Five financial mistakes self-employed people make and how to avoid them


Being self-employed can be overwhelming - it's a whole new world to explore, and with no boss to tell you what to do it can feel like you're constantly in a state of not knowing what the heck to do next.

Here are some of the money-related mistakes that most self-employed people will make at some point - and how you can avoid them.

Mistake: Not charging enough

Straight to the point, as always! It's hard to put a price on what you're offering, especially when your work is based on providing services like writing or coaching which are intangible and don't always have direct costs. You're basically putting a price on yourself, and it's easy to downplay the value of what you have to offer.

But you need to eat, pay rent and live, so it's essential that you're billing properly for your services. The right customer will see the value in what you do, and it's far better to have a few well-paying customers than lots of customers who you aren't charging enough. That's a no-brainer, right?

How to fix it

Work out your costs and how much money you need to make to cover your bills, living costs and have a little left over for savings. Charge according to this. Here's a guide to working out how much to charge.

Don't undervalue yourself. See the worth of your knowledge and products. You wouldn't be doing this if you weren't amazing at it.

Mistake: Not keeping track of invoices

It's hard enough running your business without chasing up clients for payment, not to mention keeping on top of your own bills.

Unfortunately, chasing invoices is part and parcel of being self-employed - some clients just need a little encouragement to cough up the cash.

What you don't want to do is fail to keep track of what you're owed and miss out on being paid because of it.

How to fix it:

Set up a system to track your invoices and bills.

We created a system especially for you to do just that. Get it here.

Alternatively you could use accounting software like FreeAgent or Xero to process your invoices, which will tell you which ones are outstanding.

Mistake: Mixing business and personal bank accounts

This is a recipe for confusion, especially when it comes to filing your tax return.

It will be much easier to organise your business finances if you have a separate bank account for them. Use your personal account, and it's going to be really annoying trying to find your business insurance payment in sea of Tesco, Costa and National Rail (just me?).

How to fix it:

Open a separate bank account for your business income and expenses. Everything you pay for related to the business comes from that account, and you should ensure that all your business income goes into this account, too.

This way, you'll be able to see all your business transactions at a glance, and you'll thank yourself when you need to sort out your taxes and it's all in one place.

Mistake: Being disorganised with recording income and expenses

Okay. I know that bookkeeping is really, really boring for a lot of people. I know it is.

But it's so important to keep up to date with it. Being organised helps you to work out how your business is doing financially, see how much you're spending (and on what) and keep track of payments.

How to fix it:

First, download our income and expenses spreadsheet (cheeky plug there). Or, if you prefer, you could use one of the accounting software systems I mentioned above.

If your books are pretty disorganised, set aside a day to go through everything and get yourself up to date.

Then set aside some time either every day, every week or every month - but keep in mind the more frequently you do this, the shorter the amount of time you'll need to spend on it - to update your records with any new transactions.

Forgetting to set aside money for your tax bill

Don't trip yourself up on this one!

It's easy to get paid, spend your money and forget that as someone who is self-employed, you don't have the luxury of an employer conveniently paying your tax and National Insurance for you before the cash hits your bank account.

Nope, one of the dreamy joys of being your own boss is that you have to organise and pay your own taxes.

Don't think "my tax isn't due for ages, I'll put money aside next time." Start putting money away now and you won't be panicking in January.

How to fix it:

Every time you get paid, put 20% in a different bank account, so you can't spend it. Don't even think of it as your money.

You may want to put aside more than 20% if you have other payments to make through Self Assessment, such as student loan repayments.

By putting the money away whenever you get paid, you should have plenty set aside when you have to pay your tax, and you won't be crying into your instant noodles because you had to pay your monthly food and fun budget to the tax man.

Did you find these tips helpful? What are some financial mistakes you've made when it comes to being self-employed? Share in the comments! 

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