We have all heard that becoming situated at a company as an employee is safe, reliable, and a financially wise thing to do. But when you take a closer look, this is not the case at all. Of course, there are industries where being an employee is required, but for those careers where you can break free, you may want to start planning your escape route from employee to freelancer.
This article will place you on the right path in your thought process when it comes to the earning potential of a day job vs a freelancer. It details two important reasons why switching from employee to freelancer will allow you to increase your earnings. We work to make money, right? So why not place yourself in a position to make more. Additionally, there are a lot of extra benefits to working as a freelancer than just making more money. After reading this, you will wonder why you didn't leave your day job to work as a freelancer years ago. Let's dive in and see why you can make more money as a freelancer!
Why Freelancers Make More Money Than Employees
There are multiple reasons why a freelancer has the potential to bring in more cash, as compared to an employee, but we would like to cover two main reasons - how your income is not limited as a freelancer, and how you keep more of your earnings through tax deductions when you work for yourself. Both of these factors will open your eyes as to why a 9 to 5 job may not be your best bet financially after all.
The Sky is the Limit for Freelancers - Employees Have a Capped Income
When you work as a freelancer, you have more control over your financial situation. Here is the perfect example. A friend of mine worked for a successful company and felt he contributed greatly to their business. He wrote a thoughtful letter to his boss explaining he felt his pay did not reflect his contributions, and politely asked for a raise. His boss explained that he felt a raise was not in order. That he was making the capped amount for his job duties. Mind you, he only made $17 per hour and was asking for only $1 more.
Feeling underappreciated, he set up a profile on a freelancing website and starting to attract clients. Months later, he was making much more than his day job and gave his boss his two-week notice. He is now making $65 an hour working for himself. So...his ex-employer can keep his measly dollar! He left his day job to gain more control over his financial situation and ensure that his earnings were not capped. Now you are starting to see the potential, right?
This is just one scenario, most employers set an hourly rate or salary and can pass out small raises once a year that really doesn't add up to anything substantial and doesn't make a dent in your bank account. Imagine going down this path for 50 years! It's limiting and will keep you poor.
Another factor that allows freelancers to make more money than employees is the freedom to work as much as they want. As an employee, you normally have a set number of hours and a set dollar amount for your bi-weekly paycheck, give or take a few hours of overtime. In contrast, as a freelancer, because you have control over the amount of work you take on, this opens up the potential to bring in more cash, if needed. If you want to work 70 hours instead of 40, that's all up to you!
Tax Deductions - Freelancers Keep More of What They Earn
First off, when an employee is paid, they have federal and state taxes automatically deducted from their paycheck. When a freelancer is paid, they get to keep the full amount of their earnings. So, what's the bottom line with both scenarios - with taxes taken out of each paycheck, an employee is handing over their hard-earned money with no say when it comes to lowering their tax amount. This is because they are typically not eligible for deductions.
For the freelancer, if they play their tax cards right, they have the ability to either keep all of their earning and pay nothing to the government, or, pay a reasonable amount, leaving them with more money in their pocket. This is possible because freelancers are eligible for a whole host of deductions.
Employees used to have the convenience of deducting a limited amount of unreimbursed expenses, but with the new tax law, this has all changed, and most deductions have been eliminated. As mentioned, working for yourself allows you to be eligible for many deductions. The more items you deduct, the less taxes you pay. This enables you to keep more of your income in your pocket. It's best to set your freelance business up as an entity, an LLC, for example. This will create a situation where you are eligible for greater deductions.
Here is just a sampling of what a freelancer may be able to write off:
A Home Office Deduction
Education & Training
Marketing & Advertising
Additional Benefits of Working as a Freelancer
Improves the quality of your life - freelancers can make their own schedule and take days off without asking.
The self-employed have the option to choose which projects they want to work on, which makes work more enjoyable.
Freelancers can skip the commute that normally takes hours out of their personal time.
Working for yourself adds stability to your finances - all your eggs are not in one "employer" basket.
Go From Employee to Freelancer To Increase Your Earnings
As you can see, working as a freelancer makes it possible for you to skyrocket your income. Through wise tax decisions, having full control over your earning potential, and being more productive because you have a schedule that fits your needs, you will be on your way to becoming financially stable, and possibly building great wealth!