Top 7 Mistakes New Freelancers Make

Woman holding head with her hands
••• elenaleonova/e+/Getty Images

For every happy freelancer, there are probably a dozen people who dip their toes into the waters of the world of working for themselves, only to wind up beating a hasty retreat back to their cubicles.

For some, that's perfectly fine: not everyone is cut out to be a freelancer, and there's nothing wrong with trying it out and then deciding to do something else. There are a lot of reasons to freelance temporarily and then return to full-time work – waiting out a recession, starting a family, or branching out into a new area of your industry. The tragedy is when folks who could have built successful freelance careers make mistakes that force them back to the 9-to-5.

The good news is that with a little advanced planning, you can head off most of these new freelancer mistakes and set yourself up for success, whether you remain a freelancer until retirement or go back to Corporate America on your own terms.

Top 7 Freelance Worker Mistakes to Avoid

1. Starting Off Without Savings
Most finance experts will tell you that you need three to six months' worth of living expenses in savings as an emergency fund, even if you aren't planning on starting your business. If you are going out on your own, you'll need to add startup costs to that figure.

Fortunately, if you're freelancing and don't plan on having any employees for the moment, you won't need to worry about paying wages or (most likely) renting office space. But you will need to think about things like making sure your own equipment is up to snuff, and that you have a dedicated place to work.

Your four-year-old PC and comfy kitchen table might be perfect for occasional freelance jobs, but might be frustrating once you're full-time. Try to anticipate the expenses that are likely to crop up during the first few months and plan for them.

2. Failing to Define Goals (and Then Revise Them)
What do you need to get out of your freelance career? It's a more complicated question than it appears on its face, and only you can answer it. Do you need to make more money than you did as an employee, in order to feel successful, or will paying your bills and putting a little aside for a rainy day be enough?

Do you value independence, a flexible schedule, the ability to decide which clients you'll take? It doesn't matter what the answers are. The only thing that matters is knowing what you need.

Once you decide what your goals are, set a timeline. Check in at set intervals to make sure you're achieving them, and know that it's OK to revise your goals as you learn more about your needs and the market.

Want to formalize your goals? Write a business plan. Even if you’re planning to stay an individual contributor, a business plan can help you make sure you’re heading in the right direction. It might also serve as a reminder to take yourself and your business seriously.

3. Diving in Too Soon
The happiest freelancers I know worked at full-time jobs for a long while, as they were getting their freelance careers off the ground. This is important for several reasons. First of all, it enables you to try out different kinds of jobs and clients, to determine which ones you like best.

Secondly, it allows you to make mistakes, and fix them, without having to explain to the nice man at the electric company that you won't be paying your bill this month.

Finally, it helps with building that nest egg we discussed earlier. The best way to build savings while you're contemplating a freelance career is by setting aside your earnings from any extra work you take on while you still have a full-time job. (Just don’t forget to set aside money for taxes and make your quarterly estimated payments.)

4. Skipping the Contract
Handshake deals can and do work, but it's always better to have a written agreement with clients -- but probably not for the reasons you'd think. Having a contract won't necessarily help you recoup money if they fail to pay, because it's pretty hard for an individual to compel a corporation to pay up. Legal fees often cost more than the amount you'd hope to recoup. In reality, contracts exist to define expectations on both sides, keep honest people honest, and to make sure that there are no surprises waiting for you down the road.

5. Not Having a System
Successful freelancers keep track of their records, including expenses, payments due, and payments received. As an independent worker, you don't necessarily need to shell out for small business accounting software; you just need to have a system. As long as you're keeping (and keeping track of) receipts, organizing invoices and bills, and paying your own bills on time, you're in good shape. For some freelancers, an Excel sheet and an envelope for receipts will be enough. For others, one of these free personal finance software packages will do the trick.

6. Taking the Wrong Kind of Clients
What makes a good client? There's a lot of room for variation, but in general, a good client is one that offers work you want to do, and that you're equipped to do, and who works with you to achieve a positive result. It should be relatively easy to communicate with your client, and they should pay you on time and in full according to the contract.

Inevitably, you'll wind up with a client who doesn't meet these criteria. The trick is to know when enough is enough – and to learn from each experience so that you recognize the signs of a bad client in the future.

7. Not Charging Enough (or Charging Too Much)
Setting rates for your services can be tricky. Shoot too high, and you might lose the gig; shoot too low, and you'll wind up so overextended, financially and emotionally, that you won't be able to do your best work.

If you're freelancing in the same industry as your former full-time job, setting your rate gets a little bit easier. The goal is to make sure that your hourly rate works out to be about the same as you were earning when you worked for someone else.

The tricky part of this calculation is figuring out all the hidden benefits included in your compensation, including health insurance, retirement contributions, and office supplies. Once you determine, roughly, how much you were really getting paid at your former full-time job, you can divide accordingly, and bill either hourly or by the project, based on your estimate of how long each project will take.

Finally, once you're working as a freelancer for some time, don't be afraid to take another look at your rates, revise them and negotiate accordingly – especially when you take new freelance jobs. If you continued working for someone else, you'd hope to get a raise at some point. Don't neglect to give yourself the same consideration, once you're your own boss.