Common financial mistakes you should avoid as a freelancer

Future of Work

|

Tips and practical advices

Common financial mistakes you should avoid as a freelancer

by
Jordan Lok
,
April 5, 2023

Jordan Lok

An INFJ personality type and a savant of everything peculiar, Jordan often finds themself dabbling in the likes of self-advocating, creative writing and music.

February 26, 2024

As a freelancer, you know that your financial situation is unique. You are responsible for finding your income, setting up your taxes, managing expenses, and finding ways to save money. 

However, making some common mistakes without even realizing them can be easy. Here’s what you need to know about the most common financial mistakes that freelancers should avoid. 

Failing to diversify your income streams

Freelancing can be unpredictable, with fluctuations in income and the potential for dry spells. Many freelancers pay more attention to one client or type of project, which can leave them vulnerable to financial instability.

To avoid this mistake, it's important to diversify your income streams. This can include undertaking projects in different industries, offering different services, or even starting a side business. 

Diversifying your income can create a more stable and sustainable financial situation.

You need to keep track of your income and expenses.

Note keeping track of your income and expenses

One of freelancers' most common financial mistakes is not keeping track of their income and expenses. This can lead to a lack of financial awareness, resulting in overspending, missed payments, and a general lack of control over your finances.

Keeping accurate records of your income and expenses is important to avoid this mistake. You can use accounting software, spreadsheets, or even a pen and paper to keep track of your finances. It's also a good idea to keep your receipts and invoices organized in case you need them for tax purposes.

Not setting aside money for taxes

Tax planning is essential to any financial plan since taxes will likely constitute one of your most significant business expenses throughout the year. Different forms of income may be taxed differently.

As a freelancer, you can register your business as a sole proprietorship or limited liability company (Sdn Bhd). Different tax regulations will apply to you and your business based on your registration status. 

You need to stay up-to-date on any changes to the law that could affect the company. You or your business may qualify for certain deductions or credits depending on the size of your entity and the industry you operate in. This includes exemptions related to education costs and even some medical expenses. 

By researching these deductions, you can save money throughout the year. It is advisable to research any potential deductions or credits before filing taxes.

Plenty of resources are available to help you plan your taxes in Malaysia. The Inland Revenue Board (LHDN) website provides information on filing taxes and other helpful tips and guidelines. Consider seeking a qualified accountant or other financial professionals if you require additional assistance.

Overestimating your income

Freelancers often have a variable income, making it difficult to budget and plan for the future. Many freelancers overestimate their income, leading to overspending and a lack of financial stability.

Creating a realistic budget based on your income is important to avoid this mistake. You should also build an emergency fund to cover unexpected expenses and fluctuations in income. This can help you avoid overspending and maintain financial stability even when your income is variable.

Not charging enough for your services

Another common mistake that freelancers make is not charging enough for their services. Many freelancers need to pay more attention to their work or consider all of the time and expenses that go into each project.

To avoid this mistake, it's important to calculate your true hourly rate and charge accordingly. This includes considering the time and expenses of each project, including research, client communication, and administrative tasks. You should also research industry standards and compare your rates to those of other freelancers.

Not Saving for Retirement 

Retirement planning is the final component of a financial plan. As a freelancer, you may not have a traditional employer-sponsored retirement plan.

Retirement planning is an important part of life, especially in Malaysia. Everyone wants to be sure they have enough money when the time comes to hang up their working boots and call it a day. But with so many options, how do you know what’s right for you?

In Malaysia, two types of retirement plans can help you save for the future. The first is called the Employees Provident Fund (EPF). This is managed by the government and gives employees and employers a contribution rate based on monthly wages. With EPF, you can withdraw from your account after age 55 or use it as collateral for loan applications.

The second type of retirement plan is a Private Retirement Scheme (PRS). It offers flexible investment opportunities such as stocks and bonds, which can provide higher returns than other forms of savings but also carries more risk. 

You can choose between different funds and contribute depending on your preferences and financial situation. PRS does not allow early withdrawals unless under certain circumstances.

Whatever option you choose, proper retirement planning is essential to ensure you're financially secure in your golden years. Start setting aside money now, whether through one of these schemes or just good old-fashioned saving. 

Do your research, talk to experts and ensure you understand all the terms and conditions before committing to anything. And most importantly - take the time build a future that will enable you to enjoy your hard-earned retirement.

Not investing in your business.

Many freelancers make the mistake of not investing in their business, which can limit their growth and earning potential. This includes investing in tools, software, training, and marketing.

Investing in your business is important to avoid this mistake to help it grow and thrive. 

This can include investing in software or tools to streamline your workflow, taking courses or training to improve your skills, or investing in marketing to attract new clients and expand your reach.

Conclusion

Avoiding common financial mistakes is key to maintaining financial health as a freelancer. 

Stay on top of credit card payments, set aside money for monthly taxes, and invest in retirement savings vehicles appropriate for self-employed individuals like yourself.

Doing so will help ensure you don't make any costly missteps as an independent freelancer or business owner. Keep these tips in mind and take control of your finances today.

In the future work program, you will learn the most common financial mistakes you should avoid as a freelancer and how to overcome them.

Free training is available to unemployed and underemployed youths below 35 from families in the B40 income tier. With our program, you'll gain the skills to kickstart your freelancing and full-time career and succeed—all online.

Apply for free training today and get started on your exciting new career. 

Spread the Word,
Don't Keep This Knowledge to Yourself!

More in

Future of Work