Are you ready to be a full-time freelancer?
When your freelance work provides an income close to your full-time job’s pay, it is tempting to consider leaving the latter for a work-from-home opportunity.
Who wouldn't love taking control over his or her own time? You can work and take a break anytime you want. Work in your pajamas without getting told about the dress code.
But before you fully dive in, you must ask these financial questions to get prepared:
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Will my freelancing income be higher than my current salary?
Since you are planning to give up your day job, you need to know first whether you can survive with freelancing as your only source of income.
You need to create three financial tracking lists:
- Your freelancing income for at least the last six months.
- Your current expenses including your family's needs and leisure.
- All possible expenses when you start full-time freelancing such as faster internet service, tax, printed receipts, and a subscription to online tools.
No matter how seemingly insignificant, you have to list down everything, because they all add up.
Eric Ravenscraft, Senior Writer for Lifehacker, shared that you cannot point to the specific things that cost you money. “And until you actually start tracking every dollar, you’re fooling yourself.”
Then ask yourself if your salary as a freelance can cover the current and future expenses. Be honest with your finances and you will clearly see if you can confidently survive as a full-time freelancer.
How will I pay my taxes as a freelancer?
When you are employed, your company is responsible to remit your taxes to the Bureau of Internal Revenue (BIR). They file your forms, take care of getting your Income Tax Return, and makes sure that it is done every month.
Once you become a full-time freelancer, you have to go through the nitty-gritty of filing your own tax as mandated by Section 74 of the Philippine Tax Code.
If you are not yet registered as self-employed, you need to go to a nearby Revenue District Office which has the jurisdiction in your location.
- Present a BIR Form 1901, Barangay Clearance, BIR form 0605 Payment Form, Community tax certificate (cedula), NSO certified birth certificate and TIN.
- Pay the Php 500 registration fee, Php 15 Certification Fee and the Php 15 Documentary Stamp Tax at the cashier.
- Order your Official Receipt booklets.
- Get your Certificate of Registration (BIR Form 2303), Authority to Print, and books of accounts.
So how much will you pay for taxes?
If your annual income does not exceed Php 1,919,500 you just have to pay 3% percentage tax every 20th day of the month. You can also pay quarterly or annually. Freelancers usually pay the monthly taxes since their income are likely to fluctuate.
There are two ways to get this done:
1. Do the paperwork yourself
You must regularly track your income, calculate your tax, and pay the BIR. No matter how busy you are, you need to include this responsibility to your long to-do list. You also have to take note of the specific dates of filing to avoid paying penalties.
If BIR is not affiliated with your bank, you can't do online payment. Thus, you have to fall in line and pay it personally to a bank or a bayad center.
2. Get a service provider to do the paperwork for you
There are service providers such as Taxumo who help freelancers, professionals, and small business owners to prepare and pay their taxes.
Taxumo can keep track of your income and expenses, calculate your tax, pay it online, save your BIR confirmation, and the payment confirmation in a dashboard.
This way you can make sure that you pay your taxes diligently. Afterall, Income Tax Return is the proof of income usually required for VISA application, mortgages, loans, insurance and health cards.
Do I have enough emergency fund?
Authors of The Wealthy Freelancer suggest that you must have enough emergency fund first before completely going full-time.
“It takes time to build a business. So if you don’t have enough savings to help supplement your income until you get on your feet, the well will dry up.”
It is not surprising that freelance income can fluctuate every month. Especially if you are new to your niche, you will still need to build up your clientele before you can get a much favorable income.
So how much do you have to save as an emergency fund? Most financial advisers suggest having at least six to 12-months’ worth of your current salary to cover your rainy days.
Can I keep my social benefits?
Just like taxes, the company HR usually deals with your SSS, Pag-IBIG, and PhilHealth contributions.
But when you go full-time as a freelancer, you will spend most of the time at home away from the crowd and traffic. The idea of dealing with your SSS, Pag-IBIG, and PhilHealth contributions will be put at the back of your head. Hopefully, it would not be there permanently. You do not know what you could be missing out!
You see, these three government institutions give retirement, housing, financial, and health benefits even if you are self-employed.
What benefits can a freelancer get from of Social Security System?
- Sickness Benefit
- Maternity Benefit
- Retirement Benefit
- Disability Benefit
- Death Benefit
- Funeral Grant
- Housing Loan
- Salary Loan
On the other hand, PhilHealth will help freelancers with their medical bills. Even better, it can also cover your dependents. You just have to contribute P200 a month or pay quarterly as a volunteer.
If you ignore these three, then you are ignoring a lot of opportunities to save on medical bills, housing loans, and much more.
Can I afford health and life insurance?
As a freelancer, you must make a conscious choice to include an insurance in your necessary expenses. This is especially significant if you are the breadwinner in your family. That’s because you need financial protection.
Full-time freelancers are known to work beyond the wee hours and neglect their health. This makes them susceptible to various health problems regardless of their age.
The Philippines has a handful of insurance companies.
- MediCard offers various health plans with a benefit limit of Php 100,000 to Php 700,000. The monthly premium can range from Php 745.75 to Php 5,579.
- Sun Life Philippines has comprehensive life and health insurance plans. It has a vast range of financial products you can consider.
- Insular Life can cover you from Php 100,000 up to Php 150,000 depending on the plan you subscribe to. Monthly premiums can range from Php 1,155 to Php 2,028.
You just have to figure out first which insurance company and plan best fits your priority and budget.
If your freelance job is your only source of income, you need to ensure that your loved ones will be protected from the financial blow if you suddenly cannot provide for your family.
Have a contingency plan
Be financially ready to be a full-time freelancer.
Consider drastic situations that could come up once you go full-time in freelancing. Then ask yourself:
- What is my financial backup plan?
- Will I find another job?
- Will I use up my savings?
- Should I start a small business?
Becoming a full-time freelancer is not something to be rushed. You have to weigh in every possibility–may it be positive or negative. Nobody wants to think about the possible negative turn of events, but it pays to be ready.
Once you can confidently answer these questions positively, then you can set sail towards becoming a full-time freelancer.