All about the most common financial mistakes freelancers makes, and practicable actions to avoid them

Freelancing offers tremendous flexibility and creative freedom, making it an appealing career choice for many. However, it also comes with its own set of financial challenges that can trip up even the most talented creative professionals. In this blog post, I will explore some common finance mistakes freelancers make and offer practical advice on how to avoid them. By the end of this article, you’ll be better equipped to manage your finances effectively and thrive as a freelancer.

Disclosure: There are some affiliate links below and I may receive commissions for purchases made through links in this post, but these are all products I highly recommend. I won’t put anything on this page that I haven’t verified and/or personally used.

Dealing with Your Finances as a Creative

As a creative freelancer, you might be more focused on honing your craft than managing your finances. It’s a common pitfall to underestimate the importance of financial stability. While passion for your work is crucial, neglecting your financial responsibilities can lead to problems down the road. Trust me: it will catch up on you, and then you will find yourself fire-fighting and putting band-aids on problems that could have been avoided with a bit of foresight and appropriate planning.

Stick with me, and you’ll have the tools to set up your freelance job’s finances from the get-go, avoiding headaches and trouble down the line.

Let’s do this, friend!

15 Finance Mistakes Freelancers Make

1) Leaving the Bookkeeping to the Last Minute

One of the most significant finance mistakes new freelancers make is procrastinating on bookkeeping. It’s easy to put off recording income and expenses, but this can result in a chaotic financial situation. 

To avoid this, set aside regular time for bookkeeping, whether it’s weekly or monthly. Use accounting software or a nicely organised spreadsheet to simplify the process and keep accurate records.

If you feel so inclined, you can use mine!

It’s simple, efficient, effective, and it does all the things you need a cashbook to do. You’ll love it.

finance mistakes freelancers make

2) Making Finance Admin Your Impossible Task

Freelancers often juggle multiple roles, from creating content, to client communication, to provide the actual service of product you are selling. Managing finances can sometimes feel overwhelming, leading to avoidance. 

If you feel this, try breaking down financial tasks into smaller, manageable steps: it will make a world of difference. Create a to-do list, set achievable goals, and tackle your financial admin systematically, and set up reminders to do this regularly.

4) Not Having a System to Stick To

Many freelancers lack a consistent financial system. They may mix personal and business finances or fail to allocate funds for taxes and emergencies, or they may keep the important documents and reports all over the place, making it incredibly hard to find what they’re looking for when they need it. 

To rectify this, open a separate bank account, set aside a portion of your income for taxes, and create a budget to track your expenses and income. And most importantly, schedule in the time to do the financial admin – I suggest at least once a month (ideally weekly!). Having a clear system in place ensures financial stability and peace of mind.

5) Seeing It as an Enemy

Some freelancers view finances as an adversary, something to be feared and avoided. This mindset can lead to reckless spending, unpaid taxes, and mounting debt. 

To shift your perspective, educate yourself about personal finance and freelancing-specific financial matters. Try to see the finances as part of your creative practice, an integral one at that. Having a solid financial foundation is your friend, not an enemy! It will enable you to really show up when you deliver your work, and it will truly set you up for success. 

Knowledge is power and your mindset is your vehicle: the more you understand and show up for every aspect of your business, the more confident you’ll become in managing your finances.

6) Not Subscribing to My Email Course

Okay, I admit this section is a bit tongue-in-cheek, but I promise it will serve you well: I created a FREE email course on how to understand and prepare your Self Assessment as a freelancer. Why not give it a go? Again: it’s totally free. Over 6 days, I will send you one email a day explaining how taxation works in the UK, and what you need to do to prepare a STRESS-FREE self assessment.

Check it out!

7) Not Separating Business from Personal Finances

One of the most fundamental financial mistakes freelancers make is failing to keep their business and personal finances separate. Mixing the two can lead to confusion, tax complications, and blurred financial boundaries. 

To remedy this, open a dedicated bank account and use it exclusively for business-related transactions. This clear separation simplifies bookkeeping and ensures that personal expenses don’t interfere with your business’s financial health.

8) Not Planning for Your Tax Bill

Taxes can be a significant headache for freelancers who don’t plan ahead. New freelancers often underestimate their tax liability, leading to a nasty surprise when the tax bill comes due. 

To avoid this, set aside a portion of your income for taxes regularly. Consider working with an accountant to determine your tax obligations and create a tax-saving strategy. This is especially important if you think you may have to make a payment on account for the first time. 

9) Charging by the Hour

Relying solely on hourly rates is a finance mistake freelancers make that can limit their earning potential. Charging by the hour may not accurately reflect the value you provide to clients. Furthermore, it discourages innovation and penalises efficiency. 

Instead, consider adopting a project or package-based or value-based pricing strategy. This approach allows you to charge based on the results or outcomes you deliver, enabling you to earn more for your expertise and efficiency.

10) Sending Sales Invoices Too Late and Not Having a System for Credit Control

Timely invoicing and effective credit control (aka: ensuring your invoices are paid) are crucial for maintaining a healthy cash flow as a freelancer. Delayed invoices can lead to delayed payments, which can disrupt your financial stability. 

Create a system for sending invoices promptly and follow up on unpaid invoices. Consider using accounting software that automates invoicing and provides payment reminders to clients. If you don’t want to invest in one, you can create a filing system on your computer to ensure you can always access unpaid invoices, and follow them up quickly. Another option still, is to make note of all your raised sales invoices on a spreadsheet, and mark them as paid as you see the money coming in.

problems freelancers face

11) Forgetting About Insurance

Many freelancers overlook the importance of insurance. While you may not have traditional employment benefits, such as health insurance or workers’ compensation, you should still protect your business and yourself. 

Consider professional liability insurance, which can safeguard you against legal claims from dissatisfied clients, and business insurance to protect your equipment and assets.

12) Not Learning How to Negotiate Your Fees

Negotiation is a valuable skill that can significantly impact your freelance income. Many freelancers accept the first offer presented to them, missing out on opportunities to secure higher-paying projects. 

Learn how to negotiate effectively by researching industry rates, understanding your value and pricing structure, and confidently discussing fees with clients. Negotiation can help you secure fair compensation for your work (and will boost your self-confidence!).

13) Not Having a Pricing Model

Freelancers often lack a consistent pricing model, leading to inconsistency in their earnings. Establishing a clear and transparent pricing model for your services can help clients understand your rates and make it easier for you to estimate your income. 

Consider factors like your experience, industry standards, and the value you provide when setting your prices.

I will point you to a fantastic resource to learn more about pricing models.

14) Not Talking to an Accountant

While freelancers can handle some aspects of their finances independently, consulting with an accountant can be incredibly beneficial. Accountants can offer expert advice on tax planning, deductions, and financial strategies tailored to your freelance business. 

Consider investing in a tax professional experienced in working with freelancers to ensure you take advantage of all available tax benefits and deductions. Unbiased is a great place to do this, as you can be paired with an accountant who can guide you through the intricacies of taxation and give you bespoke professional advice that is tailored to your situation.

15) Not Benchmarking Their Prices and Services

Lastly, freelancers often neglect to benchmark their prices and services against industry standards. Failing to stay competitive can result in lost opportunities and lower income. 

Regularly research market rates and evaluate your offerings to ensure they align with industry norms. This ensures that you remain competitive and continue to attract clients who value your expertise.

Conclusion on financial mistakes freelancers make

In conclusion, freelancers face a unique set of financial challenges, but by addressing these common mistakes, you can navigate the freelance landscape with confidence and financial success. Check out my other articles relevant to freelancers and how you can learn about financial literacy and effective systems.

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About the author : Susie Italiano

financial mistakes freelancers make
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