Jesse & Kadri Gymsplain Freelance Finances
On this episode of Financially Naked: Stories from The Financial Gym, our hosts are Jessie Gan and Kadri Augustin. Jesse and Kadri are Level 3 Certified Financial Trainers at The Financial Gym and they’re here to Gymsplain Freelancing. They discuss some of the biggest questions related to freelancing and tips and tricks for success in self-employment, whether you have a side hustle, or do it full-time.
Podcast Notes
There are many things to consider when it comes to being self-employed, an independent contractor, or a freelancer. These terms can be used interchangeably.
Taxes
Whether you have a side hustle or are entirely self-employed, planning for taxes is an essential aspect of freelance work.
When you receive income on a W2, your employer is withholding taxes and paying them on your behalf. If you're making any income on the side, untaxed, you are responsible for paying taxes on your own.
The most important thing is to save for taxes. At The Gym, trainers recommend having a separate savings account solely for taxes. As a rule of thumb, set aside 25%-30% of all the money you make and put it in this savings account.
This is a generally safe estimate for a few reasons. You only have to pay taxes on your profit (income - business expenses), so saving based on your income numbers means you'll likely save more than is ultimately needed.
You are legally required to declare all of your income. Whether you get a Form-1099, cash, check, Venmo, etc. It's crucial to ensure you're keeping track of all the money earned with your freelance business.
Self-Employment Full Time
For some, the ultimate goal with entrepreneurship is to be self-employed full-time. Being a full-time entrepreneur is not for the faint of heart.
With most W2 jobs, benefits include access to retirement accounts, health insurance, and paid time off. If you want to be self-employed full-time, you are responsible for taking care of these things on your own.
Depending on where you live, programs may be available to help with the cost of health insurance. If not, you may have to pay full price, which can get pretty expensive.
If you are currently working a full-time job, it's a great time to build your business. If you know the ultimate goal is to make the leap, create a plan. Use this time while making consistent income to create a buffer fund that will support you when you ultimately become self-employed full-time.
General Advice:
The most difficult part is getting started. There will usually be a time when money might not be coming in, and it takes a while to build consistency.
You might hear people say you need to spend money to make money. This is true to an extent, but avoid getting caught in the trap of constantly spending money if none is coming in.
Word of mouth is a powerful tool when you're growing your business. Think about how you can leverage your network. You have to tell people you have a business and how they can support you.
Get organized from the beginning with a basic accounting system. You don't need to be a math wizard, but it's important to keep track of all the money earned and the money spent on your business.
Be curious about your business, don't be afraid to look at the numbers.
Work with a tax professional or CPA that understands your industry. There are some added complexities when you're self-employed, and a professional can help you ensure you're taking advantage of your business expenses and filing everything correctly.
There are several free resources, including the public library and the SBA.
The Financial Gym works with folks with a side hustle or full-time freelancers. A Certified Financial Trainer is an excellent option if you're looking for a mentor. Schedule a free warm-up call today to learn more, or check out Trainer-On-Demand.