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Are you a freelancer who suffers and often makes money management mistakes? Then read this article and learn these 6 tips to avoid them.
Working as a freelancer comes with numerous perks, such as working on our terms, as per our own time, choosing our clients, preparing our schedule, etc. However, managing everything alone can be challenging, and we may lose sight of some of the most important things, such as managing our finances. that is why it is important to devise a plan to avoid money management mistakes as a freelancer.
If we do not do so, we may end up in financial trouble.
In this guide, I will highlight some common mistakes we make while managing our money as freelancers. Read further to find out about those mistakes and how we can avoid them!
6 Money Management Mistakes and how to avoid them
1. Not having separate accounts for personal and business expenses
While keeping track of money, we freelancers always need to distinguish between separating our personal and business expenses.
We must always begin by separating personal expenses from business accounts. Merging the expenses can result in causing a mess in keeping track of the expenses. It is always a good idea to keep two separate accounts.
This way, we can organize and manage our money better. Having a separate business account is also beneficial for tax purposes. Since the business accounts will have a complete record of all the business expenses, tax payments will become much easier.
2. Not keeping emergency funds aside
While starting a freelancing career, we often get overwhelmed with all the responsibilities and forget about setting aside emergency funds from our income.
We must know that freelancing can be very unpredictable and does not guarantee a fixed monthly income. There will be times when the earnings will be less than some other months. Moreover, there is a chance of losing clients or not getting new projects to work on.
In such scenarios, we must have an emergency fund ready to sustain ourselves. To develop an emergency fund, we can start by setting a monthly commitment and keep on adding that much money every month to build our emergency fund.
We must also remember to only tap into our emergency savings when there is a serious emergency.
3. Assuming there would be fewer business expenses
When we work from home, at our convenience, we often believe that our business won’t require a lot of expenses.
It is a wrong assumption made by most of us. Freelancers have a lot of expenses, including buying new software, hard drives, and subscriptions to apps regarding our field of work.
We might also have to hire a website designer if we run our website. Thus, business expenses are not reduced just because it is our own business.
It is advisable to have a good amount of savings set aside for business expenses.
4. Not prepared to pay taxes
Paying off taxes is easy when working under an employer. However, freelancing complicates the tax payments for us. Most of the time, we tend to believe that we won’t have to pay off taxes just because we are self-employed.
That is not the case. We need to pay the tax, as we are solely responsible for our income. We must keep aside some percentage of our income just for paying taxes. It is fine if the savings are extra, but we must never run out of savings.
We can set up a monthly reminder to keep track of the money we set aside for taxes. To avoid any problems in paying taxes, we should conduct proper research on the official tax payments to manage money wisely before we start working as freelancers.
5. Not having a proper budget
Preparing a budget is key to managing our money smoothly. But when we do not have a fixed income every month, it can be difficult to come up with a budget. As beginners, we often move with our work without a fixed budget.
Instead, we must divide our income into three parts: wants, needs, and savings.
Wants should include the things we wish to get but are not necessary for us. We can set aside around 30% of our income to fulfilling our wants.
Needs include the necessities for survival. These include groceries, bill payments, rent, etc. We must keep at least 50% of our income to fulfil your needs.
Savings include our investments, retirement plans, and emergency funds. We can keep the remaining 20% of our income as our savings.
6. Not getting a health insurance
Being young and healthy often leads to the misconception that we won’t require health insurance.
Health insurance is a benefit we all can get in we work as an employee in a company. However, as freelancers, we do not have access to such benefits. Thus, we must consider getting health insurance for ourselves.
The best way to get health insurance is to read about different insurance plans. We must learn about them through research and even consult the experts. Once we find a suitable insurance policy for us, we must buy it.
Moreover, having a good health insurance plan help in saving money in case of medical emergencies and help in managing our finances in a better way.
Freelancing is a good career option as it has several perks. But on the contrary, managing finances is where most freelancers often make mistakes.
While we all learn from our experiences, prevention is always better than cure.
Managing our finances is one of the most crucial things to becoming successful freelancers. Moreover, it also helps in creating an intelligent money management system.
And by practicing all of the above tips, we all would have to worry less about our expenses and focus more on spending our time perfecting our craft and making more money.