Becoming self-employed: A personal journey and best-practices for making the leap

Max Ritter

In August 2021, I decided to leap the hurdle and start into the yet-unknown world of becoming self-employed as an IT Freelancer. I’ve already gained experienced what it means to be an entrepreneur and co-founder of a successful startup before (read my other post here), but this was something completely new to me so you can never be sure whether you do the right or wrong thing.

Fast-forward four months into the present, I can say that at least for me, the decision was absolutely right. I am now able to control my time much better than at any moment before in my working life and at the same time have been able to increase my income significantly. There is also a big benefit in the possibility to be in full control over with whom you work and for how long you stay in one project. In the end, you only have to defend those decision in front of your moneybag, creating enough value for the clients so that you can have a fullfilled living out of that.

As I know some people in my network are also thinking about moving from being employed by a corporate or startup to working independently as a freelancer, I wanted to share some of the experiences and best-practices I learned in the first months. Those apply to the German market, but I assume things work similarly in other countries of the European Union. Let me answer the most common and pressuring questions you might have before launching into the unknown world of being self-employed:

What skills do I need before starting a career as a freelancer?

That’s a tough one and highly depends on the sector where you want to become self-employed in. I started my career in the domain of Cloud and DevOps, where I was able to gain valuable knowledge before by co-fouding a startup and also by working for diverse clients as a consultant afterwards. In addition to that, I have invested a lot of time and money into certifications for my special field of expertise, proving customers that I have the expertise that they are looking for.

In the end, it’s about feeling confident with what you offer towards your clients, but that does not mean you have to be an absolute expert with ten years of experience in that. Having an open mind towards understanding that becoming professional in any job is a continous journey of self-learning and self-improvement, is much more important than knowing everything (which is not even possible in our fast-paced world where technology evolves daily). It’s also tremendously easier to be excellent in something that you have a passion for, than trying to sell a version of yourself that does not represent your character and skills.

Am I already good enough or should I continue working for an employee to gain more knowledge?

I would not advice to jump into becoming a freelancer directly after university, except for bridging some time before another job starts while gaining work experience in the meantime and earning money. In my oppinion, it’s much better to gain sufficient careeer capital first and cash that in, as I was explaining in this post.

Remember that any career decision is not a one-way street, so even if you felt you made the “wrong decision” afterwards, you learned something out of it about yourself for the future. For me, a course of life is not a straight line, but trying what interests you and finding out if that matches your passion and imgation of how a good life looks like. That means that sometimes you need to decide against advices from your environment, which might tell you to follow the “ordinary path” of leveling up in a corporate or not risking your well-paid job for the adventure of freelancing.

What do I need to get started as a freelancer?

There are a couple of prerequisites that help to get projects faster, because they make you look professional. On the other hand, there is the unpopular topic of law and taxes, which you also have to take care of when being self-employed. Those are the things I setup when starting my career in this field:

  • Have a professional looking website that embodies the services you want to sell to the clients later and your skills and experiences. Reserve a domain and either build the website by yourself if you are a frontend / fullstack developer or use a website builder like Carrd or Stackbit. I used Carrd for my website and was able to build the result in 3-4 hours

  • Get a professional liability. Especially larger clients require you to have one, but it’s a good practice in general to cover you from any mistakes that you might make and that can cost a lot of money. I would recommend to set the insurance amount to at least one million euro, as this can go quickly if you are responsible for a nasty bug in a production system. You can use the Check24 comparison service to find a suitable insurance company

  • Search for a professional accountant from the beginning on, in case you do not already have one or your family has. I skipped this step and went through the whole paperwork for getting registered as a Freelancer myself. Retrospectively, I would not do that again and directly start with an accountant as sparing partner from day one. Go with him or her through the registration process as Freelancer towards the finance authority, so that you have your tax id and VAT id ready when the first projects become more concrete. I used the Accountable matching platform to find one, but you can also look for accountants in your local area. Thanks to Corona, it’s not a prerequisite anymore that the accountant is anywhere close to you. Mine is located 2 hours away from me, and we never saw each other in person

  • Take professional photos for your website, LinkedIn and CV. Most IT Freelancers might not enjoy this, but it’s super important to have a good first impression towards clients. A good photographer will cost you some money, as the shooting will catch you in different positions and take 1-2 hours. See this as a one-time investment into your start and do not try to save money here. If you are located in the Munich area, I can highly recommend Matthias Wegner

  • Open a separate banking account. This is important because it will help you to build reserve assets for the personal income tax and also make the cooperation with your tax accountant easier. My recommendation in this space is Kontist, as it was build towards freelancers and has smart features that help you to simplify your accounting a lot. The premium version that for example has automated income tax calculation costs you 9€ per month, which is well invested money for me

  • Decide whether you want to be in the public or private insurance. I decided to go for private as it offers much better features and at the same time is cheaper for me for the amount of money I am making. But this highly depends also on the fact whether you want to get children and married later on and which provider you choose. There are cheap private insurances that might cost you a ton more later when you are retired, so pick one carefully. I chose ottonova and are very happy with their services in the “First Class” tier. They also provide a calculator where you can compare their monthly rates to being in the public insurance. If you go private, set your patients contribution rate to a low number (10%) and definitely choose to insure a sick pay from day 43 onwards (100€ / day is a good value)

  • Decide how you will save money for your retirement. As a freelancer in Germany, you do not have to be part of the public pension system and while it’s sad to say so due to community reasons, I would not advocate to be part of it. What I can recommend is myPension, a company that let’s you build a global diversified ETF based portfolio in a tax-advantaged way. You can change or pause your monthly rates whenever you want and also cancel it immediately in case you need the money instantly, which is a flexibility not pausible at traditional providers. MyPension has good tools that help you determining how much you need to save per month to have a relaxed pension later on. In the last year, I made a rate of return of 16% there, which I think is quite nice for such a service. The profits are automatically re-invested so they are tax-free until you cash them out during retirement

  • Have some savings as backup in case you are not directly getting a project or a project ends earlier than expected, leaving a gap between this and the next one. One the one side, this makes freelancing in general less stressful, because you know that even if things don’t work well from the beginning on, you will still be able to cover all your expenses. On the other side, you are able to present your desired hourly wages more confidently in front of clients during the interview, because you know you are not dependent on their goodwill. From my experience, having a runway of 6-12 months is a good value. For monthly expenses of 2000€, this means having around 10-20k in cash in your bank account

  • Independ from being a freelancer, having an own-occupation disability insurance is something I consider to be of high value. You never know what will happen to your work performance in the next decades and that does not have to be on the physical side. Modern jobs can be stressful and demand a high mental load, so mental illnesses are becoming more and more dominant. Protect yourself from this worry and setup an insurance that at least covers your most basic costs of living (for me this is 2000€ amount insured)

How do I find projects and clients?

It certainly helps if you already have a network of decision makers that know how you work and want to work together with you as a freelancer. But it’s definitely not a must and you can basically start from zero and start building your network from there. There are a couple of platforms that help to find projects in the German area. By being registered on those platforms and not taking any active role like reaching out to the contact person, I am getting on average 10 messages or calls per day for positions in my area of expertise. You can already register there even if you are not yet self-employed, in order to find out how many projects are matching your skills and interests. Here are the sites I am using:

  • freelancermap: Probably the biggest one, if you only want to pick one platform go for this one. When I started in August, I arranged all of my get-to-know meetings there and one of those lead to the assignment that I am currently still into
  • If you want to have someone who matches you to projects based on your interest and availability, this could be for you. There is a get to know call with your personal talent advocate, in which you can articulate what you are looking for
  • Gulp: Similar to freelancermap in the way it works. If you signup you will also get emails regulary with job offers that match the criteries of your desired project
  • Malt: It certainly does not hurt to be listed there, as a lot of companies use it to search for candidates. I did not have any interesting opportunities coming out of it, but it’s free so don’t hesitate to create a profile
  • LinkedIn: Although the job search engine is not really focused on Freelancers yet, from time to time there are also offers that you can take when self-employed. Another strategy is to just apply on fulltime position that match your skills and desires and add that you are working as Freelancer

Most likely when using those platforms (except for LinkedIn), there is a recruiting company between you and the real client. They often charge an hourly rate that is put on top of your own hourly salary, so their services are basically free for you and have to be paid by the client. However, the client in the end sees the final rate and that means that your hourly rate can be lower, if there is a maximum limit for the position. From my experience, the hourly range of their services is between 10-20€ per hour.

Concerning project length, my personal preference is to have one client for a couple of weeks or months instead of having multiple small ones that only last a couple of days or working for several clients in parallel. Every project involves some paperwork and additional time spend on it that you can’t directly charge to the client, for example interviews, account setup, etc. If you work for one client only you have a better focus and there is a smaller risk of overworking during stressful periods of the year, when multiple clients would expect you to finish a tight deadline.

Remember changing the project after a couple of months in order not to risk being treated as Scheinselbstständig by the government authorities. There are a some influential factors on this topic like the way you work for the client (are you subject to directives? can you plan your vacations freely?) and how you represent your services to the outer world (via a website or social media profiles). It’s good to talk about this topic with your professional accountant, as he/she can give you valuable tips what to do and what to avoid. In case you have a recruiting company between yourself and the client, they also take care to avoid the topic of Scheinselbstständigkeit by setting up contracts and legal frameworks in a way that it is unlikely to happen.

What is the hourly or daily rate that I should demand in the beginning and later on?

That varies on the domain you are working in and the work related expertise that you bring to the project and client. I would advice to search for salary surveys or studies to get a profound idea what you can ask for, then look confident while representing that number in interviews. In my area of AWS cloud development, there is this study that shows a range of 80-125€/hour is common for such freelancer positions in Germany.

In case you are asked for a project that does not look like the perfect fit and therefore you don’t bother losing it, you can try to negotiate to be on the upper range of the hourly salary rate. Even if it does not work out at the end, you will strenghten your negotation skills which is a needed expertise, as freelancing is basically selling yourself in the best way possible. If you really want to get the project, put yourself in the middle of the range, especially if this is your first job. You can always raise your hourly rates in the projects to come and I would recommend doing so to counterweight at least the current inflation rate of ~5%.

How much can I earn per month and what will I have left over at the end?

This depends on my factors, but I can give you a standard calculation here:

Let’s say you are working on an hourly rate of 100€, giving you a daily rate of 800€. As you also want to have some spare time for professional training, certifications, networking and side-projects, you are working only 35 hours per week for clients. The downside of being self-employed is that public holidays (~12 / year), vacations (~ 30 / year) and sick days (~ 5 / year) are unpaid, so you have to calculate for those as well, substracting around 4 days per month from your working days. On the gross income side, that leaves you with 108 payable hours times 100€ per hour, giving you a monthly paycheck of around 10800€ from the client.

That sounds like a lot, but the biggest position that goes away from that number are personal income taxes. You can use Taxator to calculate how much that is for your circumstances. The “normal” range for an IT Freelancer would be 35-40% when not being married and having no children, so let’s assume a value of 37% here. When you use a service like Kontist, it automatically calculates the amount you need to save for the taxation office for every payment you receive from the client (both personal income taxes and VAT, the latter is a transit item), so you only transfer the remaining amount to your private bank account.

Keep in mind that you do not have to pay taxes on your whole income, but only the actual profit. That means that you can deduct a lot of expenses that are related to your work as freelancer from the gross income, before actually applying the income tax to it. Some costs that I offset on a monthly basis against the taxes are: leasing rate for my car, insurances, fuel costs, any electrical devices (laptop, monitor, smartphone), internet and cell phone contract, software, licenses, website, literature, certification, conferences. A good tax professional can certainly make up the money you pay for him/her in the way that those expenses can be offseted. As a lot of those costs like electrical devices are variable, let’s assume 500€ per month for now. That means you have to pay income taxes on 10300€ with a percentage of 37%, resulting in 3811€, leaving you with 6989€.

For the remaining positions, let’s use values that I have to pay by myself. Those might be different for your scenario, as I am working completely remotely for clients from my home office and therefore do not have to pay anything for travel or a coworking space. However, let’s use those numbers for now to get a rough estimation of additional costs that you might cover as a freelancer:

  • Retirement Planning (myPension): 1000€
  • Private Health Insurance (ottonova): 580€
  • Tax Accountant: 178€
  • Professional Liability Insurance (VHV Allgemeine Versicherung): 32€
  • Advanced training, certifications, website, conferences (Lumped sum, might fluctuate over months): 100€

I am not putting the costs of a own-occupation disability insurance here, as this is something that also an employee should have. Substracting all those numbers, we are arriving at a net income of 5100€. And this I would say is based on a very comfortable lifestyle with 35 hours of working and a lot of free days, a decent retirement planning and a first class private insurance. If you want to priotize making money instead, you could work for 40 hours a week, negotiate a higher hourly rate of 125€, not take public holidays and cut your vacation days to 20. This would lead you to a net income of almost double: 9110€.

Having made the experience of overworking before, my priority in life is not that anymore, so I feel more than comfortable with a four-day workweek, enough time for self-education, sports, family/friends and leisure/holidays instead. Relaxation is as important as the ability to work focused. Beeing a good freelancer is not a sprint but a marathon, which hopefully brings you closer to important goals in life like being financially independent, having control over your time and becoming good and confident in what you offer professionally.

I hope this article was helpful for you in deciding whether you want to try out becoming self-employed in the future and which steps to take when doing so. This path may not be for everyone, as it demands a certain level of self-motivation, professionality and the ability to use your time efficiently. But what you can gain is a lot and I am very happy that I have started my journey of becoming an IT Freelancer five months ago. If you want to know more about my services, have a look at my personal website.