10 Costly Money Mistakes Freelancers Should Avoid

As a freelancer, you have to treat money a lot differently than if you were employed by a huge corporation or even a small business. Your paychecks aren’t guaranteed. No one is withholding income taxes on your behalf. You have to be much more conscious of how you’re spending the money you make and avoid costly financial mistakes than can put a halt to your freelance writing career.

1. Living without a budget. Everyone who receives money should have a budget. Budgets are especially necessary for freelancers because our incomes aren’t as predictable. You need a budget to help you figure out how much money you need to make to cover expenses and to help make the most of the income you receive.

2. Failing to track expenses. The same way you use a budget for your personal expenses, you should also have one for your business expenses. Decide ahead of time how much money you’re going to spend on business items. Keep track of what you’re spending because many of those business expenses are tax deductible, reducing the amount of income tax you owe.

3. Not having a tax plan. As a self-employed worker, you’re responsible for sending your income tax to the IRS on a quarterly basis. You must calculate how much you owe and deduct it from your income, preferably on a monthly basis to make it easier. If you don’t pay your income taxes or you don’t send enough, you face a tax penalty when you file next April.

4. Living without an emergency fund. An emergency fund is a savings account that is only accessed to cover unexpected expenses, like a major car repair or medical bill. The emergency fund keeps you from having to use more expensive options for covering those expenses like using a credit card or taking out a payday loan. I suggest that freelance writers and other self-employed workers have a larger emergency fund (6-12 months of living expenses) because our income is less predictable.

5. Not adjusting your lifestyle. If your income goes down when you transition from a full-time job to full-time freelance writing, your lifestyle needs to change, too. Otherwise, you’ll find yourself struggling to make ends meet. Cut out cable television, eating out, and other nice-to-haves until your freelance writing income is high enough to accommodate those expenses.

6. Failing to save for retirement. As much as we love freelance writing, no one wants to do it forever. One day, you’ll want to (or might have to) give your fingers a rest. When that time comes, you’ll need income to live on. There are retirement plans for self-employed workers and every freelance writer should open one and start contributing sooner rather than later.

7. Spending everything you make. Spending all your money is a dangerous habit that can lead to financial disaster. Part of your income should be saved and invested for the future. If you’re spending every penny of your freelance writing income on bills, then look for ways to cut back on expenses or figure out how you can make more money. Then, put the extra money toward your emergency fund and retirement savings.

8. Leaving your rates the same. The cost of living increases, so should your rates. If you leave your rates the same while the cost of everything else goes up, you’ll find it increasingly harder to survive on your freelance writing income. You’ll probably wonder why you suddenly can’t make it anymore. Get in the habit of reviewing your rates annually and comparing to your budget to decide if you need to start giving higher quotes. You’ll also need to reevaluate your writing rates as your life changes, e.g. you have a child, get married, buy a house, etc.

9. Relying on just one or two clients. This is extremely risky because if your primary client leaves, so does most of your income. On the other hand, if one of several clients leaves, it doesn’t leave you with as great an income gap. You can recover quicker from a lost client who makes up 10% of your income than one who makes up 50% of your income.

10. Failing to send or follow up on invoices. An invoice is nothing complex. It’s just a bill that lets your clients know how much they’re supposed to pay you and by when. They’re great for tracking your income and figuring out who’s paid you and who hasn’t. If a client hasn’t paid you by their due date, don’t wait around. Instead, follow up until you get them to pay. You may be able to deduct unpaid invoices on your income taxes, so keep proof of nonpayment.

For freelancers, money management goes beyond making sure you have enough money to pay the bills. No matter how much (or how little) money you’re making, work hard to avoid these money mistakes to keep financial problems at bay.

So...be honest, how many of these mistakes are you making?

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LaToya Irby is a full-time freelance writer and a graduate of the University of Alabama. She primarily writes about personal finance, freelancing, and other self-employment topics.

7 thoughts on “10 Costly Money Mistakes Freelancers Should Avoid”

  1. We’re all too afraid to tell the truth! With all the shame deserved I’ll go through your list honestly. No matter how much shame rains down upon me:
    1. Living without a budget.

    I have been doing this for a while. I ignorantly decided since I spend no real money (I have almost no bills) that this was no big deal. I’ve written budgets, but they’re all future budgets that do me jack right now. I need to work with what I am working with and make the smart decisions that help me with my present and make room for my future. I’m in some holes right now because of stupid things I’ve done. Things I wouldn’t have done if I’d had a budget.

    2. Failing to track expenses.

    Ugh. I haven’t done this at (see “oh, I don’t have any bills”) and its ridiculous. I was such a good bookkeeper but I suck at doing it for me.

    3. Not having a tax plan.
    I have procrastinated or ignored any tax plans I had. All the savings I had for my taxes are gone…ruh-roh.

    4. Living without an emergency fund.
    I committed to saving an emergency. I committed a whole bunch of times. Of course, there isn’t any money in the savings account I have called Emergency Fund.

    5. Not adjusting your lifestyle.
    This I have done. I’ve been going for a while with dirt income (none or just dust) and I’ve spent nothing because of it.

    6. Failing to save for retirement.
    I have a traditional savings IRA.
    It has no money in it.

    7. Spending everything you make.
    When I finally made some freelance writing income, I spent it. Now I’m in the hole and broke!!

    8. Leaving your rates the same.
    I’ve been reading Jenn and Yo’s stuff and I fixed my rates. Yesterday.

    9. Relying on just one or two clients.
    Demand Studios has been my sole client. I had some extremely low paying clients but I quit working with them because they decided to be no paying clients.

    10. Failing to send or follow up on invoices.
    I haven’t followed up on those invoices but I know I’m not going to. They can keep their five dollars and I can spend my time doing the right thing and getting the right clients.

    I’m really enjoying this series. I decided I’d share my ugly truths, because I know there are other freelance writers struggling like I am. They’re struggling for poor decisions they’ve made in the past in dealing with having nothing / very little now. They’re in the dregs and they know better–NOW–or their learning it. Now we just have to do something about it.

    Looking forward to more posts about freelance finance.

  2. I’m not too bad with finances. If anything, I’m too frugal, so I squirrel money away and forget to have fun with it.

    That said, once I’m earning a good living wage, I will look into retirement savings. I still think I’m going to be 25 forever, but then I once thought I was going to be 19 forever, so perhaps better to be safe 😉

    My problem is not that I can’t save, that I rely too much on one client, that I charge too low; it’s that I’m too nice. I need to be more proactive about chasing late-payers – I like to give people the benefit of the doubt, but sometimes I wonder if I just let them take the piss.

  3. Excellent, excellent list! I’ve been freelance for more than 10 years; some of them I already did before I got into the biz (emergency fund, living under my means), some of them I learned the hard way.

    I sometimes lapse on #10, as far as waiting too long to send a reminder on overdue invoices or taking too long to invoice. That has burned me a couple of times, and I only have myself to blame.

    And I’ll be honest that I simply don’t budget in any kind of a formal way. Personal preference–your mileage may vary!

  4. I think we have a lot of reasons for not following up on invoices: too busy, giving the benefit of the doubt, trying to be nice. There’s nothing wrong with a gentle reminder. I use something like “Hi. I sent your invoice on 1/15. Do you have any questions about it?” It hasn’t failed yet.

  5. I send a statement through my accounting software. Pretty much, it sends them a copy of the original invoice but contains the word ‘overdue’, and I just write a cover letter saying something like ‘Hi XXX, Please find attached the statement for your account. Your attention to the outstanding balance would be much appreciated” – usually that gets a very apologetic response.

    I’m not too sure what you do after you get an apologetic response but still no moolah. Get tough I suppose.

  6. For invoicing, I use Billing Boss which is a online invoicing tool https://dan.com/buy-domain/billingboss.com?redirected=true). I like it much better than my previous desktop accounting software to create invoices because Billing Boss is much less complicated, simple, and I can create it quickly. I can definitly monitor my unpaid invoices much easily. It’s free and I can currently create unlimited invoices for unlimited customers.

    I actually get paid faster now when I send an online payment option when I email my invoices. Customers can just enter in their credit card info at their own time, rather than waiting for an appropriate time to call me with their credit card or dropping a cheque in the mailbox.

    Full Disclosure: This author has been compensated by Sage. I am their Social Media Consultant but I was using their product well before they contracted me. They found me when I sent them an email giving suggestions about Billing Boss!


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