The 6 biggest financial mistakes to avoid while freelancing

The 6 biggest financial mistakes to avoid while freelancing

Having the opportunity to work full-time as a freelancer on UpMyChain sounds like a dream come true. Creating your schedule and getting paid for what you love is a perk to working from home. You get to pick and choose your clients and work anywhere you want. However, being responsible for one's finances also comes with the many challenges of being a full-time freelancer.

A full-time freelancer who doesn't have a steady paycheck from an employer can suddenly find themselves in a position where they have to handle their finances independently, especially if they're a full-time freelancer and need an employer to provide them with a salary.

You should be aware that when you're a freelancer or planning on becoming one shortly, you must know how to handle your finances and have a solid plan for immediate and long-term funds. When looking at your expenditures, there are many questions that you need to ask yourself.

As luck would have it, we will cover some of the most common mistakes freelancers make when it comes to finances and how to avoid them in this guide.

To succeed when working at home, you can't afford to make these few mistakes that will ruin your entire workday.

1. Not organizing your budget correctly.

You need to keep your budget under control even if you are a freelancer who works alone as a sole proprietor.

If you aren't living on a steady paycheck and planning your monthly expenses is difficult, consider having a monthly budget. The main reason you will need to set a budget in the first place is to keep track of how much money you have, what you need to spend, and what you will need to achieve your objectives.

It would be best if you kept a close eye on your cash flow - knowing where the money comes from, where it goes, and how to ensure that it continues to grow.

If you need help figuring out where to start when it comes to budgeting your monthly earnings, you can use the 50/20/30 rule as a guide. As a result of this rule, your earnings should be split in the following way:

  • 50% on needs.
  • 30% on wants.
  • 20% on savings.

It is essential to understand that needs and wants are different things. For example, requirements include necessities such as your rent, groceries, and utilities, while wants include things that make you happier but are not essential to your survival. Lastly, savings include retirement plans, emergency funds, and any investments you take.

2. Not separating your personal and business finances

Regarding budgeting, you must have separate accounts for your personal and business spending to track your expenses better.

In addition to keeping track of your overall finances, you can organize your life in a better way when you separate your accounts.

Keeping track of your business expenses can help you track what you spend on your business, where to cut back on spending, and what you need to do to get your life back on track.

It is essential to keep track of all your expenses if you are a freelancer until the time comes for you to file your taxes. If you are a freelancer, you probably know how difficult it can be to keep track of everything.

When buying something related to business, it is best to use a business account for it. Likewise, if you are buying something related to your personal life, it is better to use a personal account.

The fact that you can keep track of this information makes tax planning and business review easier for you.

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3. Not having an emergency cushion of money

Having a monthly budget and a separate account for business and personal finances has made it easy for you to set money aside for an emergency fund now that you have a monthly budget and a separate account for business and personal finances.

Although freelancers may have good and bad months, there's nothing you can do to change that. Regardless of your skill level and income level, it's crucial to have an emergency fund in case of an emergency.

Having an emergency fund is very important in keeping you afloat in case you lose a client and end up not getting paid. Having some money set aside is the best way to handle unexpected situations. The next time you receive a curveball from life, you will be ready for it, even if it is the least surprising.

It is ultimately up to you to decide how much money to set aside each month. But if you want to be prepared in an emergency, keep aside a few months' worths of living expenses as a rule of thumb.

Last but not least, you should keep your emergency fund separate from your personal savings account so that you won't have to draw on it unless you face an emergency you need to address.

4. Failing to pay bills

I strongly recommend that you follow up with your clients who have yet to remit their payments on time if, for some reason, you had a lousy income month.

The issue of overdue clients is a recurring issue for freelancers. If you are in this situation, consider seriously reconsidering your position regarding delinquent clients.

It will initially seem awkward to send a follow-up email asking for money, but it's the right thing to do in the end.

You deserve it.

You have every right to demand your money if you have completed the requested task and have yet to be paid for your work.

Regardless of whether they have forgotten to pay you, you are responsible for making sure you get your payments from them. It is not your clients who are refusing to pay you. But regardless of whether they have forgotten to pay you, always be sure to chase late payers.

You first need to send a polite email to them and follow up with them if they don't respond. If they don't respond to your email, consider placing a phone call to them. In either case, be sure to get their attention and stand your ground.

5. Missing out on learning about tax

One of freelancers' most challenging financial obligations, even more so than their paychecks, is paying taxes.

Firstly, it's essential to know that taxes in your country are determined by where you live rather than what state you live in.

It's no secret that taxes are challenging for self-employed individuals. Depending on how much you earn, if you're self-employed, you'll have to report your income and withhold your taxes and pay self-employment taxes.

If you are still determining what you are getting into, that would be a lot of paperwork and headaches. The best thing you can do is to research your country's regulations and laws regarding the taxation of freelancers in your state or province.

In the world of freelancers, it is standard for them to make mistakes on their tax forms. The best way to ensure you're filing your taxes correctly is to hire a professional. Alternatively, you can play it safe by setting aside 20-30% of your monthly paycheck for tax deposits. If that proves too expensive, you can play it safe by setting aside that amount.

Regardless of the approach you choose, it's worth doing a little research beforehand and familiarizing yourself with your local tax laws to ensure you know exactly what you're getting into before making a decision.

Recommended: 8 Pro Tips To Write An Effective Freelance Proposal

6. Not using an accounting software

Finally, as a last resort, if you want to step things up a notch and ensure nothing falls through the cracks, you may want to look into using an online invoicing and accounting software package.

One of the best things about accounting software is that you can automate some or all of the manual, repetitive tasks. Paying bills, sending out invoices, and much more are all made more accessible than ever due to using the software. Since the software allows you to keep track of your accounts while you are on the go, you can create invoices wherever you want. As a result, you will be able to save a significant amount of time and money in the long run. It is your responsibility, as a freelancer, to take care of everything you do. You must manage and track everything in your life in the most efficient way possible because you have to be on top of your finances.

It is a sure way to increase efficiency and save time on creating invoices, as well as to be able to track and manage your invoices. As a result, you will be able to get a monthly financial report with an overview of your entire business.

Accounting software helps you manage your money more effectively, allowing you to be better informed about where your money is coming from and where it will grow your business. If you want to improve your accounting and financial skills, the software can fill in all the gaps in your financial areas, ensuring everything is optimized for your business.

The financial framework you should follow

While it might seem intimidating at first, if you decide to become self-employed, you will only be able to learn as you go. As you do that, you will only become more proficient at handling your personal and professional finances.

However, even though experience is the best teacher, most freelancers tend to make some common financial mistakes when just starting, which is entirely understandable.

It is essential to keep track of your income and expenses throughout the year to avoid making many financial mistakes at the end of the year.

In most cases, you won't find it convenient to use a spreadsheet to automate your bookkeeping processes; instead, it is better to use professional business accounting software that automates your processes.

Freelancers, business owners, and freelancers alike are often apprehensive about the finances they have to deal with, but it does not have to be so.

You could make more money by taking control of your finances as a freelancer, so implementing the above tips will save you time, which will help you focus on your craft and make more money. By putting all of the above tips into practice, you will spend less time worrying about your savings accounts and more time focusing on perfecting your craft and making more money.

Easy Answer

  • Not organizing your budget correctly.
  • Not separating your personal and business finances
  • Not having an emergency cushion of money
  • Failing to pay bills
  • Missing out on learning about tax
  • Not using an accounting software

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