On paper, my self-employed income from freelancing is around half of what I used to make at my last corporate job as an employee. However, I’m actually better off now financially than before – not just because the debts have gone and I’ve gradually learned how to save, but also because of the fact that there are various financial benefits to escaping the rat race and working from home.
I don’t have to pay much tax
Tax works differently now I’m self-employed. Because I was on a decent salary at my last corporate job, I ended up paying around £350 per month in taxes. I used to strive to get promotions, for the chance to earn a bit more money, even though the taxman took a good share of it all.
My working life back then was a continual cycle of more stress and more work in order to try to progress in my career. Although I moved up the career ladder, I didn’t see much real benefit in terms of significant wage increases. A £1000 payrise for me back then meant just £60 per month extra in my take-home pay after tax and national insurance contributions.
Nowadays I earn less than what I did before in terms of gross income, but because I get taxed differently (here in the UK), I get to keep more of my hard earned income. I only get taxed on any profit I make from my freelance earnings.
I can claim for business expenses to offset my tax
Because I work from home and I provide a freelancing service over the internet, I don’t have any major overheads to worry about to be honest. There are all sorts of expenses I can put through my tax return which are classed as business expenses though.
I can put through a percentage of my rent, gas, electric and other household bills. Computer, internet and stationery expenses can be offset too – basically supplies or anything that I use for my business, I can put through as an expense. This is how I end up paying next to no tax each year – and it’s perfectly legal!
Of course, many people do still have to pay a lot of tax when they’re self-employed, as would I, if I were completely raking in a fortune from my business.
I don’t have to buy work clothes or fuel for commuting
Gone are the stuffy expensive suits and other sombre attire that I used to wear for work. Now, if I want to, I can work in my PJs. And I often do. I don’t have to buy work shoes, jackets or bags, I just wear whatever I want to. Sure, if I have a meeting, I will get out my one all-purpose work dress and wear that. But I don’t have the need to regularly update my wardrobe with work gear!
One really big saving that I make from being self-employed, working from home, is from not having to commute. Not only was my old commute 45 minutes of stop-start traffic hell (twice per day), it was also costly too. I spent around £200 per month on fuel at my last job. Now I only pay for fuel for trips I make in my personal life, outside of work.
I don’t need to spend money on work related social expenses
Although I often tried to take lunch to work, I never managed it all week through. So I ended up buying lunch in the canteen here and there and then there were social lunches with work colleagues every couple of weeks. Contributing to the never ending birthday or celebration gifts for team members really used to eat into my budget every month, not to mention the Christmas party that we were all asked to pay for every year. I don’t mean to sound scrooge-like or anything but these costs used to really add up!
All those social work related costs have been eliminated since I began self-employment and started working on my own from home. I eat lunch fresh from the kitchen fridge and cupboards and there are no work colleague birthday gifts to worry about. Is self-employment, working on my own from home, lonely without all the social interactions with work colleagues? Not really, as I get to avoid the inevitable office gossips and I now have my virtual pals instead!
My income is flexible
Self-employment does come with the risk of a variable income. However, the variable income can go up as well as down! If I work harder, I can effectively give myself a payrise. Sometimes I have a great month income-wise and because of the way I can put business expenses through my tax return, I get to make the most of any extra money I earn.
Is self-employment a risk worth taking?
One of my biggest worries about going self-employed was whether I’d be able to earn enough money to help provide for my family. A regular salaried income is “safe”, there’s no doubt about that. But although I have the odd panic now and then about whether I’ll earn enough, my finances haven’t suffered at all so far because of self-employment.
The fact that I can save money on not having to commute, buy work clothes or pay tons of tax really helps to balance the financial risks of being self-employed in my opinion.
Are you self-employed? If not, would you consider self-employment?
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31 Comments
Wow, this is really interesting. At first I was ready to brush this off, because I thought to myself that takes must work differently outside the US, but once you laid it all out, I can get on board. I bet a lot of people could save money through self-employment this way. Being able to claim some of your expenses as business expenses is a pretty big deal, and it’s one that I often forget about. It’s something I’ll be looking into more this year as I go into self-employment.
Kirsten recently posted…How To Find Legitimate Work From Home Opportunities
I think for people offering a freelancing service online, this is one of the best low cost businesses around when it comes to setting up. There’s virtually no overheads to speak of, but because you work from home, there are so many things you can claim for as expenses to offset against tax. I’m not sure of how tax works in the US but hopefully you’ll have a similar experience! Keep us posted with how you get on.
Tax is one reason why I love side hustling more. It’s like all income comes in with no deduction or no more no less. I want this to be full time but not as of the moment because I am still waiting for the right time when I feel confident and ready to go all the way and face some disadvantages in being self-employed.
Jayson @ Monster Piggy Bank recently posted…Life Insurance for Your 20s, 30s, and Beyond
It’s definitely best to wait for the right time. In the meantime though, you could see if you can lower the amount you need to live on by cutting back and saving money where possible – it will help you if you have a bad month in self-employment if you can live on less.
This is a real eye opener! Tax is an obvious one, but I didn’t stop to think about other things like work clothes! Looks like it is going well for you. I can’t wait to make the plunge into self employed full time.
Emma @ From Aldi to Harrods recently posted…£15 cashback on Minions items at Tesco Direct
Thanks Emma! When will you make the leap? I hope it all works out for you and you find lots of savings too!
Hi Hayley! I just wanted to come back and answer this – the answer to when I’ll be taking the plunge is NOW! I’ve handed in my two months’ notice this week 🙂 I’m very excited to take the plunge.
Emma @ From Aldi To Harrods recently posted…Things to check before buying a used car
Emma, that’s great! I can’t wait to hear about how things are going for you as you start a new phase in your working life! Brilliant! 🙂
Hayley recently posted…How to Make Money Writing in Just One Month or Less
I am definitely considering self-employment. While I really love my teaching job (flexible, no expensive clothing, I do most of my work at home) and would definitely keep it, I would rather it be for the love of the profession while most of my money comes from work I can do myself. I like being able to decide what I’m worth hourly and to choose who I work for.
Alexandra @ Real Simple Finances recently posted…12 Sizzling Summer Side Hustles
Having choices about what work you do (and don’t do) is one the ultimate perks of being self-employed. It does feel nice not to have to be forced to work for someone you’d rather not!
That’s awesome about taxes over there! We have to pay a bit more here as typically your employer would pick up part of the tab. No employer means it’s all on you. One expense that goes way the heck up for me when I’m working outside the home is eating out. I try to pack my lunch, but to be honest it’s nice to get out for a few minutes and buy. Terrible for my checkbook, though. Major weakness.
Femme @ femmefrugality recently posted…Moving to Pittsburgh Welcome Guide
I know what you mean, buying lunch out is a nice treat from time to time! 🙂
Great points about how working from home can save you money. I hope that’s the case for me when I start working from home full-time.
Financial Conversation recently posted…How to Save for Retirement if You’re Self Employed
I’m sure you’ll find savings in lots of unexpected ways! Exciting!
I work from home and love it. Everything about it. I get to work in my p.j.s if I want. I can keep my kids during the summer, so I don’t have to pay for daycare. We save a lot of money and somehow have a cleaner house now that I work from home.
So glad it’s working out for you Pyper! Like you, I couldn’t be happier with my working life merging into my home life. Never thought I’d be 100% happy with my job, but I definitely am now! Hope things continue to work out for you. 🙂
I am going to be transitioning to working from home in a few months and am incredibly nervous. I am glad to leave corporate America but will miss my salary big time. I’m gone for 10 hours a day, and much prefer to be home with my dogs! I am still trying to figure out my health insurance though. That can be real costly, so I’m hoping it all works out!
Kristin recently posted…Blog Goals: Second Quarter Review
I hope things work out for you Kristin! I know health insurance can be a huge expense for you guys over the pond. Where there’s a will, there’s usually a way though!
I am already self-employed but I need to get better at claiming expenses. I’ve bookmarked this, as a reminder, so thank you!
Katy Stevens recently posted…Tesco Finest chocolate cheesecake
You’re welcome! Thanks Katy!
Self employment is definitely a goal of mine. With my two kiddos growing up so fast, I feel like I won’t reach full financial independence in time to enjoy them while they’re in the home. The next best thing would be to find a way to be gainfully self-employed. It’s definitely a risk to move away from a consistent income, but hopefully it will be one worth taking someday.
Dane Hinson recently posted…How I Evaluate and Select Index Funds
Taking the plunge to become self employed is a tough decision – I toyed with it for years. Totally worth it though in my opinion, if you know how you can find work and manage on a lower income if need be (in case of a bad month). Good luck with everything!
Here in the U.S., it’s more expensive to be self-employed. That is, unless you have a looooot of write-offs.
Self-employed people have to pay an additional 7.65% that they normally wouldn’t if they were employees. You can skirt some of that by becoming a corporation, but it’s still there.
The percentage of the house/utilities write-off does help, but not that much. I mean, it’s one room in a whole house. I think my write-offs end up being equal to maybe 4-6% of my gross income. So that doesn’t quite equal out, even with a certain percent of my income not being subject the anything other than regular income tax.
But I don’t have a choice, since my company is in a different state and can’t hire me as an employee. And the freedom to work from home — I have health problems and can’t work in any other way — is totally worth it.
Abigail @ipickuppennies recently posted…10 reasons sleep is frugal
This is pure gold! I have always tried to get people (especially in the corporate world) to figure out their ACTUAL income. One family (who earn 6 figures combined) realized that after commuting, clothing, vehicle expenses, daycare (a HUGE one) and other various expenses, they earned less than minimum wage. It’s insane that people can’t see that. Thanks for posting this. Love it!
Kalen Bruce recently posted…6 Things I Learned by Not Spending Money for 30 Days
Now that I’m retired, it’s easy to be “self-employed”, but I spent most of my working years as an employee. Towards the end I worked as a contractor, which gave me a lot of flexibility and advantages. I think if I were to do it all over again, I might try self-employment earlier in my career.
Gary @ Super Saving Tips recently posted…How I Saved $171.07 While Shopping Today
There are a lot of benefits of freelancing, but you have to be able to handle the inconsistent income. I’ve learned that many people used to receiving a regular salary have a hard time giving that up & taking the risk of self-employment.
Tre recently posted…Net Worth Update – Q2 2015
Wow, I never thought about saving money through writing off gas, electricity, etc. I wonder if we can do that in the US… thanks for the suggestion of living on less before jumping into full-time freelancing. I really would like to eventually leave me job and freelance full-time, so trying to live on a smaller income is a great idea to see if I could make it 🙂 Thanks for this!
Melissa @ Sunburnt Saver recently posted…How to Start a Blog the Right Way
Every time I buy another train ticket from New Jersey into New York City, I think about all the money I would save if I’d just worked harder to spend the summer freelance writing instead of stage managing. I’d say commuting is easily eating a third of what I’m making this summer.
I’m also so jealous you can work in your PJs.
Mel recently posted…Financially Savvy Saturdays #99
I’ve always heard that if you want to get rich, become self-employed. Of course it is a way to go broke too, if you aren’t careful. Good luck with the former; hope the latter doesn’t happen.
RAnn recently posted…New Financial Products: Loyal3
Thanks, enjoyed the post. The other cool thing about self-employment is that (sometimes at least, depending on what you do), you can choose what your costs of living are going to be.
For example, I spent the past four months or so living in Bali. I’m a freelance writer so that worked well for me – I managed to live in a nicer house than I do at home (actually I moved around a lot, so tried many places) but it also gave me the freedom to work less than I do here in Australia because pretty much everything cost far less.
That’s the thing I love most about working for myself I reckon – the freedom to change up so many variables!