10 tips on staying sane in self-employment

As full-time jobs disappear, everyone's talking about freelancing as the future. A pro's advice on how to do it right.

By Stacy Johnson Sep 21, 2010 1:40PM

This post comes from Michael Koretzky at partner site Money Talks News.

I was a freelancer back when it wasn't cool.

In 1997, I was fired from my job as a weekly newspaper editor. So I decided to work for the only boss I could tolerate: myself. But prior to the millennium, the only people who freelanced for a living were either famous or inferior.

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"Why would you give up a full-time job with benefits and one bad boss to work for no benefits and a bunch of bad bosses?" my best friend asked me.

Back then, it was a good question. These days, the answers are much clearer:

Benefits ain't what they used to be. In the 1990s, employers offered good benefits automatically, while freelancers spent hours researching complex plans that offered less. That's changed: Many employers have cut their health insurance offerings so deeply that a third of full-time employees are thinking about finding a better deal on their own. And having a human resources department on hand to explain the details? Even that's disappearing, a new study shows. Meanwhile, as freelancing expands across many industries, insurance options are slowly catching up. If you don't know an insurance agent to consult about intriguing plans like the curiously named groups of one, you can start with the National Association for the Self-Employed and the Freelancers Union. These two organizations tout their insurance plans right on their homepage.

The Internet nets more money. When I started freelancing as a writer and graphic designer, I had to spend money to make money: I bought envelopes and stamps to mail my invoices. The Internet has saved me time and money in ways that are obvious (e-mailing invoices, designing my own resume website) and obscure (using instant messaging to talk to a boss about a deadline assignment from the comfort of my couch and using Google Docs to get it done). Best of all, it no longer costs me money to learn the programs that save me money. To teach myself how to build my website, I watched YouTube videos. Whenever I've had a computer question, I've done an Internet search and found my answer in minutes.

What job security? The recession has turned the working world upside down. Full-timers are being laid off and replaced by freelancers, part-timers, and contract workers (which are really all the same thing, but more on that in a moment). And even when the good times roll once again, that's not likely to change much. "I think we are seeing a fundamental change," Tom Mobley, a professor in the Farmer School of Business at Miami University in Ohio, told CNBC. "Companies will staff up at certain levels again, but I think they will use freelancers or consultants on a regular basis going forward."

But freelancing won't set you free if you don't do it right. I should know. Not only do I freelance, but so does my father. And my brother. Dad has dabbled as a quality-control consultant for companies in Mexico and China, while my younger brother writes iPhone and iPad apps. Here's what I've learned, some of it the hard way.

While I'm a journalist, these tips will apply to any freelance career:

Freelancing isn't for everyone -- or every career. I have friends who freelance in myriad professions, ranging from public relations to private investigating. But some jobs don't fit into freelancing, especially those that require working in teams or in the office.

The job-searching website CareerBuilder recently listed its top 10 "freelance-friendly" jobs, and they include some I never would've thought of -- like interior decorator and translator. But all of them have one thing in common: You work mostly by yourself. So if you prefer working in groups, freelancing might leave you lonely.

Don't get hung up on names. I've been a freelancer, contractor, part-timer, and temp worker -- sometimes all for the same company. The differences are small but important. When I freelance, I'm hired to do one assignment at a time. When I contract, I sign on for a certain number of weeks or months. When I'm part time, I've worked 10 to 20 hours a week and initially thought I had more job security -- but in reality, the contract work proved more reliable. Part-timers get fired with alarming frequency and little notice. And who replaces them? Temp workers!

Whatever the boss calls it, consider it. The only jobs I avoid are so-called part-time jobs that require 32 hours a week -- just enough to not give you benefits but too much to work elsewhere. And you can (and probably will) get fired with little or no warning.

Don't start young. Working for yourself means finding yourself work. When you're young, you have precious few business connections. So put in some full-time years in the field you want to freelance in, then strike out on your own. The result? Delayed gratification.

In a Labor Day survey of freelancers, more than half of those who responded were between the ages of 35 and 54, with only 2% younger than 24 -- and 70% said they felt happier as a freelancer than as an employee. This is one of those rare times when age trumps youth.

Don't leave town. If you want to go far as a freelancer, don't go anywhere. Like I said, freelancing is about connections, and the best ones you'll have are local. The Internet makes it easier to bid for work all over the world, but whether you freelance in IT, nursing, or business consulting, you'll probably make the biggest chunk of your income within driving distance of your house.

In that Labor Day study I mentioned above, 20% of freelancers found work locally and 33% within their state. Another bonus of local work: You get paid faster. I can't cite any studies to prove this, and I have only anecdotal evidence, but I believe it's harder to stiff someone you might bump into at your local shopping mall.

Hire a freelance accountant. Even if you did your family's taxes when you were a full-time employee, you need an accountant if you plan on being a successful freelancer. For me, the reason is simple: I suck at math. But even my brother, who can do complex calculations in his head, has an accountant. When you freelance, time is money, and he can make more by spending those hours writing apps than trying to deduce deductions.

Freelancers pay quarterly taxes and can take a number of deductions full-timers can't. My brother and I both use an accountant who works like us: She's a part-time accountant and also manages some rental units. In other words, she doesn't have one full-time job. So she charges us less than a full-time accountant, and she understands us (and the tax code) much more.

If you can't find a freelance accountant, find one who works with freelancers. Specialists always possess knowledge generalists don't. Like this: Did you know taking a deduction for a home office increases your risk of getting audited?

Don't incorporate just because it's cool. I made this mistake. I spent $600 a year to file and maintain my own corporation, and I used it only once. That was when I subcontracted with other graphic designers to produce advertisements for national concerts coming to the southeastern U.S. When I landed the contract, it was too much for little ol' me to handle. So I hired a few other designers to help. The corporation meant that I could pay those designers from the lump sum I was paid -- and I could pass on the tax burden.

But otherwise, deciding whether to incorporate is confusing. Money Talks News tackled that topic in "Should you incorporate?" You can also search online and find dozens of websites offering conflicting advice. My own advice is simple: Talk to your accountant and incorporate only if it helps your bottom line. I admit I did it partly because I thought that's what all successful freelancers do. It's the freelancer's vanity, sort of like a Porsche for a middle manager.

Savor the benefits of marriage. I'll say this with tongue planted only partly in cheek: Don't marry for love and don't marry for money -- marry for benefits. I love my wife and would have married her anyway, but it really helps that she works for state government and has state health insurance. When I had to pay for my own insurance, I not only paid more, but it took hours away from my paid work to strike the best bargain. Within months (and one time, weeks) of finding a good premium with decent coverage, the rules would change or the company would go out of business.

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So the real advice here is: If you live in a state or work for an employer that offers benefits to domestic partners, get domestic and get covered -- whether you're straight or gay. It's a little-known fact that domestic partnerships are for both gay and straight couples. And as of last year, nearly 10,000 employers, unions, and nonprofits offered benefits to domestic partners. The federal government just this summer expanded coverage for its employees who are heterosexual domestic partners. So, if you're a freelancer who's in love with a full-timer but you aren't ready to tie the knot, at least consider tightening the cord.

Open an IRA PDQ. Besides the lack of benefits now, another downside to freelancing is the lack of retirement money later. You don't get a company-matched 401k, but you can benefit from a Roth IRA or a regular IRA. I have both. And like the "groups of one" health insurance plans, there's now a logic-defying "solo 401k." Again, advice abounds, but you should consult your accountant, who can point you in the right direction based on your needs.

Accept illogical advice. Most freelancers will tell you to specialize if you want to survive. And that's true. But you also need to generalize -- in a niche. Let me explain by way of personal example: I'm a freelance journalist. If I just wrote for a living, I'd starve. So I also edit and design, and I do it for anyone who will pay me. I've edited a book about German cold-press steel-making, I've taught private investigators how to write clearer reports, and, for the National Enquirer, I designed a two-page spread about female celebrities who had naked pictures taken in their youth.

If you enjoy doing something different (but related) every day, then freelancing may be for you. But how do you start?

Start at the end. Every successful freelancer I know began by talking to another successful freelancer. The good news is that freelancers are lonely people -- we have no co-workers -- so we love to chat with new people trying to break into our line of work. You might think we'd be guarded about aiding and abetting our future competition, but that's a full-timer's mentality. Fact is, you'll start out doing lower-paying work we've already moved past.

And here's something else to consider: I get more work if I give you work. Every so often, I'm offered a freelance, contract, or part-time job I can't do -- either because I'm too busy or the pay is too low. So I refer those employers to other talented freelancers, and my reputation is enhanced for making the hookup. If those satisfied employers don't come back to me later (and they usually do), those who got my endorsement probably will -- to throw me work they can't handle.

My parting advice: Buy a freelancer dinner and drinks. You can find them online. Almost every occupation has an online group or forum. We're freelancers -- we don't make money by being shy.

Following these tips may not make a killing -- that Labor Day study I cited above shows that most freelancers make less than $50,000 annually -- but you can certainly make a living. And you'll work your own hours and be your own boss. For some of us, that's more than enough.

More from Money Talks News and MSN Money:

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