We all know that freelance income and salaried income are two different things. There are hard factors (self-employment tax, health insurance, paid time off) and soft factors (flexibility, enjoying your work, being able to live where you want). But at a certain point, you have to run the numbers, which you should do at least once a year.
First, come up with a number
If you want an actual freelance income needs calculator, I would recommend:
- Jonathan Hine’s booklet I am worth it, which will help you calculate your total cost of doing business
- Motiv’s freelance hourly rate calculator
Those are not affiliate deals, and there are other ways to calculate how much you need to charge in order to reach your desired income, but they’re a good start.
Next, give up on “I earn more than my salaried friends, so I’m fine”
Lots of people get sucked into this trap: “I was making 65K at my last job and doing fine financially. I worked 40 hours a week with four weeks of vacation, so that’s 1,920 hours a year. So I only need to earn $33.85 an hour (65,000/1,920) and I’ll replace my income from my old job.” A couple of issues there.
- If the salaried job provided paid time off (vacation time and/or sick time), you’re now funding that yourself
- If you’re in the US, the salaried job paid the employer’s portion of certain taxes, and you’re now going to be funding those yourself
- Most freelancers do not bill 40 hours a week (unless they work 55-75 hours a week)
- If you’re in the US and the salaried job provided health (disability, life, etc.) insurance, you’re now funding that yourself
- If the salaried job provided other benefits such as matching your contributions to a retirement plan, you’re now funding that too
Even established freelancers fall into this trap, in that they can’t help comparing what they earn as a freelancer to what their spouses, friends, and colleagues earn at salaried jobs. So, the first step is to get rid of that mindset and think only in terms of your freelance income.
Be honest about the soft factors
The second step is to assess how much the soft factors of being a freelancer mean to you. Perhaps that’s the ability to work from anywhere. Perhaps it’s that you can be home when your kids get home from school, or when your elderly parents need help. Perhaps it’s that you can take a month off and go trekking in the Himalaya, or just that you don’t enjoy having a boss, or that you want to live in a place where there are very few salaried jobs for what you do.
For me, the soft factors alone are a deal-breaker for most salaried jobs. I don’t want to move to a major city. I don’t want a boss unless the person is really, really awesome. And I want the flexibility of scheduling work around my family and personal time. So in a sense, I have no choice but to make freelancing work. I’m happy with how much I earn, but I would stick with freelancing even if I earned less. Other freelancers might take the opposite angle. If the soft factors don’t mean much to you, then you need to earn *a lot* as a freelancer to make up for the financial hits of self-employment tax, no benefits, and no paid time off.
Don’t limit yourself
The longer I work as a freelancer, the more I realize the importance of mindset. In my first year as a freelancer (2002), I made $9,000. And I was really, really excited about that 9K, because I had a newborn baby and wanted to find a way to work from home while she was little. Then I thought, hey…what if I could actually replace my income from my old job as a teacher? Like actually make 35K? So in 2003, I made 18K, and in 2004, I made 36K, and that felt just amazing. The thought of earning a lot more than that wasn’t really on my mind, until my accountant said, “You’ve doubled your income three years in a row, which means you need to plan for a lot more growth.” Really? Really. And within another two years, I was making the part-time equivalent of six figures.
So, the first step in earning a higher income is to stop limiting yourself to “just getting by.” Hang out with freelancers who earn a lot more than you, and soak up their tips. Gradually start filtering in some higher-paying work, and some higher-paying clients, while keeping your bread and butter clients as your baseline income. Test out a new revenue stream. Invest in classes that make you a better translator, which will give you the confidence to market to better clients.
Readers, other thoughts on freelance income?