Working as an independent contractor can be tough sledding for many due to the unpredictable nature of the work. Taking the leap into contracting takes a great deal of financial preparedness, as your monthly bills keep coming even though you could go weeks between jobs. To make sure you can continue to make a living while working freelance, you’ll want to make sure your savings accounts are built up and have some alternative income streams in place.
Setting Up an Emergency Fund
Everybody should have an emergency fund to cover at least three to six months of living expenses, but contractors may want to have a little more than this amount. Funds should be able to cover typical events like medical emergencies and car accidents, but contractors also run the risk of long periods of time in between freelance gigs. If you run out of money to pay the bills, your freelancing career may be in jeopardy. Keeping a large savings cushion allows you flexibility.
Consider a Part-Time Job
You likely won’t find people beating down your door to hire you all the time. In tougher times, you may need to look at a second job to help pick up some of the slack when you’re between contracts. This could involve anything such as working a few extra hours on the weekend, taking on some paid writing gigs, or any other venture that helps leverage your existing skill set. A secondary income stream can help alleviate some of the stress that will come from trying to make your consulting business successful, and you may end up picking up some new skills or making valuable business contacts along the way.
Price Yourself Fairly
There’s a temptation as an independent contractor to offer your services at a discount to help attract business. There are several risks to doing this. You could be devaluing your own time, giving the perception that your product is not as valuable, and leaving valuable income on the table. Spend some time researching the going rate for comparable services in your area and don’t be afraid to ask for it. If you find you’re underpricing yourself or you feel you offer a level of service that warrants a premium price, boost your rate and give yourself a raise.
Plan for Insurance and Tax Payments
As a contractor, you’re a one person show. There’s no human resources department to help you out, so you’ll need to make sure you’re setting aside part of your income for taxes and insurance. In fact, if you’re a self-employed contractor, you may be required to make quarterly tax installment payments. Consult a tax advisor, if needed to make things a little easier on yourself, and make sure you keep your tax and insurance payments up to date.