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What to consider if you want to ditch the 9 to 5 and go freelance

What to consider when trying to support yourself without a full-time position

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Freedom. This is the first word that may come to mind when thinking of freelance or contract work. Freedom to make your own schedule and be your own boss. This freedom seems to thrive in chaos.

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In fact, 33% of self-employed Canadians said their main reason for self-employment was to have the freedom to be their own boss, according to Statistics Canada.

The pandemic has made many people realize that working from home isn’t so bad. In fact, working online with less travel time meant many had time for passion projects – projects that made money.

And it’s not just freelancers who benefit, says Matt Barrie, CEO and Chairman of Freelancer Limited.

“Companies have started to believe in digital hiring and using on-demand workers to complete their projects,” says Barrie. “They’re starting to see the profitability of doing this.”

Today, the demand for freelancers is enormous. Amid the pandemic, the number of self-employed people rose from 2.9 million in 2018 to 2.6 million in 2021, according to Statistics Canada. This number is increasing again, reaching 2.7 million in March 2022.

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Despite the popularity of freelancing, there are a lot of things to consider before embarking on this path.

be ready

Freelancing should start with a discussion with your family. Your loved ones will be directly affected, so everyone has to accept not having the steady monthly checks of a full-time job.

“We can become very comfortable, almost complacent, when we have a steady paycheque,” says Stuart Gray, director of RBC’s Financial Planning Center of Expertise. “New freelancers are often surprised when they file their first tax return and they didn’t plan for it.”

If you plan to work on contract or freelance, you should also meet with your financial advisor. You want to make sure that all of your long-term goals are achieved. You also want to make sure you’re taking advantage of benefits while you can.

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Your preparation may involve setting up insurance, investing in your Registered Retirement Savings Plan, saving for taxes, creating a budget, and creating an emergency fund.

“Make sure you have funds set aside that you can easily access to fund revenue shortfalls as your business gets started and runs,” says Gray. “There’s no rule of thumb, but that should probably be a minimum of three to six months of spending.”

Consider your options

With everyone on board and savings in the bank, you still have to decide how far you want to go.

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For some, it may mean using contracts for extra cash flow and keeping their full-time job for benefits. Others may want to dive deep into it. As Barrie notes, it is certainly possible to earn a living by freelancing, although there is a learning curve.

“This online marketplace helps you connect with clients and freelancers around the world and challenge yourself professionally,” Barrie says. “The market is ready to pay freelancers on a broad spectrum. For example, there are freelancers who earn $10 per hour and there are others who earn $150 per hour. »

That’s why it’s important to research your career path before embarking on freelance or contract work. Your paycheck might be modest while you build your customer base. Over time, it could be as stable and even more lucrative than your full-time job ever was.

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“Based on stories told by many of our freelance users, they typically started out as freelancers as part-time careers,” says Barrie. “When they have regular, repeat customers who come back to them because the customers are happy with their work and trust them, then they decide to become full-time freelancers.”

How to start

While every situation is different, there are definitely starting points to consider when deciding to go freelance.

First, you need to set aside money for taxes. The best way to do this is to err on the side of tax and start by setting aside 30% of every paycheck for taxes and other government payments like the Canada Pension Plan (CPP).

Then you’ll want to keep putting money aside for that emergency fund. For this, setting aside about 10% of each paycheck would be a good starting point. It could also go into a tax-free savings account (TFSA) so you can withdraw the funds at any time while continuing to grow, Gray says. The same is not true for an RRSP.

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“While the tax refund is nice, saving significant amounts in your RRSP before going self-employed may not be the best idea,” says Gray. “If you need to tap into these funds to fund your shortfalls, they will be taxable and you will lose the benefit of not leaving these funds in the growth plan, tax-deferred, until you retire.

While it’s important to consider your tax situation, you shouldn’t let these worries get in the way of achieving your goals, says Maya Patrie, Senior Investment Advisor and Portfolio Manager at BMO Private Wealth.

” I do not think so [Canadians] should be afraid or [taxes] should prevent anything,” Fatherland says. “It’s again this different knowledge base…and having all these conversations ahead of time so there are no surprises when you venture down this path.”

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Finally, you will want to budget for all of your costs associated with your freelance work. This would include everything from hardware to taking on customers. Collect all receipts so you can deduct expenses at tax time.

Why do it at all?

There are perhaps many Canadians who avoid freelance work. Whether it’s the tax implications or an unstable income, it can be difficult to embark on a new career path.

But while there are risks, the benefits can be just as significant, Barrie says. Especially if you’ve prepared for any shortfalls along the way.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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