Self-employment initially sounds like a dream, as you get to set your own schedules, choose your own workspaces, and do your job at your own pace. However, a startup tends to come with its own set of expenses, from more obvious taxes and insurance policies to hidden costs you might not normally think about. If you wish to become a freelancer yourself, here are some important costs you need to know of before you start:
The choice of workplace
When creating your own startup, the first thing you need to consider is your workplace. While most freelancers initially choose to work from home, they fail to consider all the aspects that go with this choice. Besides generally not being a workplace that meets worker needs, considering the number of distractions and the lack of necessary equipment, working from home can come with additional costs that are rarely considered, such as investments in the right furniture, a better internet connection, as well as higher utility bills.
Renting an office, on the other hand, can turn out to be a particularly costly option, especially once you consider the fact that you will most likely need to equip the entire office yourself. For these reasons, good coworking spaces might be the smartest choice, as they tend to be a more affordable solution while providing all the furniture and equipment a freelancer might need.
Supplies and equipment
Apart from your workplace choice, other aspects of a startup you need to consider include the equipment and all the necessary supplies needed for your work. Most importantly, you will have to invest in a good and durable computer, preferably a laptop due to portability, as well as a bundle of legal software your job demands, whether it’s a Microsoft Office or an Adobe package.
Even though you wouldn’t need to worry about purchasing printers, copy machines, and paying for a stable internet connection if you opt for a coworking space, you might still be required to bring your own supplies to such a workplace. While office stationery like paper, pens, pencils, notebooks, and files seem like a small expense at first, their cost can quickly add up over the year when you’re forced to provide them yourself.
Transport and insurance
As a self-employed individual, you will likely use your car more often than before, not only for running errands but also for commuting to your workplace daily and driving to occasional meetings. Apart from raising your daily expenses, this increased time on the road also puts you in more danger of potential accidents, breakdowns, and other issues, which is why it would be wise to invest in a comprehensive car insurance policy that will keep you safe and protected.
However, instead of opting for a commercial policy, as they’re more suited to on-road sales representatives and craftsmen with expensive tools, it might be better to choose a personal insurance policy that comes at a lower rate, as your daily commutes as a freelancer are still considered personal use. You can learn more about individual car insurance policies here, and choose one that suits your needs the most.
Taxation and benefits
Taxes are another important startup aspect every freelancer needs to take care of. However, they can vary greatly depending on your location. In most cases, these expenses will include an annual income tax on all earnings, as well as contributions to healthcare, retirement funds, and possibly welfare or social security, if these aspects are universal in your area.
If not, investing a percentage of your income in a health insurance policy, as well as a retirement fund will only be additional costs you need to worry about as a freelancer. In either case, it would be recommended to hire a good accountant to take care of your finances, as an accounting fee that ensures a legally run business along with maximized profitability is always a better option than potential costly mistakes and tax fraud, even if it was unintentional.
Other hidden expenses
One of the biggest issues freelancers tend to face is the fact that each day you aren’t working is also a day when you don’t get paid. Not only can this present a problem when it comes to distractions and procrastination, but it can also disrupt the necessary free time, such as weekends, holidays, and yearly vacations, something we all need for overall health and well-being.
For this reason, it would be recommended to aim for at least a 50% increase in your salary as a freelancer, compared to your old job. This should give you room to spend on necessary taxes and other benefits, and still have enough left to set aside for vacations and holidays, without ultimately ending up with a lower income.
While going freelance can often be a costly endeavor, it doesn’t necessarily have to break the bank, as long as you save enough in advance to take care of the necessary expenses mentioned above.