We get it. You don’t like people telling you what to do. That’s probably one of the reasons you decided to go freelance in the first place. Who wants a boss when you can be your own boss, right? So, consider this article not so much in terms of instructions, or commands, but rather helpful suggestions — helpful suggestions that will save you, and make you, more money. And even though this article is aimed at newcomers to the field of self-employment, if you’re a seasoned veteran, you might also pick up a nugget of helpfulness that you hadn’t thought of before. So, let’s jump right into the 5 common mistakes that many freelancers make:
1. Spending too much money on food
This usually relates to pre-prepared stuff, the food and drinks you’re picking up on the go. For example, you might be running between meetings all day, so you’ll stop off at the nearest sandwich shop/salad bar/kebab truck or even grocery store snack aisle and pick up something quick. The actual amount you spend might not seem like much, but add all these little impromptu expenses up, and you’ll be surprised how much it’s actually eating into your income (see what we did there). We suggest factoring lunch into your weekly grocery shop, and stocking up on the makings of some simple sandwiches and salads, so you can take a tasty self-prepared meal with you whenever you’re on the go.
Another huge and insidious expense is coffee. Of course it’s wonderful being able to work from a cheerful café, where other remote workers are tapping away, giving you a sense of community and belonging (and perhaps just a touch of smugness that you’re not stuck in a soulless cubicle somewhere). But all those cute little kittens artfully swirled on top of your cappuccino are adding up. We’re obviously not suggesting smuggling in your own drinks, but perhaps look for places that offer unlimited refills. Or you can try a new cheerful setting — like a public park. With plenty of sunshine, fresh air, your own thermos of freshly brewed java (and often free public Wi-Fi), working from parks can be a truly rewarding experience. Just remember to go with your machine fully charged, or with a portable power source.
2. Not spending enough money on food
In many ways, this is the exact opposite of point 1 above. Instead of picking up food and drinks on the go, some freelancers find themselves perpetually homebound. These are the folks who feel the allure of pyjama living a bit too strongly, and haven’t been out of the house in weeks. These are also the folks who are most likely ordering pizza every day, or subsisting on canned soup and crackers, or in extreme cases, forgetting to eat entirely. Whatever the case, proper nutrition has unfortunately fallen way down the To Do list.
Without getting into the debate about whether you should be eating to live, or living to eat, the fact remains that food can have a vast impact of your productivity. In fact, research conducted by scientists at Brigham Young University in the US revealed that people with unhealthy diets are 66% less productive than their healthy-eating counterparts. That’s because certain foods can interfere with your ability to concentrate, your energy levels, and even your ability to think.
So, split the difference between points 1 and 2, and stock up on some fruits and veggies at home (and of course, in your belly). Even if you’re not one for cooking, the few minutes you spare putting together a quick and nutritious meal could boost your productivity (and income) for the rest of the day.
And though we’re focussing on food here, the other essential in life — sleep — shouldn’t be overlooked. As a freelancer, you’ll likely go through periods of light work, followed by crazy crunch time, then rinse and repeat. Throughout it all, if you can manage to get your 8 (or anything between 6 and 12, it’s really up to you) hours of shut-eye in, your productivity, energy levels, and general mood, will all be geared for great work.
3. Not setting up a proper company structure
Now that we’ve gotten the basic physiological stuff out of the way, we can get serious. As serious as setting up a registered business. Many freelancers avoid this, thinking that the process will be too difficult, too expensive, or just too boring to bother with. We’re here to suggest that you take the time to bother.
Having a company and all your company ducks in a row makes you instantly more professional. You might not think that emailing clients from your childhoodnickname@yahoo account matters, but it does. When they’re emailing you from their firstname.lastname@example.org account, and you’re replying with a remnant of your Pokéman obsession, it’s like showing up at a black tie event in your bathrobe. You’ll struggle to be taken seriously, which puts you at a huge disadvantage right off the bat.
The same goes for your social media. As gorgeous as you are, you shouldn’t have to grant your professional contacts access to all your beach-bod pics. Also remember that many professionals use messaging apps (or Kalido, since it’s free) to shoot quick messages back and forth. So, you want to be careful about the profile picture you use. We actually suggest having separate social media accounts for your professional and social contacts. That way, you can have an entirely professional online presence, and not be accused of being stiff by your friends.
Another benefit of setting up a company is limited liability. The extent of limited liability differs from country to country, so it’s best to do some research, but the basic idea is that debts the company incurs belong only to the company, and you, the individual, are not liable. So, if your company borrowed money from the bank that it can’t repay, you won’t end up losing your family home. This becomes particularly important if you bring on partners in your business. For example, if one of the partners defrauds the company, or racks up huge debts, you don’t want to end up paying for their (mis)deeds.
4. Being terrible with money
Many people love money. But many of those same people hate dealing with money. So, often freelancers will do great work, but forget to chase up on invoices, or sometimes fail to send invoices at all. And even though we’d love to think that clients will unilaterally pay up, that’s about as realistic as expecting money to fall from the sky.
To be successful as a self-employed person, you don’t just have to be good at what you do, you also have to be good at running a business. And one of the key components of that is keeping track of your books. You’ll need to send invoices timeously, be able to track your payments, and pay your taxes (and suppliers and staff, if applicable) on time. You can do it all via some simple Excel spreadsheets, or get some accounting software, or get an actual accountant. The basic idea is to always have a clear idea of how much money you have, how much money you need to spend, and how much money is due. Unfortunately, this most basic of principles is often ignored, and freelancers go months (if not years) without chasing up on payments. In the meantime, rent, food, and taxes still need to be paid. But without a good system of keeping track, you might find yourself working ridiculously hard, for literally nothing.
Another important thing freelancers (and many people in general) overlook, is the power of compound interest. Compound interest means that whatever money you have now will grow exponentially over time, without you having to do anything. Pension and retirement plans, and investment vehicles (like shares or property) are examples of compound interest working in your favour. There are many highly reputable and competitive investment houses which you can contact, but if you’re unsure about which ones are more reliable, why not ask one of your contacts on Kalido, or match with a trustworthy broker to guide you through the process.
5. Not being smart enough about tax
Remember what we said about setting up a company structure earlier? In addition to instant professionalism, registering a company can also save you lots of money. That’s because most countries tax personal income at a much higher rate (sometimes up to 45%) than companies. This means that if you bring in $100 in your personal capacity, the tax man could take as much as $45 of that. However, company tax is usually capped at around 18%-25%. This means that if you bring in the same $100 as a company, you might only have to hand over $18, leaving you much more at the end of the day.
Another benefit of companies is that they allow you to deduct expenses. Depending on your country’s tax regime, you might find that those coffee bills we mentioned earlier can be written off as ‘company entertainment’ or ‘staff welfare’. Your transportation costs, your rent (assuming you work from home), your data, and other costs could also be written off. That means that of the $100 you brought in, you might be able to write off $20 or so (maybe more). So, you’ll effectively only be paying tax on $80 dollars. Assuming a company tax rate of 18%, that amounts to $14.40. Here’s the math side by side for comparison:
You bring in $100 in your personal capacity
$100 — income tax of 45% ($45) = You keep $55 of every $100
You earn $100 as a company
$100 — $20 (tax deductibles) = $80 at 18% company tax ($14.40) = You keep $85.60 of every $100 ($20 of which you’ve spent already)
When you look at it this way, the once-off hassle of setting up a company pales in comparison to the ongoing savings you’ll enjoy month after month, year after year. And if you’re even smarter with your money, and invest it (possibly with the help of your broker from above), the interest you’ll be generating could be enough for you to retire on in a few years time. So, make the effort to research your country’s company structures and tax regime, Future (richer) You will thank you.
And now that you know how to avoid common freelancer money mistakes, from spending too much money on coffee to not getting paid, hop over to Kalido, match with some great clients (or accountants and brokers), and start freelancing like a pro.