What is freelancing and how does it work?

New to freelancing? Let us guide you through the intricacies of setting up as a freelancer and what you can expect after making the switch.
8 min read
If you’ve landed on this page, chances are you’re thinking about making the leap into freelancing. Welcome to the world of the solopreneur! Whether you’re driven by a dream to work for yourself or the desire for more flexibility, it’s worth remembering that the freelance life comes with both awesome perks (looking at you, #breakfastinbed) and a few challenges. Read on to learn all there is to know about becoming a freelancer and what you can expect after making the switch.

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First thing's first: what is freelancing?

Freelancing is a type of self-employment. Instead of being employed by a company, freelancers tend to work as self-employed, delivering their services on a contract or project basis. Companies of all types and sizes can hire freelancers to complete a project or a task, but freelancers are responsible for paying their own taxes, health insurance, pension and other personal contributions. Since they work for themselves, freelancers must also cover their own holiday costs and sick pay. At the same time, self-employed professionals can set their own working hours and make working arrangements that fit their lifestyle – either working remotely or from their clients’ offices. There are many different types of freelancers, but they tend to be knowledge workers who possess a high-level of skills and knowledge in a certain area, such as designers, writers, programmers, translators, project managers and so on. There is, however, another group of self-employed professionals that often get classed as ‘gig workers’ or ‘contractors.’ Self-employed handymen, cleaners, construction workers and drivers would fall into this category. The most distinct difference between freelancers and gig workers is that the former tend to rely on the internet to deliver their work.

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How does freelancing work?

Setting up as a freelancer is a little bit like setting up your own business. While every country has its own laws and types of business structures available for freelancers, the key factors to consider remain the same regardless of where you live or work. So, are you really interested in freelancing?Then here’s what to consider when setting up as a freelancer:
  • Type of legal entity to work under. To start working as a freelancer (that is, officially), you’ll need to register your business with the local government. Keep in mind that the legal entity you choose (e.g. Sole Proprietorship, Limited Liability Company) will impact the amount of taxes you have to pay, your personal liability and the amount of paperwork required — not something that should be brushed aside carelessly!
  • Paying taxes (invoicing, expenses, tax returns, etc.). Once you register your business, you’ll be legally required to file tax returns and pay taxes. Putting a robust invoicing and expense-tracking system in place from day one can prevent you from plunging into complete chaos at the end of the financial year.
  • Choosing an insurance policy for freelancers. Even if you go freelance, you should be able to enjoy the same security and peace of mind that you get when working for a company. It’s worth thinking about paying for a special health, business or income insurance for freelancers to protect yourself from the unexpected.
  • Opening a business account. In many cases, freelancers are not legally required to open a bank account, but most do it anyway. Being able to separate personal and business finances makes it significantly easier to claim expenses and work out the business profit at the end of the financial year.
  • Building a client list. Building a client list prior to going freelance is a great way of getting enough work even during the quiet times of the year. Plus, as many freelancers will testify, there’s no better way of advertising your services than getting a client referral.
  • Drafting your own freelance contract. A freelance contract is a legal document you and your client should sign before starting any work on a new project. What may seem like a boring formality at first, is actually your best way of protecting yourself against non-payment, liability and potential legal troubles. There are many freelance contract templates available online that you can download for free and adapt to your business.

What are the advantages of being a freelancer?

With the number of freelancers on the rise year on year, many describe the decision to go freelance as life-changing. Here are a few of the commonly touted advantages to quitting the standard 9-to-5 job and becoming a freelancer.

Flexibility to decide how, when and where to work

One of the biggest perks of being your own boss is that you don’t have to ask anyone’s permission to work from home, start late or work while you travel. You decide your own business hours and you choose where to work from. If that means taking Wednesdays off to visit your grandma or working late into the night and sleeping until noon – so be it!

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Choosing your own clients

Once your business is running smoothly, you’ll also have the freedom of choosing the clients you actually want to work with. And that’s a wonderful feeling! Whenever you feel like you don’t mesh with the client’s personality, don’t like someone’s attitude or payment terms, you can shift your energy to finding a new gig instead of fighting constant battles with the client.

Keeping all the profits

One of the best things about working as a freelancer is that you can see a direct link between working hard and your account balance. Since you keep all the after-tax profits, it is also up to you to decide how you want to allocate and spend the money.

What are the disadvantages of being a freelancer?

What do freelancers do when things don’t go as planned? That brings us to the challenges of running a freelance business. It’s important to be aware of some of the less favourable situations you could face if you decide to become a freelancer, so that you can prepare yourself and take the necessary steps to avoid anything dampening your freelance experience.

You’re pretty much on your own

Whenever you run into issues with clients, receive a complaint or face a non-payment, there’s no legal or HR support to turn to – and resolving these issues on your own can be draining at times. The best way to reduce the impact of these issues is to sign a freelance contract before engaging with a new client or get freelancer insurance. Joining a freelancers’ union can also be a great way to access outside support and helpful resources.

It can be a lonely world

If you work from home all the time and have little interaction with the outside world, it can get lonely very quickly. People tend to have the hardest time when they’re facing business challenges and have to shoulder all the responsibility alone. To overcome these negative feelings, more and more freelancers are joining co-working spaces in their area, which are (typically) affordably priced, shared workspaces allowing freelancers to escape isolation, and separate their home life from work life. Networking groups are another way for freelancers to meet like-minded people from varying expertise levels, offering the opportunity to learn, share and create new business relationships.

Irregular payments

Unless you manage to secure recurring monthly revenue, locking in regular payments can be a challenge. Your monthly income will depend entirely on the amount of work you manage to do as well as on the goodwill of your clients!

Wrapping it up

Freelancing is a skill, like learning to play chess or paint. The more you practice it and polish your techniques, the better you get at it. If you’re considering going freelance and it seems a little scary, know that it’s normal. Rather than waiting for the right (or let’s be honest, perfect) time for making the leap, focus on doing your homework and sorting out the steps to a great start – build your client list early, take out insurance, open a business account and step into the world of freelancing. There’s no hiding from it – you’ll have to work hard to be great at it but once the breakthrough happens, the payoff will be oh-so-sweet!

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Your money at N26

Going freelance can seem pretty complicated. Thankfully, N26’s free bank account for freelancers and the self-employed makes things easy, letting you earn 0.1% cashback on all purchases you make, and enjoy free card payments worldwide. Great, right? On top of all that, it only takes a few minutes to set up and N26 is a collaborating entity with the Social Security, which means that you can pay your self-employed cuota (cuota de autónomo) directly from your account, as well as pay the Social Security contribution if you have someone hired. Find the perfect N26 Business plan for you!N26 Business banking for freelancers and the self-employedN26 You: free travel and theft insurance, foreign medical expenses and more

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