by Rachel Smith
16 June 2017
Tax time is looming, people – and given we’re all thinking about finances more than we’d probably like to, I figured it was time for a post about the money missteps we can all make when we start working for ourselves. Here are the ones that immediately spring to mind…
Did you set your rates in a systematic way, taking into account your bills, expenses, financial goals and what others similar to you are charging? Or did you pluck a figure out of the ether that you hoped might appeal to clients? If so, chances are you’re getting to the end of the month feeling the pinch. Some say you should base your hourly rate on what you were earning in-house – so if you were on $90k, you’d charge $90/hour as a freelancer. This post also has some great tools on calculating your hourly rate.
When you work in-house and your tax is taken out of your pay and funnelled directly to the ATO, it’s a no-brainer. What’s left is yours to spend as you will. But as a freelancer, you need to get into a mindset of slashing that 30 percent and putting it aside so it’s somewhere you can’t touch it. Take it from someone who’s been there: getting to the end of the tax year and being slapped with a $10k bill but not having funnelled away nearly enough of the tax/GST to pay for it (or worse, finding it too low because you’ve been dipping into it and treating it like a lovely little savings account), is not a great feeling. It’s a sick to the stomach kinda feeling. Do it once and you never will again!
A taxi ride here, a day’s parking there, a bunch of pens from Officeworks – you might think these one-off expenses are no biggie, but they add up. You’d be surprised all the outlay you have as a freelancer – often a great deal more than you have when you’re working in-house, as you have to account for everything from your tech gear to a portion of your electricity. As a freelancer, you want to get into the habit of claiming everything you can to bring down your taxable income come June 30. I recommend including things like client meetings, brainstorming sessions and so on, too. That’s your time, right? A decent client won’t balk at you charging for a 2-hour face-to-face (and charge you should). As an aside, Rounded makes it super easy to enter expenses (no more shoebox of reciepts to type in come tax time.)
I’m in a freelancer forum and was amazed in a recent thread just how many freelancers admitted to ‘doing their own tax’. Seriously? The day I do my own tax is the day hell freezes over. Sure, it costs me about $300, but it’s money SO well spent. Sure, I can add up my hours and manage basic budgets and send invoices, when it comes to figuring out complex tax issues I’d rather leave it to the experts. Highly experienced experts who work with other journos and know far more than I do about how to get me the best return possible. (If you want my accountant’s number and live in Sydney, drop me a line.)
We’ve talked ad nauseum about the unpredictable nature of freelancing and even more recently about how more companies are changing their payment terms so you’re waiting for your money for months on end, sometimes. It can add up to a lot of stress and a lot of feast and famine. That’s why if you can, it’s best to start with a sizeable buffer – say you need $4k/month to live (encompassing rent/mortgage, food, bills) – then you should aim for a 6-month buffer. Sure, $24k is a LOT of coin. I get it. If it’s too much for you, try for a 3-month buffer to start and add to it. When things go awry, clients drop off the face of the earth, you lose a heap of regular gigs ALL at the one time (it happens), you’ll be so glad you have a buffer to tide you over.
How is this a financial mistake? Well, a freelancer who is also good at marketing themselves can quickly become better established and better known in the field, and maybe eventually, the go-to person for certain jobs. It follows that as you become known and more visible due to your marketing efforts, you’ll get better-paying jobs, make more money, get more lucractive referrals… and, ka-ching! By marketing I mean: have a decent, slick website / online portfolio. A solid social media strategy where you batch and update content periodically so you’re not wasting too much ‘work’ time doing it. A Facebook business page. Even a blog about your business. Market yourself properly and the money will follow! Do zero marketing and I guarantee all you’ll hear is… crickets.
Any big money mistakes I missed? I’d love to hear from you in the comments!
