Has working from home prompted you to look into the lifestyle of a freelancer? Perhaps you’re unemployed and looking for a better opportunity? Whatever the case is, being a freelancer is alluring. You have the chance to work on what you want, set your rate of pay, and work when it’s convenient for you. Although these perks are attractive, the life of a freelancer isn’t as easy as it sounds. This is particularly true when it comes to managing finances.
As a freelancer, you’re in charge of all things related to money. You’re responsible for earning money, covering expenses, building savings, and investing in necessary products and services. Failure to do this accurately could lead to significant financial consequences, including the demise of your lifestyle as a freelancer.
As a novice entrepreneur, you’re bound to make mistakes. Hopefully, you can avoid serious problems by being aware of common pitfalls like those listed below.
Quitting Your Job
You’re excited about the potential to make a living on your terms. So, you give your boss two week’s notice. Although quitting your job may be the goal, it’s not something you should do right away. Your current position serves as a just in case. If things don’t work out or there are things you need financially, you have your regular income on hand. If you quit your job before setting yourself up correctly, you lose this nest egg or peace of mind.
Forgetting To Save
When you start generating revenue, it’s tempting to want to spend every cent. Be that as it may, you must save. You never know what could arise in your business journey that requires money you don’t have on hand to resolve. If you haven’t dedicated funds to a rainy day fund, you have to scramble to find solutions. These solutions often mean going deep into debt, which takes away from profits.
When you work a regular job, federal and state taxes are deducted from your paycheck. These funds are used to pay what you owe the government leaving you with little to no outstanding taxes. However, when you work as a freelancer, it’s your responsibility to set aside part of your income for taxes. Failure to do so could result in penalties and fees that only drag down your bottom line. That’s why working with tax professionals to discern how much you should put in an account for taxes is ideal.
DIY Accounting (With Little to No Experience)
While you don’t need an accounting degree or certification to manage company finances, you need some knowledge and experience. There are a lot of layers to appropriately working your finances as a freelancer. When you try to take on this task without completely understanding it, you can make mistakes that cost you big time. Essentially, if you can’t afford to pay an expert, at least obtain some education. Take a few online accounting courses, use affordable software to streamline tasks, and consult with a professional for tips and advice to ensure you’re on the right track.
Doing It All Yourself
When you’re strapped for cash, doing everything yourself seems like the best option. The idea is to cut out the middle man and save money on products and services. Although this concept may work in some areas of business, it’s not ideal for every aspect. The more you take on, the easier it is to make mistakes that set your business back. It’s often better to invest in the services of a professional to ensure that the essential areas of your business are managed efficiently.
The freelancer lifestyle has its advantages. Be that as it may, it also comes with significant responsibilities. When it comes to managing your finances, you must do everything you can to avoid common pitfalls like those listed above. These mistakes could end up costing you everything you’ve worked so hard to accomplish. So, do yourself a favor and avoid these problems by applying the correct financial management practices like those suggested above.