Every Freelancer Must Avoid These Financial Mistakes
Author: Melissa Cohen
If you are, or are considering becoming, a freelancer, you need all the help and support you can get. Like which financial mistakes to avoid.
Going freelance is like an acrobat swinging through the air without a net for the first time. It’s as exhilarating as it is daunting, and it can seem like the biggest hurdle a freelancer needs to overcome. Don’t let the rush cloud your judgement, there are still a few financial landmines you need to avoid if you want to succeed.
Four Financial Mistakes A Freelancer Can Make
There’s a saying called the the five p’s of success that go: Prior preparation prevents poor performance. This is never as true as it is for a complete shift in your career path. If you’ve already set sail on your freelance journey, it’s still not too late to adjust your sails…
Mistake #1: Not Adjusting The Budget
Okay. We know being self-employed means a lot of expenses you no longer need to worry about. If you’re working from home, travelling money or exorbitant parking fees are a thing of the past. But it also means many expenses covered by your previous employment, like medical aid, your provident fund, and that good coffee, are now for your pocket as well.Before you’ve secured some reliable contracts, your income can be very irregular. So it’s important to keep your expenses as low as possible, and to save as much as possible for dry months.A freelancer budget needs to include your fixed personal costs, as well as business costs. This could be anything from computer hardware and software, office supplies, Internet, or marketing materials.Be sure to track the business expenses that are tax deductible and, it should go without saying, budget for paying your taxes.
Most freelancers can come into the market too cheap to attract work and get a foot in the door. Problem is, it’s difficult to negotiate up and out of a rate that not only undermines the worth of your own work, but other professionals in your field.Always remember, if a client can get away with paying you peanuts, they will.You can work out your freelance rate, as well as consult average rates, but there are no hard and fast rules. Whichever method you go with, we advise going slightly higher than you’re comfortable, but not so high as to price yourself out of work. Have a good starting point should there be any negotiations and be sure to know at which point to end negotiations before you’re operating at a loss.
Mistake #3: Not Ensuring You’re Insured
If you’re young and healthy, it’s easy to think your health is in your hands. Arguably the biggest mistake any freelancer can make is to assume they have control over, well, anything. Which is why, as a freelancer, it’s so important to get insured.And by insurance, we don’t just mean medical aid and income protection (which includes critical illness and disability cover), but also insuring your car, your home, the equipment you need for work, getting legal cover, and an emergency fund.It may seem like a lot but if you’re struggling to part with the cash to pay for just-in-case, you cannot afford not to insure yourself. An unexpected emergency expense like a work-related legal claim from a client can put you in a difficult financial situation for a long time. Avoid such eventualities and stay on top of your finances, by being prepared for anything.
The newfound freedom of being your own boss can quickly go to your head. Taking a day off here, and an extended lunch there can seem like no big deal until you find yourself missing deadlines, losing clients, and living at your parents.That’s an extreme example, but many freelancers get so focused on being the boss they forget they’re also the employee. And if your star player (you) is out having coffees with friends when they (you) should be working, your business is losing money.Calculating your hourly rate, which should make provision for annual leave days, sick days, marketing to potential clients, and professional development, etc. is one way to keep your down time in check.There’s nothing more important for a freelancer to realise than this: time is money, and it’s your only non-renewable resource.