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5 Money-Management Mistakes to Avoid as a Freelancer

Margaret has been working as a freelance writer and translator. All her tips and insights come from her own experience.

It's easy to make financial mistakes in a non-traditional employment environment. Here are five big ones to avoid if you can.

It's easy to make financial mistakes in a non-traditional employment environment. Here are five big ones to avoid if you can.

Money management is difficult in any line of work, but when it comes to freelancing, things become even more complicated. When you’re self-employed, attracting clients and paying bills aren't the only things you need to worry about. There’s more to being your own boss.

As a freelancer, you are on your own when it comes to certain benefits that traditional employers typically provide in traditional work settings. If you aren’t careful, money mistakes could cost you a significant percentage of your income.

I entered the freelancing world without anyone to guide me, and with most people telling me it was a bad idea. I eventually proved them wrong, but I also made a lot of mistakes along the way.

Here are five money-management mistakes you should avoid as a freelancer.

1. Not Getting Health Insurance

When you’re young and healthy, getting health insurance is probably last on the list of your priorities. However, now would be a good time to start thinking about it. Remember when I said that, as a freelancer, you lose many of the benefits that would typically be provided by an employer in a traditional work environment?

In a 9-to-5 job, your employer is responsible for executing most of the procedures related to your insurance. When you’re a freelancer, however, you’re the one who’s responsible for taking care of these things.

Neglecting getting health insurance is like ignoring your own health and well-being. Life is unpredictable. You never know what might happen tomorrow—even when you’re young. You never know what expensive medical costs you’ll have to cover in the future.

For example, when I was 21, I had to undergo pilonidal cyst surgery. Although it wasn't something serious or life-threatening, I would have had to pay a hell of a lot of money if I didn't have health insurance at the time. Do yourself a favor and get yourself covered—it's worth it.

2. Not Having an Emergency Fund

In my opinion, everyone should have an emergency fund, but when you’re self-employed, it’s non-negotiable. The reason? Freelancing is the most unpredictable line of work. There are always ups and downs, and it doesn’t matter if you’re a beginner or an established freelancer.

You might have 10 clients one month and lose half of them the next, and not necessarily because you’re bad at your job—far from it. For example, they might simply need to cut their expenses, or they might not have a new project for you to work on.

In other words, there might be days, weeks, or even months where you'll have way less cash flowing in. That's why it's smart to keep at least three to six months’ worth of expenses in a savings account in case of an emergency. Better safe than sorry.

3. Not Feeling Comfortable Talking About Money With Your Clients

During my first months as a freelance writer, I felt very uncomfortable communicating with clients, let alone discussing money with them. That's a struggle that many young freelancers face at the beginning of their careers.

However, you should remember that your clients need you as much as you need them. There’s no reason to feel bad about negotiating your rates with them or charge extra when they ask you for "slight changes" that require a lot of work. Don't undervalue yourself or your work.

4. Being Unprepared to Pay Taxes

When you're your own boss and enjoying the freedom that comes with freelancing, you can easily forget about taxes. Freelancers have to pay taxes, too. The more money you earn, the higher your taxes will be.

Being unprepared to pay taxes is a common situation new freelancers find themselves in. Because every country has a different tax policy, make sure you research how tax-related things work in yours. One thing’s for sure: To accurately file your taxes, you’ll need to keep a record of your freelance income and expenses.

You’ll also need to put some money aside to pay your taxes since they won't be automatically deducted from your paycheck as they would if you had a traditional employer. Overall, it’s not a complicated procedure, but it definitely takes some getting used to. Plan ahead, keep your receipts, document everything, and seek out the help of a tax professional if you need to.

5. Assuming You Won’t Have Any Business Expenses

One of the myths surrounding freelancing is that there are no expenses for people who work from home.

In reality, freelancers might have many expenses. For example, hard drives die. Several categories of apps and software systems are needed, including time-management, file-sharing, invoicing, and accounting tools. If you have your own website, you might need to hire a web designer.

These are just a few of the things a freelancer might need to spend money on. You don’t have to pay just your personal bills as many people might think. Freelancing has business costs, too, and as a freelancer, you need to make sure you have enough money to keep your business afloat.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2021 Margaret Pan

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