There are loads of perks that come with being a creative freelancer, but organising your finances and chasing up invoices definitely isn’t one of them.
The lack of strict financial principles alongside the commonality of late payments and sporadic earnings has made many freelancers financially frustrated and consistently broke. Some of us have to opt for a poorly paying 9-5 job just to make ends meet while we wait for our freelance dreams to come true.
So that you don't jettison your freelancing dreams involuntarily, here are 5 mistakes freelance creatives make and how you can avoid them.
Mistake 1: Not separating personal and business expenses
Freelancers tend to make this mistake a lot. It's easy to get carried away with the freedom you have and refuse to set up a proper accounting structure, and it's easy to think that all the money you earn can be spent.
To be a financially successful freelancer, you need to first see freelancing as a business that you'll need to put more money into in order to make it work, or to have as a cushion while you wait for the next batch of invoices to be paid.
Ideally, you should set up a proper accounting system and place yourself on a salary as if you were an employee. This shouldn't be anything fancy or complex; just a system that shows how much you earn against how much you need to spend every month for your outgoings like rent, bills and transport. Having this laid out infront of you will make it easier to see how much money you actually have for spending on things you enjoy.
Mistake 2: Forgetting about tax
Being paid via invoice and not via a payroll system often means that we don't automatically pay tax on our earnings. When pay-day arrives, it's smart to put a percentage aside in a separate account that you keep for your tax payments. This way, when you're hit with the bill at the end of the financial year, it won't be an awful surprise and leave you in the red.
Freelancers are not exempt from paying tax. As a freelancer, you just have a different, more independent job; you’re not exempted from paying taxes as an income earner in your country or city. Find out what taxes you should pay as a freelancer in your country or city and pay them diligently.
Mistake 3: Not saving or investing
Of course, this is easier said than done because often we don't earn enough to actually have anything set aside in a savings pot after we've paid all our essential outgoings. However, savings and investments should be second nature to freelancers because of the volatile nature of the job.
While you can control a lot of things like the time you want to work, the type of jobs you want to do, and the type of clients you want to have, you do not have control over market factors. Sometimes the work can be overwhelming and there'll be too many projects on to handle. Sometimes work simply dries up for a while. In times when your income is not regular or non-existent, you will have your savings and investments to fall back on, and a little 'emergency cushion'.
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