The Downside of Working Freelance

This post appears in the 104th Working at Home Carnival

I primarily work as a virtual paralegal. I also have network admin contracts with a couple of small businesses in the next town. I spend about one day a week in that other town doing computer work. The rest of the time I work almost exclusively from home. When my legal client is in town I usually meet with him for a couple of hours. Other than that, as long as I meet my deadlines I can set my own hours. For me that usually means slow mornings and late nights. It means that I can work in the garden all day, if I choose, and then work a long day the next day. I love this setup and know there are a lot of people who wish for similar circumstances.

In addition to all of the positives, there are some definite negatives to working from home and, by extension, to working as a freelance consultant.

1. Isolation

This seems to be one of the biggest negatives for me. Other than my computer work and the occasional meeting, my job really doesn’t require me to go out at all. I find that the longer I stay in, the less I want to go out. I have to resist the urge to become a complete hermit! Days and days can go by where I don’t speak to another person. As a result, when I do talk to people, I don’t have a whole lot to say. Once I go out, I’m always glad I did but sometimes getting myself out is tough. Thank goodness for friends who invite me to lunch! Like many people, I go through phases of exercising a lot and then not at all. Right now I’m not exercising and I need to get on the stick. If I’m working out daily I’m much more productive and much less likely to “hermit out”.

2. Personal Responsibility

This is the most important aspect of working from home. If you don’t have a strong sense of personal responsibility you don’t need to work from home! You are the only one around that has any input into whether or not you get your job done. You must be able to identify your tasks, get up every morning and do them! I know some people who work from home find the best way to deal with this issue is to create the most work-like environment in their home. They get up at a set time every morning, get dressed, have breakfast, go to their at-home office, shut the door and work! They come out for lunch and “quit” around 5-ish. I find I don’t need quite that much structure to get me going. I sleep in, have breakfast, catch up on the various blogs I follow, read the paper, etc., and then get going. I’m not a morning person and this lazy approach seems to work for me most of the time. The trade-off is that I tend to work until fairly late at night.

3. Budgeting

If you work on a freelance, pay-by-the-job basis you have to learn to budget for the lean times. Straight freelancers tend to have times of feast and famine and you have to learn to manage your finances accordingly. In my case, although I’m quite well paid, my primary employer is older and when he decides to retire, I’ll be on the street, so to speak. If I lose that job it will probably take me quite awhile to replace the income. I am managing that to the best of my ability by actively seeking other revenue streams and saving, saving, saving! That will be a lot easier when my son graduates from college. Hopefully my primary employer will hang on for a few more years.

4. Withholdings

You are responsible for your own withholdings. This one can really get a lot of people in trouble, myself included. Depending on how your business is set up, you must make estimated tax payments quarterly. If you don’t pay your taxes you will pay in a big way later! Let me repeat this – you can not get away with not paying taxes forever and, when you finally do get caught, you are in for a world of trouble! I was listening to Jean Chatzky on XM radio the other day when a woman called in asking for advice. Her husband was self-employed and they had not filed a tax return in 10 years! They also had not saved any money with which to pay those taxes. I’m sure the time just slipped away. It was a Damoclean sword hanging over this woman’s head and she knew it. Jean, after a moment of stunned silence, recommended that she call the IRS, explain her situation and work out a payment arrangement with them. The main thing, of course, was to do something!

Unfortunately, I can relate to this woman’s story. When I worked a full-time job plus freelance, I paid the maximum taxes in my “regular” job and let that cover my freelance earnings. When I first went completely freelance I faltered but, thankfully, not for so long. 2006 and 2007 were my bad years in which I paid no estimated taxes. 2006 is now paid in full. I just filed my 2007 return and am awaiting the bill. It’s going to hurt and I’m not exactly sure how I am going to deal with it. I have been paying my taxes for 2008. However I fund my 2007 tax bill, I’m going to mark it down, a la Dave Ramsey, as my “stupid tax”. Like Jean’s woman caller, it was a huge weight on my shoulders and I feel much better knowing I am actively working towards clearing that up. The best advice I can give in this regard is to get a good tax accountant and make sure he or she is someone you feel comfortable questioning.

If you are just starting out as a freelance worker you may not know how to pay your taxes. One way to easily do it is to sign up at the IRS/EFTPS website for an Electronic Federal Tax Payment System account. Once your account is set up and linked to a bank account you can go online and make a quarterly payment from your linked account. I set up a sub-account at ING called “Taxes” and now deposit my estimated tax monthly to that account. At the end of the quarter, I transfer that money back into my local checking account and from there, into my EFTPS account. It’s pretty easy. I promise!

Okay, those are my personal demons of working completely freelance. What are yours?