What it Really Costs to Be a Freelancer

A common misconception is that starting and running a freelance business is free.

Nothing could be further from the truth.

While most freelancers experience lower start up costs than other types of businesses, nearly all freelancers will wind up having to pay some money to start and maintain their freelance business. In this post, we’ll list some of the costs that you might expect to pay as a freelancer.

Types of Costs Freelancers Face

Freelancers typically face at least seven different types of costs. Those costs are:

  1. Equipment and Tools costs
  2. Self-employment costs
  3. Benefits and perks
  4. Advertising and promotion costs
  5. Legal and accounting costs
  6. Training and self-improvement costs
  7. Living expenses

I’ll go over each of these categories and list some of the expenses you may face in each. While freelance costs vary slightly depending on your field and your location.

Equipment and Tools Costs

As a freelancer, you are responsible for obtaining and maintaining the equipment that you need to do your job. Even if you currently own some of these items, you will need to replace them when they wear out, need upgrades, or become obsolete. Also, remember that you may need more powerful, professional resources to freelance than you probably have for personal use.

  • Computer–Get the best that you can afford to buy. Memory and speed will make a huge difference in what you can accomplish. If your freelance work includes a lot of staring at the monitor (which is probably true for most of us), do yourself a favor and get a larger one. I currently upgraded to a 24-inch screen and I can tell you that I don’t regret it.
  • Internet Connection–Once again, speed counts. The faster your Internet connection, the faster your downloads and uploads. You will probably want a DSL or Broadband connection although a fast cable modem will work as well.
  • Software–The software that you need to work will vary widely depending on what your field is. At a minimum, you will need some sort of email system. You will probably also want something like Microsoft Office or something similar. You may also need specialized software for your field such as Adobe Illustrator or Adobe FrameMaker. Don’t forget to include an antivirus software package.
  • Web hosting–As a freelancer you really should set up your own site or blog as a contact point for clients and potential clients. You can also use your website to host your online portfolio. While there are many free website themes available (particularly for WordPress), you may want to invest in something more distinctive such as a premium or custom theme.
  • Online resources such as stock photography, Copyscape, and access to professional sites like MediaLoot–Software is not the only thing you need. For many freelancing professions, you will want to subscribe to or use an online resource such as MediaLoot, a stock photography site, or something similar. While buying a stock image or two may seem cheap, if you use a lot of such images those dollars can really add up. Also, don’t forget to include PayPal fees in your expenses.
  • Printer–Most freelancers need a good serviceable printer that can produce letter-quality output. Usually these are not terribly expensive. Personally, I have a multi-function printer that doubles as a scanner and fax machine. For some businesses, a color printer may be necessary.
  • Desk and workspace–Technically, you don’t need a real desk when you start–although having a desk is nice. A table will do just fine. However, you need to make sure that you have a comfortable chair (since it is likely that you will be spending a lot of time in it) and a well-lit work area.
  • Phone system–You need to have some sort of phone system. While a starting freelancer may simply choose to use his or her computer as a business phone, it is a good idea to eventually get a separate business line for your freelancing business. Some freelancers may benefit from VOIP services such as Skype.
  • Mobile computing device–There’s a growing need for freelancers to have a mobile computing devices such as a smart phone, netbook, iPod, iPad, or Blackberry. This is particularly true for freelancers who travel or work offsite. Don’t forget that in addition to the equipment you also must buy a data plan.

As you glance over the list, it’s easy to understand why many freelancers spend several thousand (U.S.) dollars in this category each year.

Self-Employment Costs

Another area where freelancers must pay more is self-employment tax. In the U.S., most employers withhold a certain amount for federal income tax and pay an additional amount for social security and Medicare.

As a self-employed person, you are responsible for paying both the federal income tax amount that was not withheld and the additional amount (currently 15.3%) for social security and Medicare.

For many U.S. freelancers, this means paying quarterly estimated taxes. See your accountant for details on your specific situation. Non-U.S. freelancers should also check with an accounting professional in their own country.


As a freelancer, you will get no benefits or other perks from your clients. You must fund items in this category yourself.

Here is a list of typical benefits that you should budget for:

  • Insurance (medical and life)–While many employers provide or subsidize medical or life insurance, as a freelancer you must find and pay for your own insurance.
  • Retirement–Some employers provide a pension while others may offer retirement programs such as matching employee contributions to a 401(k) account (in the U.S.). As a freelancer, you are responsible for creating and funding your own retirement.
  • Paid vacation and personal days–Most employers will pay you for a set number of vacation or personal days off as well as for some holidays. As a freelancer, there is no such thing as a paid vacation. Any time that you are not working, you are not earning. It is important to save enough so that you can afford to take time off when you sick or just need some rest.

These benefits do not come cheap, but don’t even think of skimping here. A major illness could cause a significant financial hardship if you are not prepared.

Advertising and Promotion Costs

At some point in their freelancing career, many freelancers incur costs related to promoting their business. Some of those costs can include:

  • Print or online advertising
  • Stationery
  • Business cards
  • Promotional items for giveaways or as gifts to clients
  • Fees associated with networking (from the proverbial “business lunch” to the cost of joining a professional society)

As you can see, even getting the word out about your freelancing business can cost money.

Legal and Accounting Costs

As a freelancer, you may also have some legal or accounting costs.

First of all, you will need to do your income taxes (freelancing tends to make your taxes more complex). While beginning freelancers may be able to use tax software, some freelancers will want to hire an accountant, bookkeeper, or both.

Also, you may need an attorney’s advice in choosing the right type of business entity for your situation (S-corp., LLC, LLP, etc.)

Trust me, accountants and attorneys do not come cheap…

Training and Self-improvement Costs

As a self-employed professional, it is up to you to keep up with the developments and changes in your field of expertise. In addition, you may which to change fields or add additional tools to your skillset.

Of course, one way to learn is by reading high quality blogs like Freelance Folder. If you can’t find what you need online for free, you may have to invest in one or more of the following:

  • Online or face-to-face courses
  • Tutorials
  • Books
  • Seminars

Living Expenses

Last, but certainly not least, you need to have enough money left over to pay your own living expenses (such as housing, food, clothing, utilities, transportation, etc.). If you have dependents, spouse, or other loved one you may also need to cover some or all of their living expenses as well.

Don’t forget to include some money for a few little luxuries and fun items in your budget.

Share Your Thoughts

While your expenses might not match up exactly to those listed in this post since everyone’s situation is different, these are the costs that freelancers typically must consider.

As you can see, freelancing is far from free. In fact, you have my permission to show this post to any client who wonders why your rates are so high. Perhaps after reading this they will understand that freelancing is not free. ;-)

Did I leave anything out?

What is your biggest freelancing expense?

Share your answers in the comments.


  1. says

    Great post Laura :)

    When you start out freelancing and bringing in some extra cash it can be exciting to consider what you could do with all of the money that could be made. This post touches on the sad truth that earning money is rarely free!

    In addition to what you have listed it’s always important to put money into a backup system for your work, and transportation costs if you meet with clients a lot.

    Don’t forget to keep good track of how much you spend and where you spend it! A good accountant can help you get some of that money back on tax returns.

  2. Niubi says

    Yup, everyone needs an accountant. A good one will save you more than you spend in most cases! Freelancers should also always try to have some other sources of income, especially in the early years. Whether that’s working part time at the local ,mall or using the internet for other income opportunities (I like DubLi), it’s one way to keep the ship floating!

  3. says

    I’ve been trying to leave a comment but it doesn’t show up…I’ll try again:

    It’s only when I do spreadsheets for my accountant that I realise just how much it costs to run a freelance business. Marketing and IT are my biggest areas of expenditure. I have also spent some money on online courses just recently which were a fair outlay (but worth it).

    One item I pay for which you didn’t mention, Laura, is professional indemnity insurance. That costs me about £40 a month (not sure what that in dollars.)

  4. Hrtha says

    Great post about the reality of the freelance business or any business for that matter.

    I’d like to share a tip. If you form an S-corporation or an LLC elected as an S-corporation then you can do a Salary/Dividend split. That way you can pay yourself 30%-40% of your income as a salary and you’ll have to pay the 15.3% social security and medicare tax on that. The rest 60%-70% can be distributed as dividend to the shareholders (which is you!) and that is not taxed 15.3%. So you can save several thousand dollars.

    As a disclaimer, I am not an accountant or an attorney so you’ll have to consult one on this matter. As everybody stated above, a good CPA can save you more money than what you’ll pay him.

  5. says

    My biggest cost to my freelance business is time. Nothing takes more out of my potential revenue generators then having to manually update social networking profiles, blogs and other interactive media.

    I realize that if I have goals set throughout the day that this issue isn’t a problem, but it still causes a lot of frustration!

  6. says

    Great post! Some other expenses that have come up for me include trademark fees for my logo and business name, and professional membership fees, which can really add up but have helped me expand my network.

    Other, more subtle costs include electricity and water. Since I’m home a good eight hours more per day than most people are, friends and family have often been surprised to find out how much my electric bill is. Those hours add up (although I’m sure it evens out when you think of gas expenses and time spent commuting!).

  7. says

    Natalia beat me to the punch on trademark fees, but I will second her suggestion.

    The failure to trademark my original trade name cost me several thousand dollars in wasted stationery, web design, etc., not to mention almost 10 years of brand equity. Someone sent me a cease and desist, and there was no way to fight it.

    The second time around, I have invested the time, money and effort with an intellectual property attorney, and I sleep much better at night. It’s expensive, but more effective than Sominex!

  8. says

    Jason Gross–You are so right. Recordkeeping is very important.
    Niubi–Good point. I think many freelancers start as part-timers.
    Freelance FactFile, I’m sorry. You were caught in the spam filter. Usually, they are pretty accurate. Every once in a while a legitimate comment is caught there.
    Hrtha, That’s something to look into…
    Josh Chandler–Time management is crucial. Unfortunately, you can’t buy time.
    Natalia M. Sylvester & DrFreelance, Trademark fees are a good addition to the list of freelancer costs.

  9. says

    It’s true–freelancing can be more expensive than expected. I know I’ve had to learn to live frugally after starting to freelance. Fortunately, though, freelancing in an online environment can still be the cheapest business to get started.

    I try to use as many free alternatives as possible, and as much free marketing as possible. For example, I use Google voice for our business number and forward it to my and my partner’s cell phones. Great post, keep em coming!

  10. Stephanie says

    Just wanted to point out that it ought to be “stationery” rather than “stationary” in the Advertising and Promotion Costs section. Other than that, great post!

    I will say that I save a ton of money on clothes now. When I had an office job, I needed a much larger business-appropriate wardrobe, and that got expensive (many items were dry-clean only, some required tailoring, I had to keep everything reasonably up-to-date, etc.). I sold many of those clothes to a local consignment shop when I began freelancing, keeping only two suits and a limited selection of basics. Now that I write from home, I generally stick to nice jeans, a basic top, and a cute cardigan. My wardrobe is much smaller, but still versatile, and I buy far fewer clothes than I used to!

  11. says

    Thanks for a sobering post, Laura!

    My biggest expense is “Training and Self-Improvement.” What can I say? I’m a training junkie!

    After that, my next biggest expense is for advertising. I pay to join groups and events where I can meet potential clients. It’s been paying off so far.

    However, at the end of the day – especially after looking at my books – I do wish I’d kept more of what I earned. *sigh*

  12. says

    Crystal–Free resources are great! Especially if they are of similar quality to their more costly cousins…
    Stephanie–Thanks! I seem to always miss that one. You do make a good point that some of the costs can be offset by some of the savings.
    Lexi Rodrigo, I certainly understand that. I like training materials too. I definitely need to put myself on a tight budget in that area. :-)

  13. says

    Nice post Laura!

    Yes, freelancing isn’t free, but I have to say my biggest cost is time. I spend more time managing and finding new ways to save time! Yep, everything you mentioned costs, especially taxes for me anyways. Great post to show those not doing this that it’s not free, but I wouldn’t trade it for going back to corporate. :)

  14. says

    You only mentioned health and life insurance — there are plenty of others you need to consider, including business equipment insurance, travel insurance (if you travel to client sites), public liability, professional indemnity etc. See my blog post for a list of types of insurance you might need as a freelancer (the types and names will vary from country to country): http://cybertext.wordpress.com/2008/06/09/business-of-freelancing-insurances/

    I also wrote a series of blog posts about dealing with money as a freelancer, as many assume that gross income equals expendable income, which couldn’t be further from the truth: http://cybertext.wordpress.com/2008/11/17/business-of-freelancing-money-rules/

  15. says

    @Hrtha: Just FYI, the IRS is looking to change this setup this year in order to — you guessed it! — generate more tax revenue. Watch the news for updates.

    When I started my business I joined the National Association for the Self-Employed (www.nase.org) to get my group health insurance. I ended up selecting the premium membership level because their insurance coverage for home-based businesses was better than what I could get through my regular provider. I also got access to legal consultation for free or at greatly reduced fees. Best of all, I applied for and was awarded a $5,000 business development grant to purchase equipment and software. NASE has great member benefits and lobbies very actively for microbusinesses as well.

  16. says

    @Freelance FactFile: I also tried posting a comment and it was lost.

    @Hrtha: The IRS is looking to eliminate this setup this year in order to generate more revenue. Watch your news for updates.

    When I started my business, I joined the National Association for the Self-Employed (www.nase.org) to get their group health insurance. I ended up choosing the premium level of membership because their coverage for home-based businesses was better and cheaper than what I could get through my regular provider. It also gave me access to legal consultation resources for free or at greatly reduced costs. Best of all, I applied for and received a $5,000 business development grant to purchase software and equipment. NASE also has other great benefits, and lobbies extensively for microbusiness-related issues.

  17. says

    Thanks for this post Laura! At the moment I’m still not required to pay taxes but I do agree with costs such as for the DSL, living expenses, and even personal wants take a big chunk out of my freelance earnings.

  18. says

    True and clear post Laura!
    I’m a passionate Italian freelance that has stared his own business at 42 years old. I think that I could be one of those that are feeling more clearly than others the big difference between being in a copany and run your own one.
    Everything you light out is true, even if in Italy there is a specific taxation are for those that remains under a certain annual income that permits to have a low taxation rate (20% on the net of your income).
    The drawback is that you have to pay all the fees about personal insurance and pension, that brings this 20% near to a 30%, but still good.
    In any case, I will not turn back to previous work!
    Thanks again for sharing your thoughts. It’s a good way to stay fixed and tuned to those “pesky” things we don’t like of our freelance life.
    At the very end, sorry for any error in English as I’m not writing in my own language.
    Cheers from Italy!

  19. says

    It’s certainly not just a matter of downloading a pirated copy of Photoshop, getting a laptop for your birthday, and having a desk to sit at. Meeting a client for a luncheon? Gas. Printing contracts and invoices? Paper and ink. Computer upgrades and tech supplies. Software (Adobe Suite, one of the most common things a techie may own, can cost well into the four figures), your internet service bill, hosting for your personal sites and files, you may use a tax assistant or accountant, taxes themselves, a place to live, food, paying into social security or something similar, and my favorite…health insurance! You can get by with a super-cheap PPO from Jim Bob’s Insurance if you only ever get colds and flus. But if you have heart surgery and neuro conditions like me, hospital stays and elaborate tests will cost you thousands a year. You need really good insurance, which can easily run you $200-600 a month! And the more you get things done to you, the more you cost them, the more you’ll pay over time. Yikes!

  20. says

    I too agree that freelancing isn not free and it involves a lot of spending if it is to be done in a professional manner.

    I had never thought of `Benefits` as a factor to be considered as a potential cost. I guess it is a valid point. Keep up the good work!

  21. says

    When you buy a desktop always focus on the available space in your home. Choose computer desk that fits your available space correctly. If you have more space there is more flexibility to adopt different style lines. Compare the features available in different models for less spacious rooms. After buying a desktop computer comparison that fits your space limitations as effectively as possible.
    Desktops is a necessary ornament that embellishes your computer.

  22. says

    Hey thanks for the helpful post! I’m a month almost into my freelancing business, and today just made my first pay (less than $10, but still, it’s something.) I would like to know about trademark fees. What do people know about them? I’ve just started and would like to know when would be the right time to apply and what exactly I need to apply for. I think in the next couple of months I will be learning a lot of legal and tax jargon which are necessary and ultimately beneficial to my job. I want to make myself totally prepared for everything as I try to make this into a full-fledged, financially successful career. I appreciate any advice anyone can give, thanks!

  23. Laniaae says

    Thanks Laura for this great article. At 48, I changed career from IT Networking to Graphic Design. I love working out of an office and all the politics, and drama. Being at home on my time and making my own schedule is GREAT! I’m my own BOSS!

    This article is good information for me to know because I plan on trying my hand as a Freelance for non-profit agency or whatever clients hires me. I will start slowly as a part time inorder to save $ for all the things needed to be a full time freelance. Didn’t realize how much effort and $ goes into Freelancing from home. Now I do, so thank you everyone who contribute great comments and feedback.

    I really love Freelance Folder and all the information it contains for Graphic Designers/Writers. I pass this site on to my instructors at school to inform their students who plan on becoming a freelance graphic designer.

    Love to read all the other comments too! Keep them coming for us newbies to Freelancing.

  24. says

    Laura, I bought a Mac which cost me twice as much but saves me time and headaches. No more registry errors, viruses are a thing of the past and I can log on and get right to work. I’ll recoup my costs quickly and without the attendant aggravation.

  25. says

    Experience. It isn’t cheap at all. If you charge a client xxx / one hour, it is the hour and maybe 12 years of experience behind it. It’s worth remembering.

  26. says

    фирменный вебресурс http://detektives.ru/ – поиск людей, установка владельца сотового оператора, [url=http://detektives.ru/uslugi-fiz-litsam/skryitoe-videonablyudenie.html]скрытое видеонаблюдение[/url], частный сыщик и многое другое.

  27. says

    На нашем сайте рекомендуем ознакомиться приоритеты программы Skype скачать которую Вы сможете сразу после прочтения. Skype служба – это интернет программа позволяющая можно общаться делать телефонные звонки. Это интернет потенциал поддерживать связь со своими родственниками по всему миру эксклюзивная программа была разработана компанией Skype Limited. Программа skype позволяет вести индивидуальную переписку есть возможность также обмениваться звонками с другими абонентами skype по видеосвязи совершенно бесплатно. К вашим услугам онлайн видеосвязью отличного качества.Установив программу на свой персональный компьютер вы можете проводить видеоконференцию одновременно друзьями коллегами. Скайп гарантирует шифрование всех СМС На нашем интернет ресурсе Вы всегда сможете прочитать информацию условия подключения, контакты и отзывы о интернет программе Skype загрузить а также высказать свою точку зрения об услугах skype службе. Скайп скачать совсем бесплатно сейчас. Это реально жмите по ссылке [URL=http://software-zone.ru/load/skype_skachat_besplatno/24-1-0-878/]Skype скачать[/URL] и вы тут же скачаете на русском языке последнюю версию интернет программы. Добро пожаловать на наш интернет ресурс где вы сможете загрузить программу без регистрации.


Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>