Common Freelancer Money Mistakes That Can Hold You Back

Mixing Personal and Business Money

Mixing personal and business accounts can be one of the biggest mistakes you can make. It won't affect your money, but you can more easily make mistakes, such as spending cash you don't have. It also makes it much harder to separate the cash you need for business expenses, such as software subscriptions. As a freelancer, you can open a sole trader business bank account that will help you manage the business books much more easily as you earn more.

Ignoring Your Tax Obligations

One of the biggest mistakes that freelancers and people with a side hustle make is not paying taxes. Even with an eBay account, you still need to report your income in the UK. To do this, you will need a URT from HMRC, and an annual self-assessment must be completed online. If you don't pay your taxes, you can end up with severe penalties such as ongoing fines and even criminal prosecution. And it's not just the UK; most countries operate under the same terms.

Freelancer Money Mistakes with Service

Most freelancers don't earn enough money. For example, a UK survey found that 53% of London-based freelancers earn less than the London Living Wage. You never know when future business opportunities will come along, but in the meantime, you can undersell yourself. Underpricing your services is a tempting route to more clients, but you can quickly become overwhelmed with too much work for which you are being underpaid and underappreciated.

Not Planning for Downturns

Freelancing is a great way to make money from your skills. However, there is something known as the "feast and famine" cycle that can have a massive impact on your earning potential. Essentially, you will experience times of steady and high income followed by downturns in unpredictable niches. To accommodate this, it is a good idea to put aside money that can cover business expenses, such as software subscriptions, during times when cash flow is lower.

Not Tracking Expenses

To avoid some of the worst issues as a freelancer, it helps to track expenses. It's all good when you are experiencing a lot of income and the good times are rolling. However, you will run into issues if you don't track expenses. Today, it's easier than ever with apps like QuickBooks. You can also link these to your business bank accounts for automated tracking. Tracking expenses also allows you to highlight business outgoings that you can declare for tax deductions.

Summary

Mixing personal and business bank accounts is one of the biggest freelancer money mistakes you can make. It is also important to value your services accurately so you aren't underpaid. Tracking expenses is also vital for cash flow and declaring outgoings for tax deductions.