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The Financial Life of a Freelancer

Freelancers don't know how much work is coming; they don't know precisely when they'll be paid; and they must take responsibility for insurance, taxes and retirement.

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Whether you're a computer programmer, driver for Uber, or you make your living as a writer, the freelance lifestyle offers a few intriguing advantages: You have plenty of flexibility with regard to schedule, the commute's as short as it gets -- and you're guaranteed to get along with your boss.

Yet there's one aspect of freelancing that makes it a non-starter for many workers currently employed in offices: a near total lack of income predictability, in most cases. This isn't necessarily a bad thing. For workers consistently making more money freelancing than they did in an office setting, variability is a plus.

Yet if you're making just enough to get by -- and you haven't saved much -- this weekly or monthly unpredictability can be enormously challenging. When it comes to things such as budgeting, saving and even handling taxes, freelancers often have to show much more discipline than salaried workers.

Once you decide to go out on your own, the buck stops with you, for better or worse.

The Challenges of a Freelance Career

Let's begin with the starkest difference between freelancers and salaried workers: One has work given to her; the other has to find work if she wants to keep getting paid.

It's true that talented freelancers are, and will likely always be, in high demand. Doing business with contract workers is simply less expensive than hiring full-time employees. This, and other structural changes in the U.S. economy, have created an ever-increasing appetite for freelance labor. A 2014 survey by The Freelancer's Union estimated that there are 53 million freelancers in the U.S. -- or about one-third of the total number of workers.

Technology is also a major impetus for the growth in the freelance marketplace. Ridesharing apps such as Uber and Lyft have created an enormous new pool of freelancers. That's a trend that's expected to continue, as new app-based services hit the market every day.

Yet despite growing opportunities for freelance workers, the same challenges remain. Monthly income can vary radically, as freelancers must adjust to the needs of clients.

Receiving payment is also sometimes tricky. It may take weeks for a freelancer to receive payment for a project, depending on the invoicing and billing procedures involved, or the pay schedule of a corporation.

That income variance can make things such as everyday budgeting a tough task, let alone paying for health insurance, funding a retirement plan and paying taxes -- three critical items on any freelancer's agenda.

The Verdict

Freelancers, in essence, must contend with a triple whammy: they don't know how much work is coming; they don't know precisely when they'll be paid; and they must take responsibility for insurance, taxes and retirement.

For some workers who relish their independence, such concerns are a small price to pay. Yet anyone who is considering a move to freelancing should give strong consideration to the responsibilities and demands of the lifestyle.