During my first years of freelancing, I diligently logged every assignment, its due date, and the rate. I was proud of staying on top of my freelance work spreadsheets. 

How naive I was.  

When I finally hired an accountant to handle my Taxes, he told me that what mattered wasn’t when I was assigned the work, or even when I sent out an invoice, but when that Money hit my bank account. (If you want to get nerdy, this is what’s known as “cash accounting.”) As a result, my books were a royal mess. We wasted a fair amount of time just trying to figure out when I actually received the money. What’s worse, I had probably overpaid in taxes the first few years I was self-employed.  

Bottom line: Freelancers can attest that there’s nothing scarier than a money misstep or gig gone wrong that haunts you down the line. When you’re dealing with your own set of additional challenges — inconsistent income, self-employment taxes, and paying for your own insurance, to name a few — money mistakes can feel exponentially worse. We reached out to freelancers to round up some tales of financial horror:  

When You Unknowingly Jump Tax Brackets  

Last year Krista Walsh jumped tax brackets without realizing it. FYI, once you hit the $39,000 income threshold, your tax percentage jumps from 12% to 22%, which is nearly double the taxes. “I thought I was doing great, paying my estimated quarterly payments and saving a bit as a cushion,” says Walsh, a freelance copywriter for service-based entrepreneurs and e-commerce startups. “Come tax season I got a nasty surprise, owing several thousand dollars in taxes.” To cover the shortfall, she had to dip pretty hard into her emergency fund. To avoid this happening, keep track of how much you’re earning year-to-year, not just month-to-month. And naturally, you’ll want to stay in the know about what the tax brackets are.  

When You Undercharge 

When you don’t charge enough for your work, you might find yourself cycling through tons of work for low pay. In turn, it could lead to burnout. That’s what happened to personal finance journalist Dori Zinn. When she took the leap to full-time freelancing, she had a solid client she was able to get a ton of work from, but it wasn’t enough to pay the bills.  

To break the cycle, she landed a few more clients that paid more. It took a couple months of long nights and weekends working before she could drop the low-paying one. “I started to earn more for the same — or less — work,” says Dinn, who is the founder of Blossomers. “I was thankful when I was able to work regular work days again.”  

Along the same lines, freelance writer Sa El undervalued himself as a freelance writer. Even though he had a ton of experience in his niche and was a licensed insurance specialist, he found himself charging a measly 10 cents a word. “If you’re a freelancer in a specialized field, and have tons of experience and are licensed, or certified, don’t undervalue yourself,” says El, who is the founder of Simply Insurance. “Pricing your work based on the value you bring is 100% acceptable.”  

When You Fail to Sign a Contract 

Melody Johnson once had a client with whom everything was done on a handshake. “I made the stupid mistake of not getting the contract signed before working with her, and the client then ghosted and didn’t pay me,” says Johnson, who is the financial strategist for Side Hustlers.

The same thing happened to Chonce Maddox, who is a personal finance writer and founder of My Debt Epiphany. She started writing articles for a new client, but they fell off the face of the Earth. It took several calls to this person’s office and stopping writing entirely for her to get paid. Sometimes I even ask for a 50% payment up front. I know that I work with integrity and deliver on all my promises, but I can’t assume that everyone else does the same. 

To keep this from happening, make sure you get a contract. I know, it adds an extra step to the onboarding process, and you might fear backlash. But what if a client neglects to pay, or changes the author byline without your permission? A contract can help protect you. “While you work with integrity and deliver on all your promises, you can’t assume that everyone else does the same,” says Maddox,  

Not Stashing Your Quarterly Taxes In a Separate Account  

When Tana Williams started out as a freelancer, she would stash away 30 percent of her income in a savings account for taxes. However, she also used that same account for her emergency fund and for general savings. “Every time I needed a little extra cash here and there, I’d grab it from that account,” says Williams, who is based in Columbus, Ohio, and is the founder of Debt Free Forties. “By not keeping my cash for my quarterly payments separate, you can guess how quickly that account got drained, and that earmarked money got spent.” The lesson here? Keep cash for your quarterly estimated tax payments separate from your general savings. That way you won’t be tempted to tap into it preemptively.  

As you can see, there’s a lot that could go wrong with money when you’re a freelancer. By understanding the basics, such as knowing your worth, reserving a set amount for your quarterly taxes, and always having a contract in place with a client, you can avoid these scary situations. 

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