Freelancing in America isn't just a growing trend; it's becoming the new normal. About 34 percent of the U.S. workforce falls under the category of freelance workers -- that's 54 million people pumping over $715 billion of value into the economy.
If you think back to the start of the 2008 recession, the kind of freelancing we know today began as a temporary solution to shifting and unstable economic conditions. Today, it's becoming an increasingly preferred way to earn a living. The growing prevalence of technology in our lives only strengthens this.
According to a recent Xero study about the on-demand freelance marketplace (think Uber, TaskRabbit, Thumbtack), for about 11.4 million Americans, the next job is only a few screen-taps away. With that kind of access, it's not surprising that people are choosing to supplement their income with on-demand gigs.
And why not? The benefits are tempting: no boss, increased freedom to pursue passion projects, flexible work hours, and protection from corporate downsizing. The emergence of online platforms for freelance work, such as Freelancer.com, Upwork, and Elance, have minimized the obstacles most workers face in finding new opportunities.
However, workers looking to shift into more of an on-demand lifestyle still face a few road bumps, especially if they're more accustomed to filing W-2s vs. 1099s. The decision to work independently requires freelancers to stay organized and on top of things most full-time employees don't often think about. Whether that's deduction of business expenses or saving for retirement.
Here are four tips that will set you on the right path to freelancing successfully:
Know your community
The freelancing community is larger than it has ever been before. With such a robust marketplace of freelance work, you can easily seek out others in your field who can help guide you, or even refer you to clients. The advent of online platforms that help you find clients and significantly levels the playing field for newcomers. Even so, it's smart to do the research and identify the platforms best-suited for your field. These can range anywhere from long-term freelance projects to one-time jobs, whether it's Upwork, Behance, Care.com, or Fiverr - the list goes on.
If you're in an urban area -- like 42% of freelancers in our survey -- explore co-working options. These can provide a quiet alternative to crowded coffee shops as well as a network of supportive peers and potential leads to find newer opportunities.
Budget your finances
Being your own boss means assuming full responsibility for your finances. It's typical for freelance work to have ebbs and flows. To avoid being caught off guard by a cash-crunch, it's always a good idea to set earning and spending goals for each month, and then stash away a small percentage (usually about 10 percent) to build a comfortable buffer.
Going solo also means being the boss of your tax payments. According to our surveyed freelancers, a third had trouble understanding and paying taxes, while 62 percent didn't make estimated tax payments at all.
Often times, freelancers lack experience in simple accounting and taxing practices, such as deduction of business expenses and filing quarterly estimated tax payments. Hiring an accountant can help ensure your bookkeeping is set up the right way, both legally and practically. It can also help free up time for you to focus on your work.
There are several accounting and bookkeeping software options can also help in this arena. My company, Xero, provides cloud-based accounting solutions, so I'm quite bullish about this. Leveraging apps like ours can really help eliminate tax-time surprises, and give you real-time insight into your business expenses. Gone are the days of the massive, unexpected IRS bill.
Manage your benefits
Now that the Affordable Care Act requires you to get health insurance coverage if you're self-employed, familiarize yourself with the online platforms - such as the Freelancers Union and even Healthcare.gov - that make enrolling in health insurance plans much easier.
Accountants can also be crucial in helping you plan ahead for your retirement by advising you on how much you should be saving tax-free, per year, based on your earnings. They can assist in informing you which type of account to use for your retirement savings. If you're easily tempted to divert money to less prudent pursuits, set up automatic withdrawals.
Diversify your income stream
Finally, don't put all your eggs in one basket, especially if you're starting out. It can be helpful to work with multiple clients to avoid dry spells, or in case one doesn't yield much income during certain times of the year. 56 percent of the freelancers we surveyed worked in multiple marketplaces, while 92 percent had other sources of income -- whether in the form of part-time or full-time work -- providing them with a diversified, safety net of employment.
Ultimately, the freelance marketplace isn't going anywhere. With support from online platforms and services that are helping workers organize and manage themselves, their skills, and their income, the number of people embracing on-demand work will only go up. To me, this is an exciting shift that brings with it new possibilities -- a rather natural evolution of the workforce in a changing economy.