A centrepiece of workforce change over the past 20-30 years has been the rise of the independent contractor – the freelancer. It’s no coincidence that this rise has occurred in parallel to the global expansion and adoption of the internet. The internet has enabled people to work together, and find one another, whether they are in the same city, or the other side of the world.
Creatives such as graphic designers have long been the poster child of this workforce revolution, but scratch the surface and you’ll find an increasing variety of roles being performed within a freelancing framework – from consultant engineers, to article writing, video production and social media marketing.
So could freelancing be your ticket to Financial Autonomy? Let’s find out.
Historian Steven Gillon found that in the US in 1860, 80% of the workforce was self-employed. Farmers, shop owners, and traders of all types. But the rise of industrialisation and factories changed things. By 1900, self-employed people made up 50% of the US work force, and by 1977 it was down to only 7%.
But the tide has been turning. Here in Australia, as at 2016 it was estimated that 17% of the workforce was now self-employed. If you exclude the government sector, the self-employed make up over a quarter of all workers.
Research done by Expert360 found that 80% of freelancers are aged between 40 and 69. Whilst perhaps initially surprising, this statistic holds considerable logic. Someone works as an employee for a decade or more and builds up valuable skills. But most businesses are a pyramid structure, and the further up you go, the fewer jobs there are. Some then choose to take the freelancing path, selling their acquired skills to the many other business or sometimes consumers, who don’t need someone 40 hours a week.
A consistent driver of people moving to a freelancing work arrangement is the flexibility that it allows, providing them with the lifestyle they choose. This might be fitting work around parenting, or simply working hours that better align to the natural rhythm of their life – some people are morning people and others are most productive at 11pm. Yet the typical workplace makes no allowances for these variations.
Research commissioned by Upwork and the Freelancers Union found that 84% of full time freelancers reported that their work allowed them to live the lifestyle they want, compared to 63% of non-freelancers. Half of the freelancers reported that they wouldn’t return to a 9-5 job for any amount of money.
So if the choice that you seek encompasses having flexibility in how you allocate your time, freelancing has to be in the mix as a potential way to achieve your financial autonomy goals.
So how might you make this transition?
The first step is having skills people will pay for. As mentioned earlier, most freelancers have 10 years plus in the workforce. They’ve worked on projects, dealt with clients, learnt different software tools, and basically honed their craft. Indeed there is considerable evidence that those working in the freelance, or “gig” economy that have low skills, such as drivers or cleaners for instance, get low rates of pay, often below normal minimum wages. So skills are important if this is going to be something that is financially viable for you.
Another important aspect of this period in the traditional workforce is that they’ve built up contacts and a professional reputation. These are essential to your success as a freelancer. We have a person that works in our office who is a fire engineer. This is a highly specialised role in commercial construction and all of his work comes from architectural firms. Fundamental to his successful transition to becoming a freelancer, were his contacts within these major architectural firms, and his reputation as a reliable and skilled partner.
Melissa Derkert, of Party of One observed “when you’re working independently, your livelihood is deeply tied to what you produce, which places a heavier association between your work and your self-worth.”
This comment points to considerations around your mental health. Freelancing might offer you time flexibility, and variety of work, but it has it’s own pressures for you to weigh up. First you need to find the jobs. Then you need to manage your time and deliver. And along the way you need to get paid.
Isolation can be a factor for freelancers. In response to this problem, co-working spaces have sprung up which can enable you to get out of your spare room, and have people around. When planning your move to self-employment, explore the options around you. It could even be as simple as renting a spare office in a business nearby, or one with some strategic fit. For instance often when financial planners first go out on their own, they work out of an accountant’s office, because there will be times when an accounting client needs financial planning services, and if you’re Johnny on the spot, you might get an opportunity to pick up the work.
In becoming a freelancer, you will need to embrace being a business owner. That means dealing with the finances. Invoices need to go out, and they need to be chased up when payment isn’t made on time. Tools like Xero can make this fairly easy provided you take the time to learn about them. (Have a listen to episode 77, where accountant Shaun Farrgia and I discuss the essential things you need to do to move to self employment.)
Your income will be lumpy, so think about how you’ll manage that. Most freelancers that I know have a bank account for their business that all income and expense go through, and then they pay themselves a regular wage out of this. For this approach to work, your business account needs to have a healthy “float” – an amount of money to act as a buffer. I explored this a bit all the way back in episode 1 – How to be financially ready to start a business – so you might want to check that one out.
Hopefully when you make the transition to freelancing, you’ve got one or two clients lined up to get you off and running. Sometimes this might be your former employer. It’s important that you then look to build on your customer list. Being too reliant on a single client is a recipe for disaster that many fall into. I once dealt with a brick layer who was doing 60-70% of his work for one builder, and when that builder went broke, owing him $70,000, he only avoided bankruptcy through a few generous handouts from family.
There’s no hard and fast rule, and it depends on the nature of the work that you do, but if more than 20% of your income comes from a single client, I’d suggest giving some careful thought as to how you’d handle things if that work stopped.
And finally, recognise that in moving to freelancing, there’ll no longer be a boss pushing you to get the work done. Now that may be a key reason for you making the move, but don’t ignore the fact that for you to be successful, the work does need to get done. Self-discipline and self-motivation are essential skills for a freelancer. If that’s an area that you don’t consider a strength, plan for how you can build these skills.
If you’re planning a move to freelancing and want some help in making the transition a success, visit the Work with Paul page at financialautonomy.com.au . Our Financial Autonomy plan process delivered over 6 months, is ideal for this sort of goal.
Resources & Links
- Steve M. Gillon
- Self-employed Australia
- Party of One Studio
- The essential things you need to do to move to self employment
- How to be financially ready to start a business
- Financial Autonomy Program