My So-Called Freelance Life - Michelle Goodman [23]
As a writer, once you take away the health insurance headache, my overhead’s pretty minimal. My biggest expenses are usually the blasted cell phone bill, the blasted Internet bill, the books and magazines I buy for research, professional memberships and conferences, new computer peripherals, the occasional cross-country trip to meet with clients, and the money I pay consultants (accountant, web designer, geek for hire).
If you’re a photographer, however, you need lighting equipment to get the job done. If you’re a video producer, you need a PDA. If you’re a financial forecaster, you might need three different number-crunching programs. If you’re a musician, you probably need effects pedals, amps, and the obligatory van with flames painted on the side. If, however, you’re not sure what accessories, supplies, and setup you’ll need, doing some online detective work and joining a professional Listserv, networking group, or web community can go a long way.
To keep the best records, track your business expenses separately from your personal ones. Keeping your chocolate out of your peanut butter will make your life easier at tax time, when you’ll need to add up business expenses so you can deduct them on your annual tax return. Hardly the place to muddy things up with receipts from your lost Vegas weekend.
Now let’s factor in your taxes. Add up your annual personal expenses and business expenses and tack on 30 percent of the total for the annual taxes you’ll owe. (Check with your accountant for the exact percentage of income you’ll need to pay in taxes; more on this in Chapter 16.) So let’s say it costs you $40,000 a year to live and $10,000 a year to work. The math would be $50,000 + (.30 x 50,000) = $65,000 a year. So $65,000 is the minimum amount of bacon you need to bring home each year to break even. But that’s not how much—or should I say, how little—you should be earning. Read on.
Pick a Number, Any Number . . .
That’s right, pick a number. But try not to get too carried away here. If you were making fifty grand as a staff project manager six months ago, it’s nowhere near realistic to expect to earn $150,000 a year as an independent PM, at least not right away.
I suggest aiming for a profit at least 30 percent above your break-even point. Why? Because I can tell you from experience that (a) living month-to-month sucks, (b) you’ll need a little extra money lying around should a client forget to pay up (it happens); your computer, camera, or cell phone die; or the class, conference, or retreat of your dreams come along, and (c) you’ll want some mad money for personal savings/investments, trips, and miscellaneous goofing off.
So using our little formula, the amount you’d want to make would be $65,000 + (.30 x 65,000) = $84,500 gross pay for the year.
Admittedly you may be relieved to just be breaking even your first year or two. You certainly wouldn’t be alone if break-even is the best you do your first twelve to twenty-four months; that’s normal for a rookie. In fact, pulling in $65,000 your first year as a freelancer is pretty darned impressive. But once you get your freelance legs, you by all means should strive to make a profit. Subcontracting, raising your rates, and taking corporate work rank among the most popular ways to boost your earnings. We’ll talk about all these later in the book. Meanwhile, let’s finish figuring out your rate.
Time Off for Good Behavior
Besides not getting paid to prepare that estimate for HotShitStartup .com or file all the printouts scattered about our office floor, we freelancers don’t get paid for the days we take off. So in order to come up with a true freelance rate, we need to plug into the equation the hours we’ll actually be working this year.
I don’t know about you, but I like at least a month off