If you happen to be a full time software developer, the idea of one day breaking the shackles of corporate America and creating your own path as an independant freelancer may be something you’ve thought about. Maybe you’re even starting to make concrete plans, getting all your ducks in a row for the inevitable day when you cut the W2 umbilical cord and go off into the world on your own. But the truth is, taking that last step isn’t always as easy as it should be.
After spending about ten years as a full time employee in the software industry, in engineering and management, I did just that, deciding to take the exciting, but terrifying leap into freelancing. And truthfully, convincing myself that I could, or even should do it, was the hardest part.
Why was it so hard? Well, it’s fairly simple: on the surface, full-tie employment is a pretty good deal. The value proposition is quite straight-forward: you show up to work and write code, your employer takes care of health insurance, retirement, various taxes that you’ve probably never heard of, and your ping-pong/foosball needs. Then, every two weeks, you get a big fat paycheck, regardless of whether you worked 72 hours, 97 hours, or were on vacation.
The vast majority of employers and software developers are bought into this system, so it’s only natural that barriers to exit have developed over time. I had always assumed becoming a freelancer came with an unacceptable level of risk, but once I started digging in, I found that the perceived risk was in reality, a set of widely accepted truths that weren’t actually grounded in anything concrete. So it was, that for me, taking that final leap into freelancing meant systematically busting each of the following myths.
But first, some math
Before we get into myth busting, let’s take a look at some hypothetical numbers that’ll help frame some of the points I’ll be making below. In the U.S., depending on who you ask, the average salary for a “software developer” ranges anywhere from $100k to $120k, so let’s split the difference and assume you’re currently making $110k as a salaried employee.
Assuming you work 48 standard 40-hour weeks in a year (this allows for two weeks of holidays and two weeks vacation), your effective rate is about $57 per hour. The going rate for freelance software developers in the US ranges from $80/hour on the low end, all the way up to $200+/hour on the high end. For purposes of this writing, let’s assume you can charge $100/hour for your services. At that rate, if you can stay booked for 48 weeks, you’ll pull in a cool $192,000 gross.
That’s an $82,000 windfall. Effectively, $82k to fill in all the gaps left open by no longer being a full-time employee. I’m not going to dig into the math in more detail, because healthcare, retirement, and taxes complicate things on a very personal level, but keep that number in mind as you read on for a general frame of reference.
Myth #1: I won’t be able to find consistent work
How many recruiters contacted you about full-time roles last week? If you have more than two days of software development experience behind you, the answer is probably: a lot. Currently, the demand for software developers is greater than that of almost any other field, and it’s not decreasing any time soon.
I bring up recruiters not because they are a potential source for freelance gigs (most of them are looking to fill full-time roles only), but to illustrate that the demand is far out-pacing the supply. So, armed with that fact, you can rest assured that there are plenty of people out there looking to have software built that are willing to hire you on your terms.
Finding the work is a different matter, but if you put in a reasonable amount of effort, working your network, and reaching out to potential leads, there’s no reason to think you won’t stay busy given the current market conditions.
Myth #2: I’ll lose my financial safety net
There are few things that feel more financially “safe” than having a paycheck come into your bank account every two weeks. But, unless you’re living paycheck to paycheck, you likely already have a safety net that isn’t married to your full-time job in the form of cash savings.
Common financial wisdom is to have enough cash to cover around six months of expenses in case of emergencies. If you start your freelancing journey with this sort of runway, you won’t have a problem weathering inconsistently timed income or a few months where you’re not doing billable work.
And if all else fails, recall one more time that the market for software development is red hot. If you go three months without work and can’t stomach the freelance life anymore, you probably won’t have a hard time finding another full-time job to fall back on.
Myth #3: Health insurance is too expensive to buy directly
In the U.S., few things are more complicated, and less understood, than health insurance. Since the mid 20th century, the healthcare system in America has been inherently tied to full-time employment. The unsurprising outcome of this, is that most people can’t conceive of a situation where they don’t receive coverage through their employer. Before I started educating myself on this matter, I was suffering from the following delusions:
- Buying health insurance directly instead of opting into a company sponsored plan, is prohibitively expensive and I would be crazy to ever consider it.
- The ACA (aka Obamacare) is only for people that aren’t offered health insurance through work, don’t work full-time jobs, or can’t afford insurance.
It turns out, the above statements are very untrue. First off, you can certainly buy health insurance in the US, either as an individual or as your legal business entity (corporation, LLC, etc.). Health insurance companies, while complicated in many ways, are businesses just like any other, they want to sell you a product in exchange for dollars. Now, you are going to spend many more dollars than you would if you opted into employee sponsored plans. But remember, your total compensation package at a full-time gig takes things like health insurance into account, so you effectively are taking less on salary than you would make as an independant contractor because your company is supplying you with benefits. Recall the hypothetical example I put forth earlier in this article and realize that given that $80k additional gross income, you can afford to spend a decent chunk of that on health care. Oh, and regardless of how you represent yourself legally, there is a path to paying those health insurance premiums pre-tax, just as you would for a full-time employer sponsored plan.
Secondly, the Affordable Care Act was a very sweeping legislation and way too complicated to cover in depth here, but suffice it to say, it resulted in a few very relevant changes to the US health insurance system. The law mandates that insurers are required to offer plans on federal or state run marketplaces. What’s more, these plans must meet a minimum set of requirements and fit into a handful of coverage buckets (Bronze, Silver, Gold and Platinum). This was done in an attempt to eradicate garbage plans that were being sold at low premiums, but that didn’t provide anything close to reasonable coverage. What’s more, anyone can buy insurance from the marketplace, but even if you buy coverage directly from an insurer, the same protections brought in by the ACA apply.
I won’t sugarcoat the truth of the matter here, buying your own health insurance is more expensive and complicated than picking from a few options from your full-time employer. But, if you’re fetching market rates, and you’re willing to spend a few days digging into plans, it is absolutely within reach. What’s more, you will end up with much more control over your plan, as your options are now every plan across each insurer offered in your state, as opposed to just the plans offered by your employer. Finally, you’ll gain a much deeper understanding of how health insurance works, the ins and outs of plans, and how various factors affect price.
Myth #4: I’ll get raked over the coals on taxes
Do you have a deep understanding of the US tax code? No? Me neither. And guess what? that’s just fine, because there are thousands of accountants out there that do, and they are more than willing to help you navigate it. If you start searching around the internet for information about how your taxes might change once you’re operating as a C-corp, S-corp, LLC, or whatever other legal entity you might choose, you’ll find all sorts of conflicting information about what your tax liability will be.
Like many things, how much more or less you’ll pay in taxes operating as an independent contractor versus as a full-time employee is highly dependent on many aspects of your own personal situation. But, unlike full-time employment, where aside from choosing your withholding and all forms of taxes are taken from your paycheck automatically, you’ll have more flexibility as an independant. There are various types of deductions that become available to you, numerous ways to file, and various other ways to reduce your tax liability. A good accountant will learn about your situation and present a tax strategy that will be optimized to you.
The bottom line is, yes the tax code is complicated, and yes, it will probably continue to change. But, with a good accountant in your corner, you really won’t have to worry about it much. Like health insurance, you will spend more time on taxes, but you’ll have greater choice and control in the long run.
Myth #5: I’ll kill my long-term career trajectory if I ever decide to go back to full-time work
I’ve heard the following statement made a number of times over the years:
If I leave my job to go independent, it’ll be hard to ever advance my career if I decide to go back to full-time employment.
For the purposes of this article, let’s define “career advancement” as “climbing the corporate ladder, from line developer, up through management”. Here are some of the skills I feel most people would agree must be mastered in order to excel at any positions past “software developer”.
- Ability to communicate effectively.
- An understanding of non-engineering aspects of the business.
- A mastery of managing your own time and being self-motivated.
- Understanding tradeoffs and how to effectively manage risk.
The above list is far from exhaustive, but I’ve found that the most successful non-developers I’ve worked with demonstrate a mastery of each item on it in spades.
For your consideration, here are some things you’ll be doing much more of if you decide to go independent:
- Communicating: You’ll be talking to clients, explaining technical concepts to non-technical stakeholders, and negotiating your contracts and rates among other things.
- Marketing yourself to perspective clients, understanding what business problems they are trying to solve, and ultimately positioning yourself as a valuable asset.
- Working your own hours, splitting time across multiple clients, as well as balancing the non-billable needs of running your business.
- Advising clients on not just how a particular feature or app might be developed, but why it should be done one way over another, and how long it will likely take.
It is not a coincidence that these two lists line up pretty well. The vast majority of the skills you need to master in any non-developer role at a full-time job are skills you will frequently exercise as an independant. And, unsurprisingly, the reverse is also true.
The above facts will not elude hiring managers. I would wager serious money that “ran my own independant software consulting business for X years, serving A, B, C, clients” is going to have a very favorable effect on your chances of scoring a full-time role in “management” or any other non-developer area. The longer you’ve successfully run your own operation, the more you’ve proven that you have mastery in what it takes to do so.
And there you have it, five myths, busted wide open. Deciding to pursue a life of independant freelancing is a huge decision that you should not take lightly. But, as I’ve outlined here, it’s not as scary as it seems, and hopefully far more within reach than you may have thought. If you’re considering making this change, do your research, talk to people that have done it, and if it seems like the right path for you, make it happen.
If you have any questions or feedback, please drop it in the comments section or get me on Twitter: @nickbona.
Also published on Medium.