Notes to a Younger Me: Lessons I Learned in My First Year of Self-Employment
It’s been [over] one year since I started Red Airplane Design (it was March of 2018). This post is late in coming because it should have been a “year end review” type thing, but ah well. Here are some lessons I’ve learned about being self-employed and some things I wish I’d known when I started out. If you’re starting your own business, take these things to heart. And if you’re a graphic design student, the fact of the matter is, you will more-than-likely always be expected to do freelance work – even if you have a full time job. So these tips will help you maintain your sanity.
Charge more than you think you’re worth
Err on the side of charging too much, not charging too little. Often, we – especially us Midwesterners – have this humility about our work where we think we’re not qualified and that idea leads us to expect less compensation than we should. If you do that, you’re not being fair to yourself – or even to your clients. For starters, you just spent something like $40k over the last few years to learn what you know about design. That knowledge and your real-world expertise is worth something.
While $30/hour may seem like a lot compared to that college job, you don’t realize that there are a lot of other factors you need to take into account such as:
In college you made money to survive; as an adult it would be nice to flourish.
Don’t base your hourly rate on what you’ve made up till now. Up till now you’ve been a college student and you’ve needed ramen money, 2am Pizza Shuttle money and that $73 for the campus print lab to prepare your project that’s due at 11:30 the following morning. Now that you’re an adult, you need rent money, car payment money and oh crap your car needs new tires money. It would also be nice to climb at least one step up the socioeconomic ladder. Maybe you’d like to start saving for a house, or you have an Amazon wish list you’d like to start checking off. The hourly rate you made as a college student isn’t going to get you there.
You will pay more in taxes
When you’re self-employed, you don’t have an employer covering half of social security and all that jazz – you’ve got to cover all that yourself. I calculate about 25–30% of what a client pays me will go to the government in taxes. If I charge $30/hour, that quickly gets shaved down to $22/hour or less.
You need to start thinking about saving for retirement
Wait, scratch that. Actually, you just need to start saving for retirement. If you have full-time employment, your employer will likely match a portion of your retirement contributions, so of course you’ll create a 401k. Being self-employed doesn’t make saving for retirement any less important, but it’s less at the forefront of conversation and more inconvenient. Do it anyway.
You have more business expenses and overhead than you think you do
When you enter the self-employed life, business expenses will start streaming out of the woodwork (like your computer crashing for instance). When you do design work for an employer, the employer will pay the brunt of the business expenses and you never even realize those expenses exist. When you begin working for yourself, you are rudely awakened to the responsibility of paying the cost of software, office supplies, postage, hiring an accountant, communications (phone, WiFi, etc), meeting clients over coffee and any number of unexpected expenses (like your computer crashing for instance). The unexpected expenses are the ones that will hit you the hardest (like your computer… never mind), so you need to make sure your hourly rate allows you to compensate for your overhead.
Charging too little devalues your work
You’ll find yourself doing not-great work you don’t enjoy for clients you don’t enjoy. And when you do not-great work you don’t enjoy, it creates a domino effect of more not-great work you don’t enjoy because you’ve created an expectation. People hire you based on your past work they’ve seen and like. If they like your not-great work, they’ll expect not-great work. I can’t tell you how frustrating it is when you create something great and the client doesn’t like it because they want it to look like that not-great thing they saw and hired you for. Instead, you want clients who care about quality as much as you do and who are willing to pay for quality work.
Charging a lower rate means needing to take on more work to keep up with your needs and expenses
This has multiple negative effects. It stretches you thin, makes you overwhelmed and leaves you with no sleep or social life. Remember, life after college should be less stressful than college was! In addition, the more projects you have going at once, the less you’re able to give them the attention needed to produce quality work for each project. The quality of the work you are producing for clients will suffer. And we already know what happens when you produce not-great work.
You’ll spend a lot of time on work that isn’t billable
This includes bookkeeping and expense tracking, invoicing clients, engaging on social media, building your portfolio, etc. Your hourly client rate needs to allow you wiggle room for this work that is necessary, but not directly “profitable.”
When I raised my hourly wage to $60/hour, lots of great things happened. I realized I didn’t need to take on as many simultaneous projects. I had more freedom to engage in evening social activities with friends. And I started getting more sleep – and more restful sleep – because I wasn’t stressed about all the things I needed to accomplish the next day. I also found that my clients respected me and the work I did much more. And, because of that, I got to do better work. I went from hating the struggles of being self-employed to actually having great relationships with my clients and really enjoying the work that I do.
(Side note. I know not everyone bills hourly. But for those of you who bill by project, you typically have a pretty good estimate of how much time a project will take you. Make sure you account for all of the above in your project scope and client proposals.)
Find automated ways to do bookkeeping
I had no clue what I was doing when I started out. I was winging it. I reinvented the wheel who-knows-how-many times in 2018. My biggest mistake was thinking that printing out a page of expense and mileage tables, tracking all my expenses on paper, was the more efficient method. I highly don’t recommend that method. It was the biggest headache.
On the first of January, 2019, I made the decision to work smarter, not harder. It’s now May and my life as a self-employed business owner is much more enjoyable. I track all my expenses in a Google spreadsheet that I can edit from my computer or my phone. When, say, the 2019 price-per-mile write-off changes, I won’t have to recalculate every trip I made. I’ll just change the number in my document and voila! All my trips will update with the amount I can write off.
I’m still not perfect at the automation thing. I.e. knowing how much I make is a God-only-knows kind of thing. When I send an invoice to a client, I move it into the “sent invoices” folder. When they pay, I move it into the “paid invoices” folder. Next April, I will have to open every invoice in that folder and total up the cost to determine how much I made. Definitely not looking forward to that. If you have a better method for invoicing and income tracking, let me know.
Hire an accountant, but also take a crash course in freelance taxes
Accountants are expensive. I paid $125 for the accountant to prepare my taxes. But I’m glad I did. She suggested ways to change things that would save me money in the future and she somehow also managed to sort out my lack of organization.
Having said that, it’s important for you to have at least some idea as to what’s going on with your finances. Take a freelance taxes crash course or seminar. DeAnn Gould-Lancaster at H&R Block ([email protected]) is a phenomenal resource; she specializes in design and freelancer taxes and she’s given presentations on this kind of thing. Reach out to her, organize a presentation for you and a group of freelancer friends, ask her questions. Who knew that business-related food and drink expenses were only a 50% write-off? She knew that and that little fact nugget changed the way I do bookkeeping in 2019.
Also, while it’s a fine method to throw every receipt into a hidden bin somewhere, only to retrieve it in April and haul it off to the accountant to let them work their magic, I recommend being a little more aware about where your business money is going and how your taxes work. Having spreadsheets and doing expense tracking yourself will clue you in – and when you’re constantly thinking about it, you’ll probably write off more because, well, you’re constantly thinking about it.
Figure out a way to withhold taxes, so you don’t get a big surprise at the end of the year
I got a big surprise at the end of the year, so I know. For the first time in my life, no refund for this chick; I owed taxes in April. And I hadn’t planned for that. Obviously, this situation is less than ideal, so in 2019, I created a method to withhold my own income from myself.
If you couldn’t care less about complicated money-related stuff, you can skip this paragraph. I created a third bank account (B) to serve as an intermediary between my business account (A) and my personal checking and savings account (C). When I pay myself, I use account B to pull the payment from account A. Then, I leave 30% of the payment amount in account B and transfer the remaining 70% into account C for personal use. So 30% of my income is stowed away in this intermediary account B that doesn’t affect my personal finances. Next April, that 30% will be removed and shipped off to the good ole USA, without any holes in my wallet.
If you ignored the previous paragraph, you didn’t miss much. Long-story-short, you need to create some method of setting aside about 30% of your self-employment income to pay taxes at the end of the year. You either withhold it from your income now or take a heaping sum of money out of your personal checking account to pay taxes at the end of the year. Withholding is definitely the better option.
Self-discipline is key (but actually pretty difficult)
When you work “for the man,” “the man” expects you to be at work at 9am. Having that expectation placed on you – an expectation that also comes with disciplinary consequences if it isn’t fulfilled – is a great motivator to get up, get moving, look presentable and be somewhere AT 9AM. When you work for yourself, that motivator and accountability method is gone and self-motivation must take its place. You may be really good at this, but a vast majority of people are not. Realize that, while you may be a responsible adult who shows up when working your full-time job, those skills are not transferrable when you enter the world of self-employment.
Set solid boundaries and parameters for yourself
Because self-discipline is key (but actually pretty difficult), you’ll need to set healthy boundaries that enable you to fulfill the expectations you have for yourself and your work.
My boundaries include implementing people who expect me to be somewhere in the mornings. If I need to schedule appointments (oil changes, doctors, dentists, therapists, client meetings, etc), I try to schedule them for 9am. Heck, if I want to hang out with a friend, I’ll ask them if we can meet for breakfast instead of afternoon coffee. Doing this forces me to get up, get moving, look presentable and be somewhere AT 9AM. And by the time all of those things have happened, it’s much more likely that the rest of my day will be productive. I offer myself today as evidence of this fact. I don’t have anywhere to be till 11 when I’m taking my car to the shop. As a result? I’m still in bed, in my pajamas, computer on my lap, teeth unbrushed, makeup-less… you get the picture. It’s almost 10am. Have I done anything productive? No. (I don’t count blogging as being productive because blogging just means I’m procrastinating on something else I should be doing.)
Another boundary has been creating a home office (that isn’t in my bedroom). Once my day is going and I’m trying to be productive, I don’t allow myself to go into my bedroom. As soon as I enter my bedroom, I’m tempted to lie down, take a nap, turn on the TV, clean my room and any number of other things that will only serve to derail me from the money-making productivity. Living room (where my desk/home office is located), kitchen, dining room, bathroom: all access. Bedroom: off limits during the day. If there are days when this is a particular struggle or especially tempting, I’ll pack up my laptop and go hole up in a coffee shop – about the only time I can write off coffee, so win-win!
You know yourself and your struggle areas better than anyone. If you’re someone who responds well to rewards, then create little rewards for yourself after every hour of work. If you work better under pressure, set hard deadlines that you need to meet. Whatever it may be, you set the boundaries and you answer to yourself for sticking to them. You won’t survive as an entrepreneur if you don’t.
Only put projects you love in your portfolio
You want to get the kinds of work that you love to do. In order to do that, you need to attract clients who bring you the kinds of work you love to do. When building your portfolio, keep that in mind and take it to heart. You can even add that extra spice to a project in your portfolio that the client wouldn’t let you add. Because, in the future, you want to attract clients who will want you to add that extra pizzaz.
If you really need the money, sure, go ahead and take on the logo for the client who wants it to look like it was designed in the 90s by a 14-year-old (usually I try to skip those ones). But in the end, when you’re designing your portfolio, create a beautiful logo that you love. Mockup all kinds of neat swag. Show people what the project could have been because what could have been is the kind of work you want.
Create projects you love – even if you don’t get paid for them
Throughout college, every professor, guest lecturer and art director harped on the importance of pursuing passion projects. It’s true – and I would add non-design-related hobbies to that. Create time for yourself to pursue projects that keep you loving design. And pursue time for yourself outside of the design world. Whether that means outdoor activities, reading, going to the movie theater, getting a mani/pedi or any host of other self-care activities, make time for them. Be intentional about pursuing projects and hobbies for yourself. It may seem like a detour that takes you away from getting the important client work done. But in the end, those are the things that will prevent burnout by keeping you inspired, motivated and passionate about your work.
Conclusion: stay inspired, motivated and passionate about your work
At the end of the day, that’s the key. My guess is that the primary reason designers leave the field is because of burnout and workload. Design is hard work; harder than many jobs I would venture because it places demands on your creativity and these demands take an emotional and mental toll. To maintain sustainability, you have to learn how to maintain a healthy work/life balance and stay passionate about the work you’re doing. These tips and tricks I’ve learned over the past year are things that are helping me do just that.
The past year has been an amazing growing experience for me as a person and as a professional. While there have been days that I loathe being self-employed, things like boundaries, awesome clients, fun projects and being my own boss have made it into something that I love more often than not. If you’re contemplating freelancing or you’re a freelancer who’s approaching the point of burnout and insanity, feel free to contact me. I’d love to share my experience and hopefully inspire you to get where you want to be.