7 Major Financial Mistakes to Avoid as a Freelancer

1.   Failing to follow up on client invoices

When you send out an invoice to a client, don’t immediately think it’s paid money. Invoicing is only the first step to getting paid. There is still a chance that clients will forget to pay or will lose your invoice in their accounting system, which is why it’s your responsibility to follow up.

You can get an invoice app to automate your invoicing so that you don’t have to make new ones every time. Some apps also help with sending out reminders when clients haven’t paid yet. Alternatively, you can always manually do these tasks by taking notes on your planner to remind clients. It’s best to remind clients of their payment dues every week after you’ve sent an invoice.

2.   Keeping personal and business finances together

One of the most common freelancer mistakes is not budgeting properly. When you’re freelancing, you’re not living on a steady paycheck, so it’s important to always be on top of your expenses. Keeping track of your cash flow, the amount of money you have, and where it goes will help you achieve your financial goals.

If you’re operating a business on the side, separating your personal and business finances can help you monitor your business expenses when it’s time to pay taxes. One way to help keep these finances separate is to have a business bank account. All your business-related expenses are deducted from this account, making income reports easy to audit. It’ll also help you keep tabs on your expenses and avoid dipping into your business funds.

3.   Neglecting insurance plan investments

If you’re a freelancer in your 20s, most likely, it doesn’t occur to you that you need to invest in any form of insurance at all because you’re young and healthy. However, if you neglect getting an insurance policy, you’re also neglecting your overall health and well-being. Having the safety net of insurance can help you save up on expensive medical costs if something happens to you.

Since you don’t have the luxury of being part of a group insurance plan as you would when working for a company, you have to get your own plan and policy. Nowadays, there are many insurance options tailored for freelancers. They all have different benefits and coverages depending on your budget. Some packages can even go as low as P550 a month.

4.   Staying with low-paying projects

If you’re a new freelancer, you may be tempted to accept low-paying projects. You may think that this is fine since you’re just starting to get recognition. You can do this for some time, but you should move past this phase as soon as you can.

Let go of your low-paying clients gradually and research the entry-level rates in your field. When you’ve built up your projects, you can slowly hike your rates from the entry-level stage.

5.   Refusing to spend money on education

Investing in your education through books and online courses can help you increase your income in the future. By learning more about your field, you’re maximizing your potential and honing your skills, which will be helpful if you want to level up your role.

There are a lot of free online courses with certifications available on the internet. For example, Google Digital Garage offers free classes in digital marketing, data and tech, and career development. These courses are presented by top course providers like Coursera, YouTube, and universities such as the University of Helsinki and Deakin University.

6.   Working with one source of income

Diversify your streams of income and your clients. By branching out, you can recover faster when faced with a loss. It’s easier to bounce back from a client who only makes up 10% of your income than with a client that contributes 50%.

7.   Forgetting about emergency funds

Apart from your insurance, you should also be setting aside money for emergencies. As a freelancer, there will be months when projects are few. With this, you must have a savings plan for your emergency fund.

Working as a freelancer comes with risks. There may be times when a client can leave you unpaid. In situations like these, your emergency fund will come in handy. Your emergency money should be untouched and separate from your personal account. Ideally, the amount should be around a few months’ worth of living expenses so that the fund can tide you over times of drought.