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The Aspiring Free Agent Survival Guide

It often feels as though I have no idea what I’m talking about.  I don’t say this in an attempt to garner sympathy and I’m not really suffering from impostor syndrome (at least not in this domain).  It’s more that running my own show, business-wise, has demanded of me a form of trial-by-fire, just-in-time learning.  It’s as though I moved to a small village in Germany, in spite of the fact that I don’t speak a lick of the language.

But in muddling my way through all of the details, large and small, I’ve actually managed to pick up a fair bit.  What I’d like to offer today is a preparedness guide of sorts.  The free agent’s life is an attractive one in a lot of ways, and I definitely recommend at least considering it.

I have no regrets, myself.  But I do acknowledge that it can seem like a pretty daunting leap, particularly if you’re well established in life and have responsibilities.  People telling you to take the plunge probably seem like friends swimming in an chilly lake, already used to the water, telling you that it’s fine.   I’m not that used to the water yet, though, so I can still appreciate your position.  It’s cold, but it’s refreshing.  And I’d like to offer some thoughts before I get too acclimated to the temperature.


So here are those thoughts.  These are things to be aware of if you contemplate, however idly, the free agent life.

Line up your first gig.

When you work a salaried job, you consider your income as a function of years.  If someone asked the brash question, “what do you make” and you were inclined to answer, you would tell them your annual salary.  When you work as a free agent, you tend to think more in terms of monthly income.  The year is far too unpredictable, and hourly doesn’t work either, because that varies.  The closest you can do is ballpark what a month looks like.

What does this have to do with me advising you to line up your first gig before you take the plunge?  It’s emblematic of the huge uptick in variance when it comes to your situation.  Each month can, potentially, bring a significantly different outlook, so “who’s paying me next” is a constant question running through your mind.  Stack the deck in your favor by having an answer to it at least for the first month when you hand in your notice and hang out your shingle.

But have faith that more will come.

I’m pretty risk averse and financially conservative.  The most attractive part of a salaried job for me was the knowledge that, if I worked hard and proved my merit, I would almost never be at risk for a zero income month.  Sure, there might be a layoff or two in my career by the law of averages, but that’d be what, 12 months of unemployment, max, over a career 540 months?  And those would probably be covered by severance or unemployment.  Gotta like those odds.  I liked them so much, in fact, that I stayed for a while even after figuring out that being happy in a salaried job was very unlikely for me.

I was terrified when I went off on my own.  I reached out to everyone I could think of, announcing that I was available for hire, and I heard crickets.  Those first few months would have been pretty lean had I not negotiated a contract with the employer I’d just left.  They would have been downright depressing without Pluralsight.

But then a curious thing happened.  Over the course of time, the “I don’t really have anything right now” calls turned “hey, are you still available” calls.  Friends reached out and so did friends of friends.  People wrote to me through my site and because of my books, asking if I was available for consulting.  The trickles turned into flows, and it wasn’t long before I was turning business away or referring it to others.

If you’re used to a direct deposit every other Thursday, this life is going to seem like base jumping at first.  But hang in there.  It evens out and you won’t starve.

Insurance isn’t that big of a deal.

I always had this vague notion in my head that health insurance costs like $5,000 a month and that employers defray most of this cost.  Okay, I may be exaggerating a bit.  But it always loomed in my peripheral consciousness as “unknown cost, but expensive and company pays most of it.”  So if I looked at my withholdings and noticed that I was paying $200 per month out of pocket, I just assumed that it cost a ton more than that and my generous employer was picking up the tab.  Maybe you think the same.

And, while it’s nice that they pick up some of the tab and it’s nice that it comes out of your pay before you see it, it’s not really that big of a deal.  My wife and I are paying about $500 per month out of pocket now for a plan comparable to one that used to cost us about $200.  That means an incremental cost to me of $300 per month, which means I need to bump my hourly rate by about $2/hour to cover it.

When you tell people you’re considering going off on your own, they’ll often look at you as if you’ve just announced a trip to an exotic destination without getting your shots, exclaiming, “what about insurance?!”  Don’t let it scare you.

Submit W9s and the absence of withholding

I don’t know how closely you’ve ever looked at your paychecks beyond the “here’s what goes into checking” line item, but your employer withholds taxes from your paycheck (and also any retirement contributions, HSA contributions, medical insurance cost, etc).  It’s natural to complain about this, but it’s actually kind of nice for managing your finances, since you can’t easily run afoul of the IRS with owed taxes.

Free agency doesn’t work this way.  Your clients will issue you a W9 form, which tells the IRS that they’re not responsible for any of your tax concerns.  Then they just pay you whatever you invoice them for, in full.  Your tax situation is yours to manage, and yours alone.

Pay taxes quarterly instead of constantly.

I recall another thing that seemed intimidating was dealing with the IRS 4 times per year, instead of in one marathon session with Turbo Tax each March.  I suppose I just mentally pictured 4 similar, but slightly smaller sessions.  That’s not what happens.

Here’s how I’d suggest handling your affairs.  Open a checking account and a savings account for your business.  Each time you receive payment from a client, take 30 percent of it or so and dump it into the business savings account.  Then, once per quarter, visit the IRS and your state’s site (admittedly, a lot of this is US-specific) and just empty your savings account paying them what’s known as an “estimated tax payment.”  This can actually be accomplished in about 10 minutes.

Invoicing isn’t like receiving paychecks.

As I mentioned already, you invoice your clients, rather than getting paychecks from them.  As such, you’re not really protected by any labor laws or policies about timely payment.  Your payments may not be as timely as you’re used to, now that you’re a vendor.

There’s a decent chance that  you’ll spend a few weeks doing work for a client, invoice that client with “net 30” terms, and not see payment for 25 days or so, for a total time of almost 40 days between labor and payment.  And that’s perfectly on the up and up.  Learn to build a bit of a buffer into what you do, because you won’t be able to count on payment that’s as prompt.

Limit your liability.

When you work for a company, the worst thing that can generally happen is that they terminate you (assuming you’re not doing anything criminal).  When you’re a free agent, the worst thing that can happen is that a company, now your client, can sue you.  You need a strategy for protecting yourself.

Depending on your situation and preference, you can structure this into the contract you enter with them.  You can also structure your own operations under the umbrella of a limited liability corporation (LLC) or, perhaps, you might carry some kind of professional insurance, such as errors and omissions insurance.  I won’t go into any detail here, but it’s worth having this on your radar.

Prepare some boilerplate things.

Speaking of contracts, you need to have a bit of boilerplate in your back pocket.  A lot of prospective clients will have standard contracts for vendors they work with, but not all of them.  It’s a good idea to have a contract of your own to offer.  You might also want to have proposal, RFP response, and statement of work templates as well, depending on how you’re securing business.

Beyond that, you’ll want some more mundane, less legal things.  A decent looking invoice template is handy so that you can get paid with minimal friction.  You’re also going to need business cards, perhaps a logo, and some concept of marketing, likely through a simple, pleasant-looking website.  You don’t need to fool anyone into thinking that you’re fortune 500, but it pays to have the basics covered.

This is not exhaustive, by any means.

That’s a set of things that occur to me off the top.  I make no pretense that there aren’t plenty of other things to know.  But this should at least get you started.  Or, it should get you started considering and planning, anyway.

The free agent life isn’t for everyone, but it’s also not as scary as it might seem.  And, frankly, I think it ought to be for a lot more people than it currently is, since, as I’ve mentioned, salaried employment is a bad economic deal for programmers.  Hopefully the information here helps.


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Stuart Grassie

I just started with my first client, and this is all great advice.

Erik Dietrich

Thanks! And it’s good to get feedback that someone else sees it this way. Not just for the sake of the post, but also for the sake of a little reassurance that I’m not doing things terribly wrong 🙂

Colin Higgins

I’m curious about your insurance options. I am paying a little over $1000 a month. It must be a bare minimum plan.

Though my needs and acceptable risk levels likely differ from yours.

Erik Dietrich

Don’t remember the details off the top, but it’s a PPO with a reasonable deductible and pretty good coverage. It’s just my wife and I on it, though, versus, say, a family plan. I seem to recall that family plans are when the expense really starts to mount. If you’re interested, I could dig up and email you the details.

Colin Higgins

We do need a family plan. That’d be great as we’ll be signing up for insurance again for the new year. Even the individual plans I saw were ~$300-$400. It could also be state dependent too.

Erik Dietrich

I’ll talk to my wife and see if I can’t get our plan details over to you in the next few days. (She’s the one that manages this for us)

Free Agent
The challenge I’m seeing is how to get that first client without tipping off your employer that you’re leaving. I have a decent Twitter & LinkedIn network, but can’t “advertise” my availability that way. Also, yeah, I think the insurance numbers you’re quoting are perhaps not typical, though with the insurance exchanges, it’s now much easier for folks to find out the exact costs (in my case is over $1,200/month for family plan). Also, I recommend that people talk to an expert about what protection an LLC actually provides, my understanding is that you’ll still want liability insurance regardless of… Read more »
Erik Dietrich

I think there may be 2 main paths for going about this: direct contacts and flipping your current employer to a client. The latter is risky (but what I did). The former might involve reaching out to previous employers or various contacts in your network.

But yeah, that is definitely a challenge since your marketing efforts are necessarily hamstrung.

WRT liability, this is admittedly not an area in which I’m an expert. I consult with my lawyer from time to time if I have questions, and so far, so good.