Money Management for Freelancers: Avoid These 10 Mistakes
Maria Peloponisiou~ 5 min Reading time | 11. Sep 2019
If you’re new to freelancing, your primary focus is probably on finding work at all costs – after all, you have bills to pay! But money management is about more than just getting more of it, particularly where freelancing is concerned: making sure you are saving for tax payments, following up on accounts receivable, and keeping track of business expenses are all an important part of being your own boss.
Money mistakes can cost you a significant percentage of your income if you aren’t careful. Below is a list of 10 money management mistakes to avoid if you’re just starting out as a freelancer.
Money management mistakes to avoid as a freelancer
1. Not having a financial plan
It might seem impossible to try to predict how much you’ll make as a new freelancer, but doing a little research and coming up with a plan can help start you off on the right foot. Not only will it keep you motivated a realistic financial plan can also keep you from panicking if you’re not making money within the first few months.
2. Mixing personal finances with business finances
Separating business finances and personal finances make it much easier to spot at a glance how well you’re balancing your business income and expenses. As soon as you can, it’s wise to calculate a monthly sum to take from your business account to pay yourself with, leaving enough money in the account to cover expenses. This system makes it much easier to budget for personal expenses, because you know exactly how much you have to do so.
3. Not keeping track of business expenses
As soon as you start spending money on your business, start tracking what you’re spending it on and how much you’re spending, so you’ll be ready for tax time. Accounting software can make this easy, since all you need to do is take a picture of your receipt with your smartphone and Billomat’s software will read the receipt and enter the amounts into the software for you.
4. Not reviewing financial statements
Learning how to read a balance sheet, cash flow statement, and income statement takes a little time, but it’s worth it. Once you know how to read these documents, you’ll be able to assess the basic financial health of your business much more easily than you would just by looking at your bank account. For example, just by looking at your balance sheet, you will be able to see the value of everything you’ve invested in your business and how it compares to the money you’ve earned from it.
5. Setting unspecific financial goals
Most freelancers want to make more money – but is the solution to work longer hours, to charge more for projects, to cut expenses, or to follow up on your accounts receivable? Reviewing financial statements can also help you set more precise financial goals; for example, your cash flow statement may tell you that you’re running short on funds because you have a lot of unpaid invoices, or you may notice on your balance sheet that you have a lot of money tied up in inventory. Being smart about the financial goals you set will help you avoid burnout by working too hard to fix a money management mistake.
6. Being unprepared for tax time
This is particularly common to newer freelancers, who aren’t accustomed to paying their own taxes yet. To be able to accurately file taxes, you’ll need a record of all of your freelance income and expenses, and records of any VAT amounts to be deducted if applicable. It’s complicated if you don’t have organized records, and a large number of missing expenses on a tax return can make your income seem higher than it is – and potentially increase the taxes you owe.
7. Letting unpaid invoices pile up
It’s easy to mistakenly think of a sent invoice as money in the bank, but sometimes it’s only the first step to getting it there! Some clients may lose the invoice in their accounting system, or forget to pay, so it’s up to you to follow up with them to collect. If you wait too long, it can be a bigger administrative hassle for both of you, costing you the time you could be spending working.
8. Failing to budget for slow months
Freelancing is a series of financial ups and downs, and it’s common for new freelancers to feel stressed when things are slow. Although a certain amount of stress can be a healthy push in the right direction, you don’t want to end up worried about how you’re going to pay rent! If you can, set aside enough money to keep you afloat for as long as possible – that way, when there are slow months, you can use them to regroup and focus on marketing yourself without feeling panicked.
9. Charging too little for projects
It can be tempting to accept work that’s close to unpaid just to get your foot in the door, and sometimes freelancers do free or low-paying work for recognition in the beginning. But in general, it’s best to move on from this practice as soon as you can, since working long hours for next to nothing is taking up hours that could be spent working for a living wage. Although you can’t expect expert fees right off the bat, do some research into what entry-level prices are in your field, and be prepared to ask for them. Additionally, if you charge by the project, make sure you keep track of how long each project is taking you so you know how much you’re making per hour.
10. Not saving for retirement
This one is easy to overlook, particularly if you aren’t anywhere near It’s easy to start spending more money when you start making more money, but saving should be one of your priorities. There are a lot of tools online that will tell you what percentage of your income you need to set aside to have a reasonable amount of money when you retire, and usually, it’s more than you think.
Although it might seem like a lot of work, if you avoid these mistakes and set aside a little time each day for these administrative tasks, it will be a lot less work than it would be otherwise. Once you have systems in place, money management becomes easier and takes up less of your time, leaving more of it to enjoy the life you’ve built for yourself as a freelancer!