I've been a full-time freelancer for more than a year now, and cutting the W-2 strings wasn't a decision I made lightly. I had just changed careers from museum work to digital content editing and writing a year before I started freelancing part-time, and taking it a step further seemed like a scary prospect.
Ultimately, though, I took a deep breath and decided to try it out -- after using my part-time freelance income to put my personal finances into solid shape first. I paid off all my debt and built actual savings for the first time, giving myself a safety net.
Here are the money changes I faced as a result. If you're considering becoming a freelancer, I hope my experience can help you decide.
1. I'm never not thinking about income taxes
No one really enjoys paying taxes, but they're the price of living in a civilized society. If you're a W-2 worker, you likely only think about income taxes once a year, when you file your tax return (and perhaps dream about a tax refund). Your employer pays on your behalf, and you can find a summary of the taxes paid on your paystub.
As a freelancer, I'm not so lucky -- not only do I pay higher taxes (as both employer and employee), but they aren't taken out of my pay automatically. Instead, I have to keep track of how much I earn and ensure I'm putting aside enough money to cover my tax bills with my state and the federal government -- which I pay quarterly.
I don't have to do all the math by myself because I pay a CPA to file my annual returns and tell me how much I should be paying every quarter based on my earnings. Every time I get paid, I take a percentage of it right off the top, and it sits in a sub-account of my high-yield savings, ready to go when I owe taxes (on Jan. 15, April 15, June 15, and Sept. 15).
2. I have to fund my own PTO
No traditional employer means no traditional employer-sponsored benefits, like paid vacation time. In my museum days, I wasn't usually privy to great benefits, but my longest-tenured gig did offer plenty of PTO. These days, if I want paid time off, I have to plan ahead and fund it myself.
At the end of last year, I decided to do just that, and designated another sub-savings account as my personal PTO fund. I'm steadily funneling post-tax cash to it, with a goal of having at least two weeks' worth of my typical pay ready to go. If I want to take a trip and not do any work, or even just need a sick day, I can make up the paycheck shortfall out of this money.
3. Health insurance is my second-largest monthly bill
My days of getting health insurance through work are over. Instead, I turn to my state's healthcare marketplace for a plan -- and since I qualify for no income-based subsidies, I must foot the bill for it entirely. For 2024, my monthly health insurance premiums are my second-largest expense, after my housing.