On the journey to financial independence, once expenses have been reduced as low as they can go, you need to look at the other side of the equation - increasing your income.
When it comes to bang for your buck, I believe freelancing is one of the quickest and easiest ways to grow your income.
Although it comes with the downside of trading your time for money, there are few options for growing your income faster. Especially for those that freelance while holding down their day job!
Why working more for your boss might not be the answer
When it comes to earning more, most people often assume if you work more hours, you’ll get paid more.
The problem here is that you can only work so many hours before you burn out. Working more hours is not really sustainable over the long-term.
Or if you believe it is, you’re likely to sacrifice a lot - your weekends, your health, time with family and friends.
Don’t forget, the longer you work, the less productive you are, so it’s important to target higher value activities with the time you have.
If you’re not quite at the upper echelon of the market value for your salaried role, or you can continue to progress further through the organisation to higher paying roles, I recommend you read my guide on how to negotiate a pay increase and keep kicking goals at work.
However, you may also benefit from reading the rest of this article for more ideas on how to grow your income.
The reality of being an employee is this - at some time in your career, your income may reach a point where you are at the highest wage an employee can be paid in your industry.
The point where any future pay increases place you above the market rate, meaning your employer could have the pick of any other employee and pay them the same as you are being paid or less.
There is a diminishing return on working extra hours when you are a salaried employee.
Don’t fall into the trap of working an extra 15 hours a week for a $5,000 pay rise. Your time could be better spent elsewhere.
Instead of committing extra hours as an employee, you could alternatively spend those extra 15 hours a week freelancing where you can charge twice as much as your hourly salary.
Freelancing - a stepping stone to financial independence
In my opinion, one of the fastest ways to grow your wealth is to provide your services directly to the public.
Freelancing is where it’s at!
For those not familiar with the term, freelancing is effectively the modern, sexier term for self-employed.
If you want a quick initial injection of income, there’s really no better way to do this than to start freelancing immediately.
When you’re an employee, you’re a cog in a machine, and that machine needs to make money to pay for all sorts of other expenses.
What the business charges a customer, is not what you get paid as an employee. So maybe it’s time to remove the middleman, and go direct to your customer.
Let’s say you’re an English teacher that’s paid $40 an hour. You might be able to provide tutorial services for $50 an hour, for a 25% increase on your hourly rate. If you could find 4 students a week, that extra $200 a week, invested over the course of your lifetime, could be worth as much as an extra $1million dollars in your retirement.
It important not to underestimate how much extra savings can make when consistently invested over the course of one’s life. From little things, big things can grow.
An extra $1million in retirement, just by working an extra 4 hours a week. Not bad at all.
But let’s say your side hustle takes off, you might be able to start working full time as a tutor, effectively moving your $40 rate permanently to $50. That difference could be as big as $20,000 in extra income a year.
If you can create an extra $1million by earning and investing an extra $200 a week, imagine the difference earning an extra $20,000 could do for your finances.
Plus, if you can successfully move from a full time job to a freelancer, you have the benefit of running your own business, maybe working from home and you can probably claim more tax deductions as well.
Freelancing - a stepping stone to business
If your services are in demand, freelancing can also be a good stepping stone to building a fully fledged business if you are that way inclined.
While business is not for everyone, freelancing acts as a way to test the waters.
It allows you to dip your toes in, by offering services after hours in addition to your day job.
If there is no market for your services, then it’s easy enough to close up and go back to your day job. Much less risky than trying to start a business from scratch without a pay cheque coming in.
If there is a market for your services, then there is no limit to how much you can earn.
Take our English teacher as an example. Once she has her standard clients, she might wish to try to grow her hourly rate further. Perhaps she could build a course about English as a second language, or develop an educational guide or a Youtube channel. As time goes on, she might be able to grow her business into a corporate training machine, charging $1,500 a session.
Recommendations for freelancers
As freelancing comes with the disadvantage of trading your time for money, naturally I would recommend you focus on freelancing activities that allow you to achieve the highest rate per hour. It would be easy to get a second low paying job, but ideally I would encourage you to find something you are passionate about and pays better than your current hourly rate. This naturally helps combat the ‘trading time for money’ issue that can eventuate from freelancing.
I also encourage you to work in a slightly different field to your day job. This gives your brain a natural rest from your day job. Doing something creative can also be a way to engage the other side of your brain, helping you be less mentally drained while you freelance and continue to work.
Remember to dip your toes into the water first - don’t jump in headfirst. Take the time to build up your side hustle, rather than quitting your job and needing income immediately.
Treat freelancing like a business from the beginning - one day it might be. When you’re working for yourself, your reputation is everything. Focus on building your reputation from day one.
Be aware of the most common mistakes first time business owners make. The great about thing about freelancing is that you can minimise the risk as initially it'll just be you, and you'll likely still have the security of paid employment.
Freelancing creates valuable skills. You'll learn how to sell, how to price your services, how to manage the administrative side of running a business, and many more. Funnily enough, these skills also help you become a better employee, as you can understand more facets of running a business, potentially allowing you to move through the ranks.
Don't forget, it pays to take advice. When you're thinking of starting work as a freelancer, speak to a qualified accountant so that you can be across the administrative requirements of running a business. Things like registering for an Australian Business Number, invoicing correctly and lodging tax returns are important aspects to understand when freelancing.
Freelancing carries the benefit of a higher rate of pay, without the disadvantages of running a fully fledged business such as the level of commitment that comes from having employees.
A side hustle remains one of the best ways to grow your wealth, and for me, freelancing is at the top of the list.
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