One of the features of freelancing that can seem daunting at first for some is its reputation for variable income and the infamous feast-or-famine cycle that many freelancers face. This is the phenomenon where you have no work one minute, and then lots come along all at once, wreaking havoc on your cash flow and productivity.
However, if you avoid some of the common money mistakes new freelancers make, you can shore up your freelance income, make a healthy profit, and prosper.
The good news is that most money mistakes are easy to identify and avoid.
Let’s have a look at 4 of the most common ones:
1. Not having a buffer fund before you go freelance
As the wise saying goes – prevention is better than cure. And having rainy day savings or a buffer fund is certainly a good idea before you ditch your 9 to 5 and go all in on freelancing.
It makes sense to put some money aside so you have enough for everyday living expenses but also to see you through a few months of not earning any money. This doesn’t mean you won’t earn money when you start out, but knowing you have funds in reserve will stop you from accepting all work offered that you may not be in a position to accept through lack of experience, lack of time, or the clients might not be the right fit for you. What’s more, in an effort to get the work you might not charge enough or discount your prices. If you start off on this footing, it can be challenging to get back into a productive freelancer routine and avoid the overwhelm.
Another option to consider is to start your freelance career as a side hustle and move to a more full-time freelancer career once you have a nice roster of clients and are earning enough to make it a permanent full-time role.
2. Overspending on non-essentials
Unless you absolutely must purchase expensive equipment to perform your role, when starting out, start with the minimum required, opt for freemium online tools, or buy pre-loved equipment.
If you need to splash out on something at the beginning, ensure it has a good return on investment (ROI) and pays you back many times over. You don’t need fancy websites with all the bells and whistles when starting your freelance career, and the more you can get used to only spending money on assets that will provide a return at the start of your career, the better. You’ll soon get used to it, and hopefully, this habit can help ward off Shiny Object Syndrome so you remain a savvy and sparing business owner.
Increasing sales while keeping an eye on spending instead of raising them both is a sensible initial strategy for most new freelancers.
3. Not compartmentalizing your finances
When you go freelance or set up a limited company, it’s important to separate your business and personal accounts. This is something you must do at the very beginning of your freelance career, as otherwise, things can get messy quickly. In the worst-case scenario, you run the risk of getting in trouble with the tax authorities or getting fined if you don’t identify what is personal and what is business income.
Furthermore, you could miss tax deadlines and obligations. Depending on how you set your business up, your jurisdiction and your industry, there will be different rules and regulations for taxes and expenses. Keep all your receipts, have a dedicated bank account, and unless you are a financial whiz yourself, hire an accountant or professional to advise and assist you and your business.
4. Not automating, delegating or outsourcing time-consuming tasks
Tedious tasks that take up your time and do not directly add to your finances should be automated, delegated, or even outsourced where possible. You need to ensure you are making the best use of your time and not getting bogged down with tasks you could automate or outsource so you can focus on big-picture goals and avoid burnout.
You’ll often find that delegating or outsourcing these tasks to other people works out more cost-effectively. If you calculate your hourly rate and the time spent on time-consuming tasks and then equate that with the cost of outsourcing it to someone else who can do it quicker, you can easily make the cost-saving comparison. But even if you don’t delegate or outsource, there are plenty of automation tools on the market, and many are free or freemium models.
Take invoicing, for example. This task is definitely necessary but can be time-consuming, especially if you manually compile invoices yourself.
Invoice Ninja is a leading free invoicing software for small business invoicing, online payments, tracking expenses and billable tasks. It also includes attractive, professional invoice template designs you can customize with your logo and brand colors.
Try it for free here.
