ALTHOUGH freelancers have been around for ages — the English word originally referred to a “free lance”, or a medieval mercenary willing to fight for the highest bidder — working independently is often considered unstable. It certainly can be, but it also forces one to learn how to navigate uncertainty, recover from setbacks quickly, and diversify income — all of which are useful in times of economic turmoil.
As mass layoffs start to make headlines and recession chatter gets louder, there is a lot that traditionally employed folks can learn from freelancers to defend their finances amid anxiety about a downturn.
It’s hard to know how many people are currently full-time freelancers, as there are different sources of data and most of what’s available is pre-pandemic. In the US, a 2018 IRS report on sole proprietorship in the returns found 27.1 million individual tax returns reported income earned from sole proprietorships. A 2019 Gallup and Intuit report estimated there were 32 to 44 million self-employed US adults. But people working at companies can also have second jobs that qualify as self-employment, which makes things even murkier.
What freelancers have in common, no matter the industry, is that even during boom times and tight job markets, they have to plan ahead, budget and pivot when the unexpected arises. Projects get cancelled all the time. Clients can take months to make a payment or never pay at all. Depending on your type of work, there can be chaotic seasons followed by nary a potential client. Rejection is commonplace.
This kind of volatility becomes more widespread during a downturn, as companies look to reduce overhead and cut costs as much as possible. Taking a few pages from those who work independently may help alleviate some stress.
Perhaps the biggest lesson for employees is that it’s good to have multiple streams of income at any given time. Most freelancers work toward having multiple clients or students. This helps protect us when someone decides to no longer use our services. There’s also the holy grail of creating passive income streams. For instance, selling a digital download or course, or receiving royalties from a book.
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If job loss is a major anxiety for you, it wouldn’t hurt to begin developing another stream of income. Reflect on your current skill sets — including beyond what’s required at your day job — and consider how you could leverage those into paying gigs. Talk to freelancers you know or scroll through sites like Upwork, Fiverr or Etsy to get inspiration from ways other people are freelancing. It’s a bonus if there is minimal or no upfront cost to get started so you can test your ideas without over-investing. Just make sure to double-check what outside work is allowed with your employer.
Another takeaway from freelancers is learning how to budget on a variable income. If you’re worried about losing your job or are newly on the market, it’s time to think about slashing costs, taking on gig work and managing your savings. Start with knowing how much you need to earn a month to cover your essentials — then add in an estimate for what you’ll pay in taxes and that should give you a monthly minimum income goal. Use this when considering new jobs or when setting freelance rates.
The threat of lost income should encourage you to shore up cash reserves while you’re still gainfully employed and minimise non-refundable purchases (which is hard with everyone wanting to travel right now). You need to avoid or at least minimise accumulating any new debt. If you’re trying to buy a home or other large asset, it’s probably unwise to go to the highest end of your budget.
One big recession anxiety in the US is losing access to health care. Freelancers don’t have the luxury of employer-subsidised health insurance. Traditionally employed people who feel nervous about layoffs should start researching options for health insurance in case of job loss.
Recession anxiety is likely to stay with us for a while. Instead of panicking, channel it toward creating a secondary income stream, even if it’s a modest one. And more importantly, save up. A key part of running a successful freelance business is to set aside money during the boom times so you can weather the downturns. If you’re able to save a bit more of your current salary each month, now would be a good time to do so. BLOOMBERG
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