This month for our full moon blessing we celebrate independence and working for ourselves.
The dream of being self sufficient, free to make your own decisions and using your skills and experience to make a living are becoming an increasingly attractive option for many young creatives in the current climate.
Here on YES Journal we often profile creative women that work for themselves that we find inspiring and have inspired us in what we do. We have profiled, writers, artists, dancers, florists, entrepreneurs and photographers amongst others, but what we have learnt is that being aware and in control of your financials is as important as harnessing your creativity.
We found this helpful article that outlines some important points to consider before going out on your own. It is written from the perspective of a Graphic Designer but can be applied to any creative field. The article is from a US publication so some terms may differ in Australia. But either way, please be sure to seek the advice of a professional accountant or financial advisor.
We also took some time to re-visit some of the amazing independent women we have profiled over the years. Be sure to read their interviews on YES Journal.
Katie Brannahgan runs Hipkin kidswear online store. Read our interview with Katie here.
This article was written by by here.originally appeared on The Cut. You can see the full article
Ellie, 28, is a graphic designer for a branding firm in Minneapolis. She went to art school, and throughout her 20s has made and sold her own artwork on the side — mostly paintings, but also some illustrations (including commissioned work).
She’d love to quit her graphic-design job and become a full-time artist. She thinks she could make a good living from her illustrations if she had more time to do them, and she could probably pick up the occasional graphic-design gig if necessary.
However, she’s terrified of the lack of structure and safety netting: no steady paycheck, no regular hours, no 401(k), no health insurance. She’s still paying off her student loans, too. How can she prepare financially to make the leap to freelancing?
Ellie, you have already succeeded where most adults fail: You have figured out What You Want to Do With Your Life, and gotten people to pay you for it. Congratulations! I toast to your paintbrush.
Now comes part two: pursuing what you love without crippling financial anxiety and/or ruin. Consider your fiscal security to be a golden runway to your smooth artistic flight. After all, nothing hobbles creativity quite like freaking out about your rent.
You’re off to a great start: Freelancing in addition to your current full-time job is the best way to test the waters before you launch your little solo dinghy. Presumably, you have an idea of how much people are willing to pay for your services, you’ve built up a network of contacts, and you know that you actually like the work enough to do it even when you’re not in the mood.
You’re also in growing company when it comes to ditching your nine-to-five. According to a study conducted in July 2016 by an independent research firm in conjunction with the Freelancers Union, 35 percent of the American workforce did some kind of freelance work in the past 12 months (a slight uptick from the past two years), and 79 percent of those freelancers said they preferred it to a traditional “employee” job. Of those who had quit their traditional jobs to work independently, 50 percent said that “no amount of money” would persuade them to go back. They also reported that they are “more likely to feel respected, engaged, empowered, and excited to start each day.”
What’s more, your independent classification gives you a legal right to follow your own rules when it comes to getting your work done, including how, where, and when. Sure, you have to adhere to contracts and deadlines, but as long as you deliver what you promised when it’s due, it won’t matter if you made it at 3 a.m. while drinking tequila in a bat cave in Guadalajara.
However, freedom isn’t worth much if you don’t have the resources to take care of yourself. As Virginia Woolf wrote in A Room of One’s Own, “One cannot think well, love well, sleep well, if one has not dined well.” Security, space, and a well-stocked fridge are much more conducive to brilliant ideas than blind, gotta-make-the-rent panic. So, Ellie, let’s set up that proverbial room.
Laurinda & Fatima Ndenzako run Collective Closets, an independent Melbourne fashion label. Read more.
Step 1: Sock away your money.
It’s boring advice, I know, but before you quit your graphic-design job, stock your bank account with what finance people like to call “a cushion” — ideally, enough to live off for up to six months without acquiring credit-card debt or missing student-loan payments. According to Pari Hashemi, a financial adviser at Wells Fargo who specializes in women’s finance, “It may take some time to stabilize your income stream, and you don’t want to put yourself in a position where you’re acquiring debt to finance your dream. Plump up your emergency fund just in case.”
Meanwhile, be conservative when money does come in. “Base your spending off your ebbs, not your flows,” said Manisha Thakor, the director of wealth strategies for women at the BAM Alliance. “As your freelance career starts to take off, you will notice that your monthly income is variable, perhaps quite variable. When you have a great month, it’s human nature to want to splurge — and there’s no need to beat yourself up over it, but that doesn’t mean you should succumb to the temptation mindlessly. The worst thing you can do (and I’ve seen it too often) is have a great month, up your spending, and then continue at that same higher level in subsequent months even when your income drops back to a more normalized level.”
Julia Pound ran iconic Melbourne store Dagmar Rousset and Chou Chou French School. Read our interview with Julia here.
Step 2: Find an accountant.
Taxes are the bogey monster of the independent worker, and the best way to tackle them is to hire an expert. Literally all of my freelance-writer friends have accountants (including me), and I recommend that you get one, at the very least when you’re starting off. Most will do an initial consultation for free, and then charge you for subsequent services.
The IRS technically defines freelancers as “independent contractors,” and requires them to fill out a different type of tax form from traditional employees (a W-9 instead of a W-2). This puts you in charge of setting aside chunks of your income to pay for taxes at the end of the year (when you have a “regular” paycheck, your company does this for you), and an accountant can tell you how big those chunks should be. My former colleague Priya Rao, a New York–based writer and editor, began freelancing full-time last summer and finally met with an accountant in October. “I brought in sheets of Excel documents to show how much I had made, what people owed me, and when I was getting paid for work I’d done,” she said. “The first thing he said was, ‘We need to catch up on your quarterly taxes so that you don’t get screwed and owe $30,000 at the end of the year.’”
An accountant will also help you manage the fun stuff, like what to write off. When you’re a freelancer, you can deem lots of things “business expenses” — such as drinks with friends who work in related industries and might lead to future jobs — and then deduct them from your taxes (the Freelancers Union website has a handy guide to deductions, here). In your case, you can probably deduct art supplies and whatever you pay for your studio space, even if it’s just your bedroom.
Vivian Hollingsworth runs creative floral studio, Flos Botanical read more here.
Step 3: Create a system to keep track of your income, expenses, and taxes.
Since meeting with her accountant, Priya has begun stashing portions of her income for tax purposes, but it’s tough. “The hardest part is that you get these checks and think, Oh, I’m rich! But that money isn’t all yours — you have to be disciplined.” She also keeps notes on when she can expect payment, as processing times vary and sometimes she has to chase down what she’s owed.
A tool for keeping your cash flow organized is Tycoon, an app designed to keep track of your jobs, payment due dates, and tax estimates. Developed by Jessica Perez, a former model, the app functions as a streamlined, user-friendly version of the accounting software QuickBooks. “At the height of my career, I was making decent money, but struggling to keep track of it,” Jessica told me. “I’d never get paid right away, and I had multiple agencies in different countries and was earning in multiple currencies — and I knew that all my colleagues were having even more trouble than I was.” Tycoon isn’t meant to replace an accountant; it’s more like an automated bookkeeper.
Down the road, you might also consider incorporating yourself, which will cost about $100 to $250 in addition to the fees of paying an accountant to set it up (Priya said her accountant did it for about $700 total, including the incorporation fee). Self-incorporating requires you to set up a business bank account, which will help you divide your personal and work-related expenses. It also protects your personal assets from business-related risks; for example, if you get sued by a disgruntled client, they won’t be able to go after your car, your home, or your family heirlooms. However, this step probably isn’t necessary until you start to make more money and take on more ambitious projects.
Bianca Vallentine runs hand painted bedding label The Vallentine Project. Read her interview here.
Step 4. Choose your health-care plan.
Unfortunately, there are no good answers to the health-care question. You have four or five options, in vague order of expense: Use COBRA to stay on your previous job’s health insurance; enroll in a plan directly with a health-care provider; find a plan through the Freelancers Union; enroll in a plan through your state marketplace (also known as Obamacare); or, if you have the option, go on a spouse’s plan.
Beware the siren song of forgoing health insurance entirely, which several of my freelancer friends have begrudgingly elected to do, particularly as the future of the Affordable Care Act looks increasingly grim. “If you’re young and healthy, you may be tempted to just skip it — but do not do this! All it takes is one uninsured trip to the emergency room and whoosh, the resulting bill may be enough to make you ill,” advised Manisha. “You really, really want to sit down and evaluate what your out-of-pocket costs will be in each health-care scenario, and then pick which one makes the most sense.” It’ll be expensive, and there’s no way around it.
Laura Berger is a world renowned illustrator, painter and ceramicist. Read our interview with Laura here.
Step 5. Continue saving for retirement.
Retirement planning sounds absurd when you’re worried about making this month’s rent, and I get it. (As Priya said, “I need to get my taxes sorted out before I start worrying about when I’m 75.”) But just because you no longer have access to a corporate Super plan doesn’t give you an excuse to let retirement fall off your radar entirely. “The money you save early on in your working life has the most time to grow and compound, so you don’t want to let those valuable years slip through the cracks,” said Manisha. “When you’re just starting to freelance and money is tight, a Superannuation account will be the best option.”