Freelancing is an underrated first step for recent grads entering the job market.
The problem is that most new freelancers are driven to it by lack of other options.
As you might expect, few newcomers to freelancing set realistic financial goals, or even keep track of their finances on a basic level.
The goal of this guide is to show you:
- How to set realistic financial goals as a freelancer
- How to prepare financially for your first year of freelancing
I’ve been freelancing for four years now, and it’s been the single best thing that’s happened to my lifestyle. Through freelancing I was able to dramatically increase my income, boost my personal savings, and create a new career for myself.
At the risk of sounding starry-eyed, freelancing forced me to face my money head-on and take control of my destiny. It can do the same for you — but only if you approach it wisely and “get your money right.”
Freelancing is a small business. Treat it like one.
By 2027, 50% of the American workforce is expected to be freelancing.
Companies like hiring freelancers because they’re cheaper than full time employees, and people like freelancing because it’s a great way to learn new skills, build a portfolio of work, and grow a professional reputation.
But freelancing is more than giving up your work uniform and making the couch your new desk; you need to understand the financial and business sides of your new job.
To really make freelancing work, you should approach it like you would a small business — create a plan for income, establish yourself as an expert, and stay financially organized. Goals are great, but what freelancers really need is a business plan: a step-by-step roadmap for making money and moving ahead of the competition.
Making more as a freelancer: identify your niche
No field is ever too crowded for a qualified and dedicated new freelancer in any market. You just have to figure out what you can offer to your new clients.
Before you send a single pitch email, you’ll want to get clear on what it is you want to do. Boil this down to as specific an area as possible.
For example, “I want to be a graphic designer’ is too broad. Instead, aim for something much narrower, such as “I want to make logos and promotional materials for medium sized companies in the outdoor industry.”
Now you’ve identified your target market and exactly what kind of work you want to be doing for them. From here, you can start to build a portfolio and profile that focuses on outdoor companies. Research other graphic designers working in the space to get a feel for the pricing, the packages, and the type of projects that are currently the standard in the field.
One of the best ways to establish your expertise in an area is to create content around it over a period of time. You could post one blog post a week on your website that addresses past and current trends in the outdoor industry, and your thoughts on where it’s heading in the future. Reach out to other experts for their opinions and feature them in your posts; this will create a network and show your readers that you are someone with industry reach.
Get involved with groups that are in the same general and specific niches you’re in. You can attend events, or become part of online groups, that discuss the outdoor industry, graphic design, and marketing. Become a familiar face and voice in these areas and people will begin to trust you.
Making more as a freelancer: set financial goals
Once you know what you want to be doing for work and where to look for it, it’s time to get clear on what your financial goals are. You can’t be living that Kardashian lifestyle on a college kid budget.
If you’re a brand new freelancer, you might be wondering how to set realistic financial goals for yourself. There’s a lot of articles highlighting the experiences of high earning freelancers, but if you don’t have a set client base or the experience to charge high prices, you might find yourself far from a six figure income.
Not to worry! Here’s where the research and networking you’ve been doing comes into play. Understand what the market rate for your type of work is and use that as a guideline for building out your prices.
For example, you can check fellow freelancers or small business owners sites in your niche to see what they charge, or ask people at the networking events you go to how they set their prices. With that base line, you can set prices that will keep you at a competitive rate.
From there, set to your personal goals. First ask yourself; how much do I want to make annually as a freelancer?
Breaking down your annual financial goals
Setting an annual goal allows you to know what you’re working towards, and the amount of work you need to take on to meet it. Break your goal into the components of services you offer, like this:
Income Goal: $85,000
- Graphic Design work: $50,000 (20 projects at $2500/project)
- Marketing services: $30,000 (Monthly retainer client at $2500/month)
- Consulting services: $5,000 (5 $1000 projects)
Now it’s time to crunch some numbers with your previously established price points. You can figure out how many projects and at which price points you need to take on in each category (ie, 10 graphic design projects at $5,000 each) to meet your goals.
How many hours do you have to work to reach those at your current price points? Can you offer additional services to increase your price point and lower your number of hours worked? Understanding how your numbers break down will help you come up with realistic numbers for your earnings goals.
One of the greatest things about being a freelancer is the financial flexibility that comes with the turf. (To be fair, this can also be one of the worst things about it.) You can raise your rates at any time or you can add or subtract from your offerings to play around with your income. Your goals can change as your business takes on new shapes, which means there really is no limit to the amount you can end up earning.
Four Steps To Get Financially Organized
Ok, so you’ve set financial goals. You’ve done the research and begun to build a network and portfolio for yourself. How can you stay on top of your finances?
Freelancers can all too easily find themselves in a feast or famine cycle. One month you’re making it rain, and the next you barely bring in enough to pay the bills. Getting and staying financially organized is protection against this cycle.
Step 1: Open a business bank account.
All freelancers should have a business bank account that’s separate from their personal bank account. This separation will help you keep track of strictly business expenses. No more wondering if that coffee last month was a business meeting or just catching up with a friend. If it’s on the business debit card, you know exactly what it was.
Step 2: Always save for taxes.
Freelancers are responsible for paying their own taxes. That means you need to take a percentage out for taxes (25% is a safe bet) from each paycheck you get, and pay quarterly taxes on your own. Open a savings account just for taxes, so you know you’ll be able to pay Uncle Sam. Those who don’t pay quarterly taxes on time will incur a fee, or could even be prosecuted for tax evasion.
Step 3: Keep financial records.
A paper trail is a good thing when you’re freelancing. If you want to write off costs as tax deductions, you need the receipts. If a client fails to pay, you should have a contract and an invoice to refer to. Keeping track of all your financial records (in a digital or hard copy) is a must do for all freelancers. You should hold onto all your invoices and receipts for tax purposes, any state issued licenses, and contracts or statements of work with clients.
Step 4: plan for your healthcare
Freelancing makes you an independent contractor for tax purposes. This means you need to pay for your own healthcare — if you don’t, you can wind up getting fined for it under the current system. If you’re still on a parent’s plan, great — less to worry about.
If you aren’t on a parent’s plan, depending on where you’re located and what income bracket you hit, the price can be anywhere from $200 up near a thousand. This is really it’s own topic, and I reccomend researching this extensively through healthcare.gov as you start experimenting with freelancing.
Organization = Success for freelance finances
Freelancing certainly comes with highs and lows. To keep yourself in the highs as much as possible, and to grow a thriving freelancing career, take care of your money first.
Kara Perez is the founder of Bravely, a company that connects women and money. She freelances in the areas of personal finance and travel, and she eats peanut butter straight out of the jar.