When you first start out in the world of freelancing, it can be a lonely and alien place; especially if you have always worked for someone else and had a regular income coming in. While most people will do their due diligence regarding the pros and cons and the financial implications of becoming a freelancer, there is an alarming number of people who decide to try out freelancing without any real evaluation of the changes in financial circumstances.
Here are some of the top mistakes to avoid:
- Not reviewing your mortgage/loan deals
When you become self-employed, getting a new mortgage or a new loan agreement can be a whole lot harder. Because you don’t have one guaranteed payment each month, banks will often set a certain set of criteria that you must meet and may ask for more evidence of earnings than you would if you were in standard employment.
Many banks will even apply higher interest rates because they don’t see you as a ‘safe’ option. Before you decide to become a freelancer, it is a good idea to review any loan agreements that you have or think about your situation. If you are thinking about buying a house in the next few months, then it may be worthwhile either waiting to go freelance or buying your house sooner.
- Not keeping proper records
One of the hardest things to get your head round as a freelancer is your tax requirements. If you don’t have a good system, then you could end up with a big headache when it comes time to do your tax returns. There are a number of great tax apps that you can now store your details in to make life easier and avoid a shock at the end of the year.
- Unnecessary car spend
When you become a freelancer, your lifestyle can change significantly. If you are working from home then the chances are that you don’t need to use a car very often, so you need to ask yourself if you need one at all. Or if your work means that you need to travel to different locations then you want to make sure that you have a fuel-efficient car with low running costs like the Hyundai i20. Either way, there is little point in purchasing a brand new car when there are perfectly reputable car dealerships waiting to give you a great deal.
- Not planning for retirement
While freelancing gives you a lifestyle that you may have always dreamed of in terms of flexibility, there are of course a number of drawbacks. You won’t have the same pension benefits that many companies provide to their employees so you have to factor this into your finances or you could live to regret it later on.
- Underpricing your work
It can be tempting when first starting off to offer your services at lower rates to attract new customers, but this doesn’t work well over the long term. Customers that are looking for high-quality freelancers will question your quality if you are too cheap. Also, if you get into a long-term work contract at a lower rate than you are worth, then it can be hard to get out of it.
