Freelance Faux Pas: 3 Money Mistakes to Avoid

Freelance promises more freedom and flexibility to work a more fulfilling job. It also has the potential to be more difficult, as finding a steady stream of clients and managing your finances falls solely on your shoulders. 

While plenty of people find the trade-off worth it, there are some mistakes freelancers make when they first start the gig. Avoiding these three money blunders set you up for greater success.

1. Lacking Emergency Fund

Anything can happen when you freelance, and you have none of the typical safety nets that salaried workers do. On top of that, you may work with a more erratic cash flow. If your laptop crashes, your car doesn’t turn over one morning before a client meeting, or you fall sick, these unexpected issues fall on you to fix. 

An emergency fund makes handling unexpected repairs or unplanned time off easier as a freelancer. You can tap into these savings to make extra expenses or rely on them as a buffer while you recuperate. 

Many freelancers also supplement their emergency funds with professional and personal financial products. 

• A business credit card can help you handle unexpected professional expenses, like replacing equipment used during your workday. 
• A personal loan can help you afford unexpected medical expenses, like doctor’s fees, prescriptions, or procedures. 

If you don’t already have a personal loan, you can visit a site like MoneyKey for more information. You can browse rates and terms with nothing more than your phone, making it easy and convenient. 

2. Wasting Money on Coworking Space

A trendy coworking space can be alluring when you don’t have a dedicated office. These spaces give you a communal office where you can work, meet fellow freelancers, and receive perks like fast Wi-Fi, gourmet coffee, and organic snacks.

Unfortunately, these coworking spaces can run up a big tab. According to one study, the average coworking space costs $387 every month — that’s $4,644 a year! Of course, you can write some of this off at tax time, but it is a big upfront fee you must consider carefully. 

While some freelancers thrive in a social coworking space, others might find it more cost-effective to work from home or their local library. Evaluate your work style and budget before committing to a coworking space to ensure it aligns with your financial goals.

3. Ignoring Taxes

Taxes might not be the most exciting topic, but they are a crucial aspect of freelancing. Ignoring tax responsibilities can lead to a financial headache come tax season.

All too often, freelancers don’t consider taxes with every invoice. Instead, they leave it until after they file their taxes. Suddenly owing a lot of money, it can be difficult to handle this payment if you don’t prepare all year for it. 

Rather than being blindsided by your taxes, set aside a portion of your income for taxes with every invoice. Generally speaking, you should reserve 25–30% of the money you earn for taxes, but it’s always a good idea to talk to a professional about your unique needs.

Now you’re aware of these mistakes, do what you can to avoid them. Whether you’re in affiliate marketing or graphic design, follow these three tips:

1. Set up a budget that incorporates emergency savings.
2. Avoid coworking spaces to save more.
3. Always remember taxes.