Color of Money: Freelancing

Could you potentially make more money freelancing than in your current job? Our personal finance contributor offers tips on how to survive an independent work life.

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MADELEINE BRAND, host:

Reporters and others are going freelance now in the face of layoffs. We've recently aired a report about that and here's what PR consultant Melanie Rembrandt said.

Ms. MELANIE REMBRANDT (PR Consultant): I was laid off, once from a small business, and a second time from another small business technology company. And said, that's it, I'm going out on my own. I have more job security actually running my own business than working for someone else.

BRAND: Job security yes, but financial security, that's another story, especially for people new to running a business.

CHADWICK: If you want to become one of these new entrepreneurs, what are the things you really should consider? Here with us, Michelle Singletary, Day to Day's personal finance contributor. Michelle, someone leaving their job, maybe been fired from a salary job. What is the first thing to do?

MICHELLE SINGLETARY: For many people I think the first thing they should do is make sure they continue their health coverage. One of the top reasons people file for bankruptcy is because of medical expenses. And that's an area where people, if they're starting off to a new business because they've lost their job, but they're transitioning and they figure I'm going to start a new business, they sort of forget about this. And - especially if they're healthy, but if you have a major illness, that can knock you down financially. So, you want to continue that coverage.

Your employer, if you were employed, has to offer you coverage through COBRA for about 18 months. That's going to cost quite a bit for you, because a lot of employers were subsidizing it. But I highly recommend you find a way to get health insurance. If COBRA's too expensive for you, try to find a policy that would only cover if you fell ill to a major disease, like cancer or something like that. It's called catastrophic coverage.

CHADWICK: If you are going freelance in any profession, do you try to pay yourself a salary?

SINGLETARY: Absolutely. And this is one area where lots of small businesses owners figure - you know, I won't pay myself out - you know - pump it back into the business, to the detriment of their own personal finances. But what if down the road you want to get a small business loan and you have ruined your own credit, because you haven't been paying your own bills. And if year after year you are not earning a salary for yourself, that's not called a business, that's called a hobby.

(Soundbite of laughter)

CHADWICK: All right, well, how about the hobby of saving for retirement?

SINGLETARY: The sooner you save for retirement compound interest works in your benefit. Even if you put just say a hundred dollars away a month, you've got to do something, because now you're totally on your own. You don't have a company pension plan, you are your own retirement plan, and you've got to put something away.

CHADWICK: You know, I think because so many people will be working out of their homes, aren't there deductions and things that will actually work for you?

SINGLETARY: There absolutely is. I actually work from my home and I get a tax deduction because I have a whole home office set up. And when I buy computer equipment for it I can deduct that. So, there are some advantages. The one thing I would caution people is if you're going to be working out of your home, you want to check your homeowners insurance. Because much of what you're doing, your business is not going to be covered on your homeowners policy. So, you want to look for business owners policy that will help cover that equipment. You want to be sure you've got liability coverage, you've got clients or customers coming to your house. If they slip or fall they'll sue you, and that's the end of your business.

CHADWICK: I ask you this more and more, but there must be even for this, some kind of website somewhere that says how to start up your own freelance business.

SINGLETARY: Absolutely. Before you venture out, do some research. And there's two places I'm going to send you, one of them the Small Business Administration, the SBA has a wonderful website, with how to do a business plan, how to look for funds. I mean, just an amazing amount of information for free. You know I like free. And then also the Service Corps of Retired Executives or SCORE, and you can find them at score.org. This is a free service that allows you to get top notch advice from volunteer business owners. What a better way to really get some mentorship from people who've been there and done that.

CHADWICK: Go there, do that, with a good advice at Day to Day personal finance contributor, Michelle Singletary. She writes the Color of Money column at the Washington Post. Thank you again, Michelle.

SINGLETARY: You're welcome.

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