If you’re thinking about setting off on a new career path next year, you might be looking into freelancing. Freelancing is often described as taking control of your career.
Or gaining the freedom to work how you want when you want. In fact, if you look at our own articles on freelancing you’ll find we’ve presented it as a dream come true. It certainly can be, but there are problems that you need to be aware of and watch out for. If you think that there are no issues with freelancing at all you are sadly mistaken. Let’s look at the problems and what they could mean for you as well as how to handle them effectively.
You Manage The Tax Now
One of the biggest issues that you’ll have as a freelancer is taxation. As soon as you start making money as a freelancer, you will be required to pay tax. It can seem like you are losing about half your paycheck. But you have to remember that people who have employers lose that money as well. It’s just automatic, and it will seem like a bigger deal to you because you have to withdraw it.
There are freelancers who claim that they can’t afford to pay tax on the amount that they make. We can only say that if you find yourself in this position you have a major issue to contend with. The best way to think about tax money is to remember it’s not actually yours. It belongs to the government, and it has to be paid. You can find a tax calculator online and work out exactly how much you’re expected to pay.
The good news is that these days you can actually arrange the payment online which is absolutely fantastic. It means that you don’t have to worry about the filling in your tax and posting it out. This can be stressful because the forms can be complicated or they can get lost. Handling it all online is certainly a lot easier.
It’s important to be as accurate as possible when paying your tax. Otherwise, you’ll essentially be punished for not taking the role seriously. Basically, they will charge you a lot more than you actually owe. You don’t want that.
If you can, put your tax in a separate account and try to earn some interest on it. This should make it slightly easier to pay through the year. You can also look at adding deductions onto your tax but be careful if you do this. Working from home, you might put all your bills as deductibles, but you can’t actually do this.
You can only deduct a fair amount of the bill that you use to work from home. There is plenty of information about how to calculate deductions working from home.
Too Much, Too Soon, Too Fast
If you work as a freelancer depending on a job, you might get paid each time you take a new contract. Or, you could get paid for the level of work you complete every week. You might even find that you are being paid multiple times through the day for different jobs.
It might seem like this is an advantage because you will always have money in your account. But since you always have the money you might end up thinking you have a lot more to spend than you do. Essentially, you’ll go over your budget. Planning a budget freelancing is incredibly difficult because the amount you make usually changes a lot. One week you might make close to five hundred. The next you could be below two and there’s no way of knowing which it’s going to be. That’s why as a freelancer you really need to be more frugal with money. You have to watch out for times throughout the year when you won’t be making nearly as much as you need to. It’s all about managing your paycheck from one contract to the next. If you can’t do this, you will end up borrowing to get by. Once you’re in that position you are going to struggle to recover. The best way to handle this problem is to save as much as you can as often as you can. This will ensure that you have enough money to get by when there aren’t any contracts active.
You might think that you’ll always have work as a freelancer. You may well do and that is the ultimate goal, but the market is incredibly competitive. Don’t forget there will probably be hundreds of other freelancers vying for the same contracts as you. There’s no way to guarantee you’ll come out on top every time. In fact, you probably won’t.
Many freelancers have expressed their agitation at how many people go for the same contracts and how they are pushed into bidding wars. They drop their price to secure the contract and end up getting paid next to nothing.
Time Management And Marketing Yourself
There are two other problems you’ll face as a freelancer. The first is time management. Are you using your time wisely through the day to make a substantial amount of money? It’s quite common for freelancers to spend a lot of their time wasted in other areas. They then wonder why they’re not earning a paycheck that they can live off. Don’t put yourself in this position. Pretend there is an imaginary boss looking over your shoulder all the time. This is the only way you can keep yourself productive.
You need to think about marketing yourself as well. Don’t forget as a freelancer you have to seek out leads on your own. No one is going to hand the work to you. You need to go out and seize it.
To do this, you may have to spend some money and marketing and promoting your services. At this point, you’re not just a freelancer, but a small business owner. The service you offer is the product, and you need to do everything you can to get people to buy.
This post has been contributed by Ryan Gatt, it may contain affiliate links.
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