? At the very least, it is informative to people who are uprooting their families and lives in other countries.
What kind of stories? Housing prices? Management horrors?
I want to have it when I deposit client checks in one account it takes the money and moves one third to another account and one third to another. (then I'd like to have a personal account do the same, whenever money is transferred from my business A account to this personal account, take one third and move to savings, one third move to wherever..
My google FU did not find this.. I found a couple of banks saying that you could do transfers, and I think one bank had it so you could choose an amount, like $500 every week or something more static and have that auto transfer... but for freelancing gigs it's not usually a static amount every week.
I thought about doing (and may still have to ) an ask HN on this, but this story / thread is likely perfect for this.
I'd like to find an actual bank product that would do this, I don't really trust the security of a phone app to mess with accounts, and don't want to put a bunch of eggs into some cloud basket either, so I'd prefer to stay away from third party cloud sites that use my authentication to touch any accounts.
This kind of thing would help so many in the gig economy plan for the quarterly stuff better, hope someone can point to a bank that does this.
Product features like these invariably turn out to be far more complicated than they look.
However the trend is growing, it may be that a third of the US workers are 'gig economy' right now, but the market is greater than 57 million people, as there are plenty of other workers who have a varying paycheck depending on many factors, not just freelancers.
Security nightmare? Not sure about that, as I mentioned in original thought, I don't trust a phone app or a desktop app to a cloud app for those reasons, I know many do for their accounts however, so it can't be that terrible. This is also why I want a bank or credit union to have this option within their system / their online portal though.
Useful rules more complex? I disagree here big time. I could save a tone of time and stress, as could so many other people I have spoken to. Every uber / lyft driver I have spoken to is not prepared for self employment taxes. Construction workers and so many others would greatly benefit by setting up percentage based rules - put 30 percent in other account for the tax man alone would be life changing for many.
Of course you could market it with other bits of standard advice - whatever that it - put 10% of your money into a rainy fund, put 10% for your church, put 14% into retirement accounts or whatever the popular advice is.
I have seen that my two banks have systems in place for making transfers already, within the same bank is simple and fast, and to other banks or phone numbers even is not hard and those systems must already be setup to handle "overdrawn accounts, closed account, renumbered.." and whatever the so on is... I don't think this is difficult to add on to.
It does not need to be complicated, someone could even setup a little pie chart GUI with some standard rules that many benefit from, 30% here, 10% to there, 10% to other there - xmas funds - label your own goals..
This would be a huge benefit to many, and it could also go on those banners at the bank - hey setup your auto split to your X fund with our online system, meet your goals with our auto split feature, etc. (kind of like the keep the change from debit transactions can be sent to your savings account) -
I'd like to see an option to auto move percentage to HSA accounts and such as well - I could see an 'advanced rules' mode to set it so that there are min and max numbers as well - and an email report of what your bank auto-did for you each week or month - this is not that complicated. Could be setup in excel in minutes right?
This should exist already.
First bank that does this may get all of my accounts moved to it, and will get lightnight word of mouth from others in the gig econonony, adn proably lots of adcounts suggesting - hey do this to save us all the end of year grief - auto and easy.
Other professionals would likely suggest this kind of system in fact I think they already do (X percent to retirement, etc) - but there is no system to do it automatically - silly.
Plaid.com might be an option, they have a free account level. Not sure our limited it is.
Wait...what?
Before I even broke out into freelance consulting I hired an accountant. When starting your own business, I would think it's base-level knowledge that anything with legal ramifications (and that includes the IRS) should be handled by a professional.
Get an accountant. Get a lawyer (at least for one day to draft up your documents and make sure your business is set up or even use LegalZoom).
And within the first month of breaking out on my own, I must have read like 3 or 4 books on freelancing/consulting, 10+ blog posts, and podcasts.
True - no one is going to act like Clippy and say "Hey looks like you're starting a freelance career. Have you considered an LLC and liability insurance?"
But - do people not try and learn about what they're getting involved with anymore? Starting a business, even if it's a 1-person sole proprietor consulting firm, is a big task. And yes, davidscolgan is right that you should consider all business aspects beyond your primary skill. But it seems almost irresponsible to say that starting a business is going to be a huge shock. No one is going to tell you, but even a cursory search online will give you a torrent of information on freelancing, consulting, and starting your own business.
If I hadn't put in the initial legwork into studying the consulting landscape there is absolutely no way I'd: (A) still be consulting or (B) make nearly as much money. But the answers are out there. And yeah - get an accountant, it will drastically simplify your finances.
Any recommendations?
Freshbooks have a fantastic free PDF called Breaking The Time Barrier that is about charging for value, not for your time. It's worth reading even if you don't use Freshbooks (I use Harvest instead). The PDF was actually recommended to me by a client, who I think was giving me a hint that I was charging unsustainably low prices.
But I've had to do a LOT of coaching whenever a friend starts freelancing. Even basic stuff like "a separate card for business expenses can simplify your life"
And these people usually do well. It's just that most people have no clue about even basic business stuff, and nor do their families or social networks, so no one tells them.
Did you have experience in a company, or a friend relative who had told you about business before?
I had moved to a new city and was interviewing around. A old friend approached me in desperation, offering a lot to work on one-time project for his company. That led to more offers, and those to more. Meanwhile I and friend were building prototypes around a business we might start. (So glad we didn't try to start that one!) Meanwhile, it wasn't until I did my taxes the next year that it hit me that I was now a freelancer.
Only then did I start to get my act together with billing and the rest.
After all, an entity is hiring _you_ because you have skills they can't do even though there are tons of books and sites on dev and web engineering. It's wise to do the same yourself for the skills you don't have, or don't have time to master.
BTW, I found lots of variability in pricing around lawyers and accountants, and some negotiation can go a long way.
But, since many people choose this life to get work:life balance outcomes it shouldn't be assumed all freelance and self-employed are there for nefarious reasons. Just, that quite a few of them are, because there aren't good alternatives.
"I won't give you a job as a bricklayer but I will subcontract to you if you form your own company" for instance...
bingo. for a piece of work that can be well specified, separated out from the main workflow and then farmed out, it's natural, in today's world, for the customer to open the field globally. a little too natural.
so, the US freelancer is left asking the question: how can I compete with wages set at the global standard of living, including currency exchange differences?
there doesn't seem to be a good answer.
In that last decade, my friend has discovered there are costs with a remote-only development team and so has decided to insource technical, marketing, and management roles. Her clients are SMBs in the US, and business is growing.
So, one direct answer to your question about how a US freelancer can "compete with wages set at the global standard of living, including currency exchange differences" is to serve a US clientele whose products and services are closely tied to the US and (in my particular case) where being in the same time zone has a significant impact on getting work done.
I'll also add that the insourced group is implementing more reliable processes and producing higher quality deliverables to the consultancy, as measured by client satisfaction and owner feedback.
EDIT: Add paragraph regarding work quality of insourced group.
Nearly anyone could live on that if they have a roommate and no kids.
If the business wants to deduct the expense, then I charge higher.
If the business somehow comes up with $2,200 a month in physical cash, then I won't question it.
Yes it's illegal, but that's actually for the IRS to prove and not me.
I rarely work a full 40 hours per week. I've been a freelancer for almost 10 years now. I've briefly done some part-time stints in-person in offices in that time and it was a good reminder of how much I hate being stuck in an office following an arbitrary schedule.
The entire conceit there is that you’re a commodity and you and the other code monkeys should bid for the job, because you’re interchangeable.
I know freelance Wordpress devs doing $200k per year, but not on Upwork.
First, I'm self-employed in name only. While managers view me as a very senior resource that is essentially a team lead due to experience and charisma, I still feel like I have no more control than an employee. In other words, I feel like an employee. Which is not how I suspect many of you feel.
Second, finding a new gigs is going through recruiters (here in NYC) and interviews are --again-- exactly like, if even worse than, employee interviews. In other words, not only am I expected to spend hours going through round after round of interviews, but I'm expected to already know all the technology they need, and moreover I'm competing with A) full time employees since many roles will take FTE or contractors; B) other contractors with lower rates.
I live in NYC and would pay someone for advice on the second part above.
We need some sort of not-for-profit place to meet and congregate online as freelancers.
I would decline extensive interviews for contracts less than a year.
Be up front with them that the process does not make sense. It will be obvious in a few hours whether you can do the job, and therefore little risk to them.
(I realize some places will stick to their process, be damned. It is a quality signal, however.)
Let me explain :)
I quit my job and started freelancing full-time when I was 24 because I found a $50 / hour PHP gig on Craigslist and did the stupid math of "40 hours per week x 50 weeks per year x $50 / hr = $100k / year!!"
Ugh, so naive.
Those first few years were rough and I almost quit many times. Everything was so much harder than I knew, from finding clients, to getting the work done, to getting paid, etc.
BUT I stuck with it and gradually figured it out. I started spending time on "business development". I stopped charging hourly. I started investing in my own skills to move into higher margin areas. I focused on a particular client niche instead of doing everything under the sun. I built better sales and marketing channels. I got more disciplined with my time. Etc, etc.
To date I've billed over $2 million to clients for mobile dev, web dev, product management, technical writing, and online marketing (by decreasing order of where I've made the most), and I know this sounds like I'm bragging, but I have zero concern these days about being able to make at least $250k per year from freelance and consulting. I haven't figured out a lot of things in life, but I've figured out this.
I've also spent the last few years writing, speaking, coaching, and otherwise helping other freelancers get started and grow their businesses, first friends and family, now a pretty sizable online audience, so I have a pretty good view of how freelancers succeed and how they fail.
More than anything else, the quality I see that helps freelancers succeed is being willing to spend regular time hustling for clients. You don't have to be a sales and marketing wizard, or be an extrovert, or spend half your time on it. But you need to spend time every day / week / month on it, and never stop, always be thinking about who your customer is, where you find them, and how to close them.
The freelancers I see fail almost invariably have no reliable marketing channel other than referrals (or Upwork, which is the fast-track to commodity rates). And referrals are awesome, some of the best work I get, but they're passive AND they work a lot better if you can seed your ecosystem with other sources of leads.
If you can build a pipeline of qualified client leads, everything else is easy. You can make a lot of mistakes with a client or a potential client if you have another lead coming right behind that one. And that wipes away most of the concerns in this article.
Through solo 401ks, my wife and I have saved more than half a million for retirement. We have a healthy emergency fund. We have insurance. We take plenty of vacation, etc, etc.
No one in this article would have any of the problems they're talking about if they made twice as much. And I can guarantee you that almost none of them spend hardly any time trying to find and close clients. They either wait for clients to come to them, or they use Upwork, which is almost as bad.
The problem here isn't irregular income, it's just not enough income.
OK, enough rambling...I'm happy to help anyone in the HN community with some free 1:1 advice if you want to email me: hi@ryanwaggoner.com
https://www.amazon.com/dp/B00FUINEYG/ref=dp-kindle-redirect?...
Years ago I ran a conference for independent web/tech folks. I put it together because I'd been tired of going to other tech conferences and... just realizing that none of the content would have any impact on my ability to have good contracts, deal with insurance, get paid, deal with taxes, market myself, onboard new projects, etc. Figuring out how to shave off 4ms of a query, or replicate mysql, or float my divs with sass... none of that was relevant, but I still enjoyed the social aspect of conferences - the gathering of folks with similar needs, skill and problems looking to help each other.
Yeah, no one 'tells' you how to do any of these things. Tax stuff, especially starting out, doesn't need to be that complicated (but you don't necessarily know that up front).
"There's no such thing as maternity leave for freelancers"... Hint - it's really just extra overhead an employer budgets in to the price they charge for their services minus the expense of you. Budget for this stuff yourself. It's hard, especially at first, if you haven't done it before, to begin to think about this stuff, and deal with 'irregular income'. But it's possible.
"Two-thirds of them are dipping into their savings every month to make ends meet. We see that freelancers as a result are really lagging behind employees when it comes to saving for retirement,"
It's because they're undercharging, and the buyers are profiting off that arbitrage. I'm not sure there's any simple or easy way to get around this. Years ago I was part of a forum for tech folks where 'rates' were discussed, and a couple people shut down the thread (and the next one, IIRC), because they had this notion that this was "price fixing" and somehow they were playing a part ('safe harbor' sprang to mind, but... they weren't having it). Yet... everyone keeping their prices "secret" doesn't really help most people. I can see prices for auto labor on websites, but most tech folks don't put pricing (hourly or otherwise) out there. And... I get it. I understand why (I don't, but did for a while, and may again).
> Another big barrier to savings is the complexity of taxes for independent workers.
> Traditional employers contribute toward their workers' payroll taxes, but that's not the case for the self-employed, who must pay all their own Social Security and Medicare taxes. And because taxes aren't automatically deducted from their paychecks, freelancers must figure out what they owe on their own.
> "Without that, Chang says, it's hard for freelancers to know how much they can save.
Well... even when taxes are 'automatically deducted' from a paycheck, that doesn't mean it's the correct amount (which is often a moving target).
As others in the thread here mentioned, this is sort of a solved problem, especially for smaller/solo folks, by using a payroll service. It's not free, but generally for under $600 for the year, and factor in another few hundred for a CPA to prep taxes... you can sort most of this out. It's not fun, and ... yeah - hey - you're going to need to charge enough to cover these costs of doing business.
Dealing with all this gives you a whole new appreciation for anyone you may go work for in the future. I was at a client's meeting of around 15 employees, and they were discussing health insurance. Premiums were going up, and the company was covering X% of the premiums, but everyone would have to pay a bit more. The owner said "does anyone know what our actual monthly cost per insurance policy is?" There were a dozen guesses... and I was shocked as to how far off people were guessing - almost all way on the low side. At the time, the employer's cost for each health plan each month was... $580, IIRC - people were guessing $80, $120, $95, $160.
> "I almost can't have fun anymore because there's always something that I should be doing". Welcome to business. Go take a 'regular' job and have 'fun' with your 5 paid days off every 365 days. I don't mean to be negative here on that point, I just feel like many (most?) people have a very naive view of business, work and money/finances.
And it's US. Compare it to Italy and you'll have a difficulty setting switching from Medium to NIGHTMARE.
Oh, really?
I am one of the hardest working people I have ever met, people can (hyperbolically) say I work more than a hundred hours per week. But that's easy to say when you're full-time, and you leave early for that errand or come in late to drop the kid off at daycare, and then make a few hours at night. When you are tracking your hours, suddenly making 60 real hours is hard, or even 40 real hours for that matter.
(I'm still in a privileged position, so no real complaints.)