The government estimates that roughly 31% of the American workforce are independent contractors. Meanwhile, Intuit did a study a couple years ago saying that 40% of the American workforce, or ~60 million people will be freelancers, contractors and temp works by 2020. Well, it’s 2021+ now and more people want to know how to be a rockstar independent contractor than ever before thanks to the global pandemic!
It’s clear the trend towards independent contracting / freelancing is on the rise thanks to technology and the Internet. Company benefits like pensions and 401k matches, are also declining. Finally, everybody wants to be free from the constrains of full-time work.
79% of independent contractors say they are happier working on their own. This is according to the 2019 edition of the State of Independence report from MBO Partners, a business services company focussing on the self-employed.
As someone who unexpectedly consulted for the financial technology industry over the past seven years thanks to my site, I strongly believe independent contractors will overtake full-time employment in the near future. Furthermore, you can actually make a lot more money as a freelancer than a full-time employee if you pack your schedule.
Benefits Of Being An Independent Contractor / Freelancer
Here are all the benefits of being an independent contractor / freelance worker.
1) You have more freedom to do work that interests you the most.
Freedom to choose is probably the most desirable benefit of contracting. You are more nimble to choose work that interests and matters to you most. Whereas if you have a full-time job, chances are that you’re stuck doing the same old thing over and over again until you bang your forehead bloody. Of course your ability to choose is limited by your ability to produce. However, if you develop a long enough contracting career, you’ll have plenty of new opportunities.
At my old finance firm, I wasn’t able to make any outside money without disclosure. As a contractor now, I can help a financial tech company’s content marketing initiative, start a tennis coaching business, do a little Uber driving along the way, and consult with readers on their personal finance problems. If I was working full-time, I would probably be prohibited from doing such things, or at least I would be under intense scrutiny.
2) You should be able to command a higher hourly rate.
Because contracting work is much more nimble, companies can pay a higher price to a specialist who does specific work. I estimate a contractor can charge anywhere from 30%-100% higher hourly, weekly, or monthly rates on average as opposed to full-time work because the company doesn’t have to pay any benefits such as health care, 401k, paid vacation, and tuition reimbursement.
There was one point where I was earning $30,000 a month in freelance income from three different companies. I was able to do so by selling my services to the highest bidder. The companies gave me a lot of flexibility regarding when and where I had to work.
3) You have more flexibility to work wherever you want.
When I used to contract for Personal Capital (best free wealth managment tool you should use) between Nov 2013 – Nov 2015, I would average two days a week. It was the perfect balance at the time because I started becoming restless after working at home for 1.5 years on my own.
Of course not all independent contracting jobs provide this type of flexibility. But if you have a contracting job that deals with information, communications, analytics, and content, you should be able to do your job wherever there is internet access.
Based on my experience working in financial services and in financial technology for the past 15 years, I dare say that all of our jobs can be done remotely. Being in the office can actually be counterproductive. There are so many meetings, and meetings about meetings that it’s hard to do anything. I’m most productive in a quiet space writing and implementing strategy.
4) You get to work on your passion projects.
Let’s say you love fluffy Corgie puppies. Your dream is to start a puppy daycare center. If you’re working full-time, you simply can’t adeptly launch your business due to time restrictions and perhaps legal restrictions. But if you are contracting, you can take on contracting hours around your puppy daycare business.
Financial Samurai is always going to be my passion project. It makes a good revenue stream and it’s a lot of fun to experiment with new content styles. Furthermore, bantering with folks all around the world is pretty fun. In the 6th grade, when I was in Malaysia, I started writing penpal letters to kids in different countries. Financial Samurai is an expanded extension of one of my childhood hobbies.
Related: The YOLO Economy Is Here To Stay
5) You get to spend more time with family and friends.
My grandmother passed away during my second year of work out of college. I went back home to Hawaii earlier in the year to cheer her up after she had a stroke. I was with her by her hospital bedside when she passed away that evening. It almost felt like she was waiting for me to say goodbye before she left us.
Her funeral was a couple weeks later, and I didn’t attend because I felt pressure to stay back and work. I had already gone for a week. I wrote a letter for my father to read at the funeral.
Now that I’m older, I realize that I should have flown back out or just stayed in Hawaii for a couple more weeks to support my father and relatives. I’m afraid of funerals due to all the sadness I envision. But maybe a funeral is a time for remembering all the good a person has done to positively affect all our lives.
How To Be A Rockstar Independent Contractor / Freelancer
Part of the reason why I wanted to be a independent contractor was so that I could write this post based on a couple years of contracting experience. I was able to successfully negotiate a severance package that provided for six years of living expenses in 2012.
As a result, I could explore a new industry other than traditional finance. Nobody should ever quit their jobs since you won’t get a severance, COBRA healthcare, and unemployment benefits if you do. Read my book please!
Here are some tips to follow if you want to be a rockstar contractor who always has work lined up.
1) Add value, but respect your colleagues.
Adding value is always a good thing. Adding value in a new arena where they didn’t expect you to add value is even better. But you also have to be careful and shut your mouth if you dislike something or think their way of doing things is wrong. Advise without judgement.
My biggest problem is that I “wear my heart on my sleeve” all the time. This is actually a good answer when an interviewer asks, “what is your biggest weakness?” I am very opinionated when I believe in something or think something is going down the wrong path. As a result, I may rub people the wrong way if I don’t agree. This is almost always how conflicts start at work. Sometimes it’s best to just STFU and make other people happy.
Before opening your mouth to add your two cents, think to yourself whether the greater good is achievable if you are going to undermine someone else’s authority. Even if you are right, if a colleague believes you’re throwing them under the bus, they will make it their mission to discredit you. It’s easy to do so because after all, you’re a contractor and not a full-time employee. Provide balanced advice when asked, but don’t push your opinion onto others.
Must read: Are You Smart Enough To Act Dumb Enough To Get Ahead?
2) Know your place.
Rightly or wrongly, contractors are not treated the same as employees. Employees have full-time benefits, get gifts, attend private events, and so forth. As a contractor, you shouldn’t expect any sort of full-time employee treatment.
If there is a company milestone celebration where everybody gets a nice dinner gift certificate for two, you will probably get zilch. Don’t cry. That’s just the way it is. Remind yourself about all the benefits of being a contractor.
I find it very easy to be part of the team, whoever I contract for. Then, it’s the occasional meeting I see everybody in, where I’m not invited that reminds me of my place. Not knowing your place can get you in trouble. You start presuming things will happen that are not relevant to you. For example, I was once told not to use the words “we” or “our” in my writing because I’m not a full-time representative of the firm. That hurt, but that’s just part of being a contractor.
Just like loving someone more than he/she loves you will cause problems, caring too much for an organization as a contractor may lead to your downfall. You can end up despondent like an adopted puppy who always wonders why his mother feeds the other pups first. Align your interests with your clients and everything will be alright.
Related: Cultivate Your X-Factor If You Want To Be Rich, Happy, And Free
3) Manage expectations aggressively.
When I first started contracting, I worked about 35 hours a week for 24 weeks in a row. This was despite only being paid for 25 hours a week per my contract. I wanted to over-deliver in order to ensure that my contract continued every three months.
There was even some hope that I would perform so well my first six months that I might even get a raise. I didn’t. Then I re-aligned my work hours to what was agreed upon in the contract. I took a risk, and lost. At least my contract continued for another year.
My father even told me when I was in Hawaii for 10 days one time, “Are you sure you’re just working several hours a day? Because it sure looks like you’re working all the time!” He reminded me of my workaholic tendencies, and the importance of setting limits.
The hours you spend working while not getting paid are hours you could spend working for another client and getting paid. You’re not a full-time employee with the luxury of always getting paid no matter how much or how little you work. Your time is your business. You must set boundaries in order to keep your sanity, maximize your profits, and stay happy. I now use an out of office notification when I’m unavailable to contract or I’m pushing my hourly limit.
4) Never stop networking.
Once you start contracting at a particular firm, you will inevitably receive a lot more inquiries from other firms in the same space. If you do good enough work, people will take notice. They will learn about you through word of mouth, meetups, through your online profile on LinkedIn. Go to all happy hour functions when they are allowed again. Attend client events when you can. Never stop networking at meetups. There’s this virtuous FOMO effect where other companies want to also hire you once they see what you’re up to.
I’ve received a half dozen inquiries from other companies for my services that I’ve turned down in 2018. Feel free to contract with multiple companies at once. You don’t get benefits, so you have every right to earn what you can to pay for your expenses and save for retirement.
In 2019, I worked on a massive six figure blog marketing campaign for one of the largest financial companies in the world because a colleague of mine from 2015 moved there to run digital marketing. You just never know where your contacts will end up, so it’s good to always keep your relationships friendly and fresh.
Your professional network is extremely important.
5) Know your worth.
Before highlighting your rate, do as much market research as possible beforehand. It’s an unnatural feeling to charge by the hour, day, or week if you’re used to getting paid based on an annual salary. My sense is many contractors undercharge what they are truly worth.
They forget that because a company doesn’t have to pay benefits, it is saving roughly 30% by not hiring you full-time. As a result, you should charge at least 30% more for your services to make up for the lack of benefits, if not much more.
After you do your market research on how much you can charge, you must do an honest self-assessment on your experience and the value you can provide. The market will tell you whether you are charging too much when nobody responds, or too little, when your inbox gets flooded.
6) Be grateful for the opportunities.
Never speak ill of your clients. Always be grateful for the opportunities you’ve had. Whatever field of work you’re in, know that the circle is very small. Everybody knows everybody, or is at most three degrees of separation away. People also seem to change jobs every three years on average nowadays. You never know where someone might end up.
I had a disappointing experience after I sent my good-bye e-mail to a team of writers I hired for a client. Only two out of five responded with a “best of luck” or a “thank you for getting me onboard.” Guess who I recommended management keep after I left? You got it. The appreciative ones. Always be thankful because there are plenty of people out there with less, or who want your same opportunities.
Don’t Be Afraid Of Independent Contractor Work
When I was working a day job, I thought being a contractor was a risky proposition because I wasn’t confident in what I had to offer. As a result, I wondered how I’d pay for health care, earn a steady paycheck, and save a good amount for retirement.
The truth is there are varying degrees of contractor quality, just like there are various degrees of full-time employee quality. If you’re a coveted employee or contractor, you will always have opportunities that pay handsomely.
If you’re able to properly network and manage your time, you can earn a lot more as a contractor than if you were a full-time employee. You’ve also got maximum flexibility to work on all sorts of jobs.
At one point, I was making $30,000 a month as a contractor! Every single one of my clients have paid me hourly rates equal to well over $200,000 a year.
Health care is the biggest concern. But all you’ve got to do is pay for it, to the tune of $300 – $700 month, depending on your plan. The expense also becomes deductible.
Brand Yourself Online Today
The #1 way I’ve been able to consistently get independent contractor work is by having this website. My financial technology clients all found me through Financial Samurai and liked the quality of my writing enough to hire me in their content marketing departments or as an affiliate consulting. Your website can be about anything you are passionate about, which will inevitably attract you to more of the right clientele.
Starting Financial Samurai in 2009 was the best thing I could ever have done. Never in my wildest dreams did I imagine making enough online to not have to work a day job just three years after I started. If I want to make more income in retirement, I can simply reach out to my network and let them know I’m available as an independent contractor.
Below is a real income statement of a professional blogger who makes ~$900,000 a year from his website, but earns another ~$100,000 a year from consulting gigs all thanks to his site.
Recommendation If You Want To Quit Your Job
If you want to quit your job and become an independent contract, I recommend everybody negotiate a severance. If you negotiate a severance like I did back in 2012, you not only get a severance check, but potentially subsidized healthcare, deferred compensation, and worker training.
Since you got laid off, you’re also eligible for unemployment benefits. Unemployment benefits can range from 27 weeks and up, depending on the government. Having a financial runway is huge during your transition period.
Conversely, if you quit your job you get nothing. Check out, How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye, on how to negotiate a severance. I first published the book in 2012 and have recently expanded it to over 200 pages with new resources, strategies, and additional case studies thanks to tremendous reader feedback.
Henry Killingsworth says
You made an interesting point when you explained that it is important for contractors to attend client events. I would think that it would be important to have a single location to store your equipment and supplies in order to be efficient. If I was a contractor, I would want to make sure all of my things were in one area so that I am not having to drive all over the place to finish a project.
I have been in the contracting world now for over 12 years in the HR field in both a 1099 capacity as well as W2 in Oil and Gas, Finance, Technology, and Retail industries. The majority of my clients (90%) have been in the Fortune 5-500 space and have been DIRECT contracting opportunities. I have no website or blog, etc.
I started in the contracting world with NO HR EXPERIENCE! At the time, I was deciding to go into the contracting world-I was in the technology field and wanted to make a change due to one major factor-I wanted to invest my talent, time, and energy as an elite athlete and couldn’t do so as a FTE. So, I took the plunge into the contracting world and haven’t looked back since. I would concur with some of the posters here on their experience as a contractor/freelancer and would add some points based on my own experience:
1) From a personality trait perspective you have to be self-disciplined, self-motivated/driven, goal-oriented, organized, self-aware (knowing what you can and can’t do, and knowing where you can add value with your skill sets), flexible, tenacious, and be a good relationship builder.
2) Referrals, Referrals, Referrals! Majority of my gigs are now being referred to me which took about 3 to 4yrs into my new career. However, always stay hungry and don’t become complacent!
3) Always send out a thank you email to your bosses, counterparts, and anyone else who you interacted with on the project when it’s coming to an end.
4) KNOW YOUR WORTH!! From a monetary perspective, if you are on an hourly basis type contract or whatever, make sure you do your due diligence in your line of occupation and experience level. Hold Firm in your rate and don’t cave into being low-balled.
5) I make at least 30% or more than FTE’s doing the same type of work. Based on my experience being in the HR field, I know that you can at least see a 25 to 30% increase in pay as a contractor versus a FTE across the majority of occupational fields whether it be a Project Manager to an Accountant to a Technical Writer.
6) YOU ARE THE BRAND! This is the most important thing to remember in my opinion, the buck stops with you. It is paramount that you have high integrity, execute on what you say you will do, interact well with others, go that extra mile, be able to hit the ground running, provide exceptional customer service with the internal stakeholders on the project, etc. Word travels fast and if you are exceptional your brand will increase exponentially which in turn will give you more opportunities to choose from.
7) DON’T OVEREXTEND YOURSELF! This goes back to my last point that you are the brand. Don’t fall into the trap where you over-promise and under-deliver because you have overextended yourself by taking on to many projects at one-time.
8) It’s not for the fainthearted. Posters and here and elsewhere on the web may be perceived by “Civilians”(ones who are FTE’s) that they may paint a more rosy picture being self-employed than being a FTE and working for the man. Albeit, there are many benefits now doubt being self-employed as have been posted here and elsewhere. Nonetheless, you should consider some factors that come into play of being self-employed in making a decision if it’s for you or not. For example: Constant bookkeeping, being able to set one’s own work schedule and being flexible (could be a con if you are the type that likes a structured work schedule), having to find and obtain clients, not having or making a designated vacation (can be a pro or con), having to find and pay your own health, dental, vision benefits if single (again can be a pro or con), your income may fluctuate from time to time pending on industry, funding your own retirement account(s) (again can be a pro or con).
9) Make sure to have $$ set aside. If you do decide to take the plunge, I highly recommend that you prepare to have finances set aside as much as you possibly can when you are in that “start-up” phase. There is no rule of thumb of how much $$ you should set aside as everyone’s financial situations are different and pending on occupation, what industry, etc. Do your own financial due diligence on what you would need and figure it in to your business plan.
10) Celebrate your successes and have a life! It’s easy to get caught up in the “grind” if you are the “A” type and forget to celebrate obtaining a new client, or having your contract extended time and time again. The work/life balance is just as paramount. I continue to put as much energy, time, and focus into having a life outside of work and celebrating my successes.
All in all, as for me, being self-employed has been truly liberating and the benefits have exponentially outweighed being a full time employee that would take up another page or two.
As I mentioned in the beginning of this post, I started down this path initially for the sole reason of having the flexibility of pursuing my dream of being an elite athlete which I was able to do. In the end, it has paid off in more ways than I possibly could have imagined.
Buy the Ticket, Take the Ride!
Great post, Duper!
I’m a little behind on your posts because I’ve been busy with my new consulting practice. You know you’re doing something right, when your first customer signs on the dotted line within 5 minutes of the initial meeting and the company you just left to start your practice hires you as a consultant for their internal project.
I wouldn’t trade in freelancing or consulting to going back to the life of a full-time worker. There are definitely pluses and minuses in every column for both aspects. As long as you budget your time and money accordingly (consulting is a feast or famine business), you will weather the storms.
For ones starting out as green as newly laid sod in consulting/freelancing, I would suggest reaching out to a recruiting firm and see if they have a contracting department. Within the IT industry, there are numerous recruiting firms that offer contracting. This will allow newbies the opportunity to understand the negotiation process and find the true worth of their time. As a general rule, your value is 20% to 50% more of what the recruitment agency is contracting you for. Granted you won’t be paid what you can charge for outright, but does pay in the end with the opportunity to market and network to individuals that you may not have had the opportunity to without the agency.
I find it’s easy to navigate new waters with a helping hand.
Great article as usual. I was hoping you could provide some insight into how you or others chose what to become a consultant in. It seems you have a few different areas that you do your work. I would love the flexibility and freedom that you note in the article, but where do I start? I feel as though I have a very broad set of skills that allows me to be very helpful inside an organization. However, from what I see in the article and the comments, it seems the successful consultants have a very specialized set of skills. Is that accurate or just a perception?
My next question would be where do you go to find contracting opportunities? You discuss expanding your network as much as possible, but I think most people would need some assistance to get going to build up a clientele. I see other people comment about middle men who help them. I assume this would be like a recruiter or head hunter. Would that be a recruiter who specializes in consulting opportunities?
I look forward to your feedback.
Financial Samurai says
Yes, it is better to have a specific skill in doing something. The better you can do it, the more you can charge and the more desired you will be.
Your going WITH the wind here if you want to be a contractor (first paragraph of post). Hence, all you have to do is start meeting, marketing yourself, and asking. I first identify specific companies whom I think have a good product. Then I reach out to them over email or in person. Then I either just maintain a relationship until they ask for help, or I ask if I can help in anyway.
The truly good contractors are hard to get or employ. Develop a craft and be so good the client can’t help but give you a 3 month shot.
Oops, one more thought. Government employees who retire after the required age/years of service, often leave and then return as Consultants to double-dip. Nice gig, if you can get it, and the Client will pay a premium for the ‘corporate memory’ that comes with the talent. But mostly, it isn’t a choice for the Consultants I know. They do it while the economy is good, and then try to land a f/t W-2 gig before the bottom falls out.
A last observation; wages have been flat (or declining) for 15 years, for both technical consultants and the middle-man firms. There are far more bodies seeking paid work, than demand for those bodies; it doesn’t appear to be changing anytime soon. With a few exceptions, I would be able to re-enter the work force at a wage I made 20 years ago. Interesting.
Financial Samurai says
Double dipping is incredible. And why not? If I could get a pension by age 45 after 20 years of service and make extra consulting, I would. Everybody should do this, especially since it is highly likely that one made less than s/he could have to get that pension.
The key is to just live a long and healthy life to be able to “win”!
Very true, FS. Clarifying above, when I say “it isn’t a choice for the Consultants I know” what I intended to convey was that Consultants aren’t the ones making the choice. It sounds quite different in SF and FinTech in particular, but with old-economy utility, engineering, construction, aerospace, public works (all of which are shrinking in need for professional/technical talent, mostly due to the improvements in technology you mentioned), it isn’t up to the talent. If the Client firm can hire a f/t body, the organization wants more braves so they can be bigger chiefs. If there is a specific need that can’t be filled within the available talent pool, or the need may be project/time specific, there are plenty of bodies willing to work at an hourly rate in Accounting, Engineering, IT, Project Management, Contracts, etc.
I always searched for that ‘holy grail’ but never found the first client that would allow me to jump into business with the confidence it would last. I admire those who can obtain that first client (part of any job is ‘sales’!) and keep it going.
There are two big advantages for the CLIENT to use a ‘middleman’ firm 1) For larger organizations, there is often a ‘set-aside’ for M/W/VBE firms and a goal percentage; for government agencies, it is a must. 2) the relationship is ‘arm’s length’ and with the firm, not the individual. This provides a lot of protection, first that the firm is pre-qualified, bonded, and is not going to get legal over one individual who has a problem with the client firm (and risk all the other current and future placements).
This one-on-one contracts were ‘holy grail’ and very rare. And they always ended badly, with the Consultant getting screwed by a firm going out of business or a Client that runs out their usefulness, or a Consultant that doesn’t deliver as promised while the Client firm had been counting on those services delivered.
FS, my thought is that your Consulting gigs were the result of your wide audience on the Financial Samurai platform. The firms you engaged are a little smaller and nimble, and they benefitted from your work as well as the tertiary exposure to your audience. For regular (unfamous!) people with technical skills, no matter how good, it is pretty rare to land an individual Consulting gig. By way of example, SCE and PG&E use thousands of Consultants; they only use a few ‘middle-man’ firms, and the assignments are kind of cookie-cutter IT, engineering, finance jobs. That landmark lawsuit mentioned above involving Microsoft, also impacted many other large firms. Hence, the two-year limit (with a six-month required break in service) for contracts. Famous lawyer David Boies won that suit on behalf on Consultants, and the ones who wound up paying the price were stockholders and companies, and current and future Consultants who are often regarded as potential legal liabilities. As a result of that lawsuit, I have actually been kicked out of meetings! Funny now, embarrassing then; the invisible line, I guess.:-)
Financial Samurai says
You are correct. Liability protection and hassle are two big reasons for using middle men.
I strongly believe the world is becoming smaller, and more nimble due to technology. Firms are preferring contractors more and more now b/c they need to be nimble to compete. Anybody who plans to work for the next 5-20 years needs to strongly consider building up their freelance experience. Build these connections now.
Maybe I am more “famous” than the average person, but the average person can also start a site today and get going. Nobody is stopping anybody from branding themselves online.
To get business, all one has to do is tell themselves this: If I don’t find a client, I will starve and die.
When your back is against the wall, you will find a way to make ends meet!
Finally, I don’t think most consultants want to work for one firm/project for two years anyway. 1-2 years is a long enough time to line up another client.
fun in the sun says
I disagree with consultants not interested in going over 2 years. If you find a good client, paying you well, and you are working towards FIRE, why find another client?
Financial Samurai says
If you are approaching two years as a contractor, then you might want to join as a FT employee if you love to work there.
Most contractors I know have a set function/project. Once the project is done, the FT employees can try and take over.
It’s not easy to find direct consulting gigs, but you certainly don’t need to be ‘famous’ to find them. I’m in my early 30’s, recruiting within the technology space for close to 10 years…. no fancy blog, no celebrity wife or my own reality tv show. I really can’t stress enough the importance of building your network. I constantly tell new college graduates to focus on networking and keeping strong relationships with whomever they meet or wherever they work. It might not seem very beneficial earlier in your career, but as that network grows and as those people in your network mature in their careers and take on leadership roles, you’ll eventually see the fruits of all that networking. Kind’ve like investing long-term in dividend stocks. The person who you least expect might be the person that helps you land your next job, full-time or consulting. So keep good relations with everyone! If you’re leaving a job, stay in touch with your boss, boss’s boss, colleagues, etc. Both my current and my previous gig were both through folks in my network. I’ve been on my current gig for 9 months and fully expect this one to go long-term. My last gig lasted 3 years, far outlasting full time employees on the team. The company started seeing a serious decline in revenue, so hiring slowed drastically and so my role was eventually eliminated. Bummer, but it was an incredible 3 years at a high hourly rate, in which I made SIGNIFICANTLY more than my peers who were employees. I was handed offer letters for full-time employment there 4 times over those years and politely declined each time. It just never made sense to me – despite the vacation time, benefits, stock, blah, blah, blah.
Speaking of vacation though, I do have to say, it hurts taking time off. Does anyone else here also calculate in their heads the money lost from not working, in addition to the cost of the trip? I’m constantly running those numbers in my head before and during vacation. Wife hates it ;-)
Financial Samurai says
“The person who you least expect might be the person that helps you land your next job, full-time or consulting.” This is exactly it. You just never know. Eventually, things pop up. Build your LinkedIn connections, build your network of friends in the space you are in and who you’d be willing to grab a drink with.
Friends bring friends with them. People WANT to hire great people, b/c it helps make them look good too.
The key to taking time off is to obviously keep on working while on vacation. No reason you can’t work 5 hours a week while in Hawaii right? Thank goodness for the internet!
Mr. Utopia @ Personal Finance Utopia says
Looks like the comment I posted yesterday must have been eaten up in the spam filter? It went something like:
These are all excellent points about contracting. I have definitely noticed more contractors in the companies I have worked for over the past several years which, from my personal observations, corroborates the upward trend. For those who have been employees their entire life, the freedom of being an independent contractor must sound enticing. It’s a catch 22 for them though because of the perceived insecurity – the worry about what happens if your contract ends and you haven’t lined up another?
Financial Samurai says
Ah, bummer about the spam filter. Comments don’t usually get lost.
While working as a contractor, always set aside time to find the next gig. Or, if you have time, contract for two clients. You have all the freedom in the world to do so!
Jim McG says
Hi Sam, timely article for me as I consider consultancy/contracting as an option for myself going forward. I know quite a few guys doing it, but none have ever said that they’d absolutely recommend it, with many echoing the points you’ve outlined above about the uncertainty of the workflow and the need to network 24/7. The do have an element of more freedom and flexibility from the 9 to 5, but I sense it comes with a dollop of anxiety about the future need for some security. You really need to have confidence in your own ability to generate work (I think) in order to enjoy it which probably comes with experience, the thing you haven’t got when you’re starting out!
Financial Samurai says
Yes, you have to believe in the value you can provide. But if you have a job, just know that an employer already does, and is paying 30% more for it all baked in due to all the benefits they provide.
Step 1 is to get one client and go from there.
Great article, Sam! I’ve been consulting withing the tech recruiting space for 6 years. Absolutely love it. From time to time, I do think about the vacation time, 401k match and equity that I miss out on, but keep reminding myself that my pay check is a hell of a lot bigger than my colleagues who are full-time employees. My wife and I plan to start a family in the next 12-18 months, and I do get a bit nervous about medical benefits. Currently, my wife works full-time and has added me to her benefits. If, for whatever reason, she decides not to return to work after her maternity leave, I’ll certainly need to do some homework on health insurance options for my family.
Financial Samurai says
Good stuff. Just bake in $1,500 a month for three of you, and you’ll be good!
Dan Holland says
Great article Sam. I have a full time job but have worked as a freelance developer on the side for many years. I like it because it allows me to pick the projects I want to work on so I can use the technologies I enjoy as well as hone my skills on new technologies I’m learning. In my field there’s new stuff to learn just about every week. I find there’s also a psychological benefit as well, knowing that you have something to fall back on if needed. I’ve recently branched out into running my own websites. Hoping to turn that into a side hustle as well.
Keep up the great work. Love reading your posts.
Financial Samurai says
Thanks Dan. If you have developer skills, then you should definitely consider developing and running your own portfolio of sites! Like a contractor building his own homes!
I work a sales job part time outside of my regular office job. The only thing really scaring me is the medical costs when it comes to a family. If I stayed single forever it wouldn’t be a problem.
With that being said, I am closing in on $1,000 a month passive income. If I can quickly get it to $2,000 a month I will do sales full time. I don’t receive a pension anyway, the lines are starting to blur between corporate job and consulting…
Financial Samurai says
Medical cost used to scare me. Now it’s a business expense at $1,350 a month.
Bryan @ Just One More Year says
I have seen many of the differences you mentioned working with and hiring contractors. They are workers but not quite co-workers/employees. An employment gray area if you will, that when well leveraged right can work for everyone.
I think contracting may be the direction I pursue after my current job. That will allow me the flexibility of my schedule and location independent income to fund my bucket list items. This makes me my own boss in that I can choose what, who, when, where, and how long I work for a company. (Wait – I guess we have many of the same choices to an extent as an employee)
BTW – why couldn’t I have been your pen pal when you were in the sixth grade? You would have saved me from a few poor decisions!
Financial Samurai says
Haha, I was still bad in 6th grade. I didn’t learn until 8th grade that grades started accumulating in high school, so I went crazy until the 9th grade having lots of fun!
Folks who want to retire early can rest assured if they ever get bored or need more money, they can contract.
All good and nice but what about regular scheduled family stuff, how about that paying a mortgage/rent, health insurance payments, customers not paying, etc.
This is describing a top end consultant, in a tech field, not in a hardline goods type industry/retail.
How about upselling solutions for the real world 80%, not just the 20% of ultra-mobile, unmarried, child-free super technology wizzards?
Financial Samurai says
Are you saying if you make more as a contractor than as a full-time employee you can’t pay the mortgage/rent, health insurance? Help me clarify your angle, and if you want to write a post about industry/retail and hardline goods contracting, I’d love to have it.
You can read a post that’s closer to your “real world 80%” as opposed to my fake world with these two contracting related posts at close to minimum wage. But the principles in this article of being a better contractor are the same, regardless of industry or income amount.
What’s It Like Driving For Uber? Feelings Of Hope And Sadness
Spoiled Or Clueless? Trying Working A Min Wage Job Twice
I’d love to know why you think your world is more real than mine. Thanks!
Hmm, I’d still prefer to be my own boss, run my own business, than being a contractor. Isn’t that another way to serve new masters? How different does it feel from being “just” an employee?
Financial Samurai says
Sure, being your own boss by running a business is a third option. Being a contractor is also being your own boss. As a contractor, the product is your service. Running a business, the product can be all sorts of things. Are you taking the leap?
fun in the sun says
I am in my 9th year of contracting, after 8 years as an employee. It would take a monster offer to move me back to employee status. Contracting can easily pay 50% more than employees receive, and I have seen no difference in job security. I have outlasted many employees on gigs. The work hours is also a huge benefit. When someone in the team needs to put in an hour or 2 extra work, the contractor is never asked, as companies don’t want to pay for that time. An employee picks up the work at no cost to the firm.
While job security is not a drawback, there are some other drawbacks to contracting which you did not cover;
1) Middle man firms – It is very difficult to get direct client relationships in my industry. Middle man firms are usually small businesses with an owner who has a close relationship with a senior manager in the client firm. Firms will typically have an approved list, including some national firms, but often lean towards the local small business with the relationship. It can be dumb luck whether you are through the unofficial “chosen firm”, or not. This can have a huge impact on your longevity at a client. Unfortunately whenever you have a senior manager earning $150k a year, but managing a $10 million budget. You can’t avoid this moral hazard.
2) Middle man firms – You are reliant on their honesty to pay you. As they are small businesses that can fold with no notice. I have colleagues who have lost up to $50k through firms no paying the last invoice. Always avoid offshore firms where this risk is much higher.
3) The Microsoft case. Apparently Microsoft got sued about 25 years ago by contractors for benefits, as employees received stock options, and contractors did not. Many companies now have an 18 month to 2 year limit on contractors, as they fear being sued for benefits. This hurts both contractors and companies. It would be amazing if someone could overturn this case law, but unfortunately independent contractors are independent, so no one has the resources to make a case.
Financial Samurai says
Great points about middle men. Hence, it is up to use to try and build direct relationships online and in person. I’ve never worked through a middle man, and a friend of mine was also contact by her old employer to do direct contract work instead of pay the middle man $30 more an hour b/c she has kept in touch with her bosses every month or two after she left.
Once a direct relationship is created, the hiring manager realizes what a waste it is to pay a 50% markup.
I’ve also lasted past FT employees before. And if I can contract for one year at each employer, that’s a good goal and longer than I would expect. It’s fun to meet new folks!
Ali @ Anything You Want says
I have always thought of myself as an employee-type person, in large part because of the supposed security it affords. Recently, however, I have come to see that no job is truly secure, and being an employee can be just as risky as being a contractor. I actually took a course during my MBA about the “gig” economy, which argued that you’re taking on more risk as an employee in that you don’t control your own fate.
A major downside of being a contractor is having to secure your own healthcare, although with Obamacare that seems to be less of a challenge now.
^You couldn’t get health insurance before Obamacare? And young healthy people used to be able to opt out saving a couple hundred a month..
Financial Samurai says
Healthcare is so expensive… I’m paying around $1,350 for two, and that’s obviously unsubsidized. During FT work, I was paying $200/month for one.
But, for four months this year, I was grooving 60 hours a week and making way more than my base salary my last year in finance. It made me realize that with the right amount of hustle and push, you can earn a lot, while still being your own boss.
After I used the contracting money to pay off my mortgage, it’s weird, but I lost 70% of my motivation, hence why I’m just contracting for 16 hours a week now.
It’s not as scary as you think. Just try to get one client part-time first before taking the leap, if ever.
Thanks so much for posting this article. I’m a full-time employee who’s trying to freelance as a writer. One of the biggest challenges I face is getting steady work. It’s difficult to network when I’m stuck in the office 8-9 hours/day. This makes me hesitant about throwing caution to the wind and see if I can remain financially stable. The most attractive benefit to me is working on your own time as you mentioned above. A possible negative is that you are cut off from the social environment of the office; however, that can be combated through face-to-face networking. The employee benefits package doesn’t worry me in that I have a HSA that’s portable. The freedom you have as a contractor outweighs any of the possible negatives. I admire those that have taken the steps to control their destiny. I can’t wait to get there!
Financial Samurai says
Hi Mel – No problem!
Being a freelancer writer is one of the best ways to earn freelance income immediately. I would definitely spend time networking with other freelancer writers online, join a forum, comment on blogs that have bloggers who also do freelance writing, and so forth.
I hired and managed 10 freelance writers at my old client b/c I had in mind which blogs I liked, and which writers I’ve met in person.
Feel free to PUT YOURSELF OUT THERE by letting people know you are available for work. Good things will happen!
You hit on a lot of great points in this article. The job market is definitely changing and I can see how more contracting jobs are a likely wave of the future. Freelancing does take a lot of discipline for one. You have to really stay on top of invoices because most clients can’t keep track and will forget to pay sometimes and also watch your hours. It’s also easy to end up working more than you planned, so you really have to watch your time and set clear expectations up front. If scope changes a lot, you may have to re-negotiate terms. Freelancing also has its ebbs and flows, which takes getting used to. Anticipating slow downs and trying to find new gigs before old ones drop off helps a lot but isn’t always easy. That said, the flexibility is incredible. And it’s nice to be able to have more control over which projects you take on and when. I still have many ways I can improve as a freelancer and am continually learning new things. My skills at being organized have definitely helped but I need to work harder at hustling and networking for new opportunities.
Financial Samurai says
Invoicing can be difficult to stay on top of, or it can be like Christmas day each time!
One definitely needs to HUSTLE to find new clients or keep the work flowing. So yes, not everybody will become a good freelancer. It depends on how much you will dread going back to work FT, how much you love the flexibility, and maybe, how much you love money?
Jeremey GIltner says
This is useful and relevant to my work in which I independently consult to pharmaceuticals. However, my challenge has always been the middleman- how do I get direct 1:1 contracts with clients? There is a strong reluctance on all client fronts to contract directly with me, even though I overcome all perceived obstacles (risk from co-employment, workers compensation suits, general and professional liability). The staffing firms, recruiting agencies, and boutique employment firms add significant markup to costs. A direct contract results in zero markup- clients pay less and I earn more- everybody wins. And yet pharma companies are very willing to pay a multiplier on my rate to avoid perceived risk. What can I do?
Financial Samurai says
Good question. The contracts I’ve been able to receive and negotiate directly are all because I’ve met a future client in person before working for them. We didn’t talk business. They just came to me via e-mail sometime down the road.
Hence, build the network now without any expectations. Go to conferences or a meetup. Keep yourself open, but don’t push.
Going through a middleman is expensive, but it’s become institutionalized with bigger firms, or public firms.
Thias @It Pays Dividends says
The timing of this post is incredibly helpful as my wife and I are just evaluating an opportunity that would allow her switch over to being an independent contractor and free her up to spend more time at home. Currently, the benefits of having more control over what you do and the amount of time you are spending has been swaying her towards giving it a go. In our eyes, if it somehow doesn’t work out or isn’t what she wants, she can always go back to employment but I think that once she experiences it, she won’t want to go back to being an employee.
Financial Samurai says
I say GO FOR IT! Having the combo of one spouse as a FTimeer and one as a freelancer is very powerful due to the flexibility. And the closer each spouse is to reaching max happiness, the happier the entire family.