4 Common Mistakes Made By The Self-Employed

I’ve been fully self-employed for almost a year now (side hustled for 3 years) and I have learned a lot over this time period. No, I’m definitely not an expert but I do know a little bit about owning businesses and running them since that’s all I did when I had my day job as a business…

Michelle Schroeder-Gardner

Last Updated: October 31, 2021

Disclosure: This post may contain affiliate links, meaning if you decide to make a purchase via my links, I may earn a commission at no additional cost to you. See my disclosure for more info.

4 Common Mistakes Made By The Self-EmployedI’ve been fully self-employed for almost a year now (side hustled for 3 years) and I have learned a lot over this time period.

No, I’m definitely not an expert but I do know a little bit about owning businesses and running them since that’s all I did when I had my day job as a business analyst.

As a quick summary, in my old day job some of my responsibilities included conducting interviews to learn more about a company and how they operated, analyzing any legal and business agreements, reviewing and/or compiling financial documents (including tax returns, financial reports, etc), and so on.

When I had this position, I saw some really amazing companies. I saw many companies where the owners completely started from scratch and built multi-million dollar companies which were extremely successful.

However, I also saw many, MANY companies that made some horrible mistakes. These companies operated at losses each and every year, and I just don’t know how they did it.

Even though I run a fairly simple business (all I need is a laptop and internet to work), I’m starting to understand more and more about what these business owners went through in order to get to where they currently are.

I’ve also made my own fair share of mistakes, and I know no one is perfect. Hopefully, you can avoid some mistakes though!

Below are four common mistakes made by the self-employed:


1. Not being organized.

This is a very common mistake made by the self-employed. I’m guilty of this one too.

I make this mistake all the time, but I am trying to improve. When you have your own business, you really need to work on being as organized as you possibly can.

You need to make sure to keep your personal and business finances separate, receipts organized, papers organized, and pretty much everything you use for when you do your taxes the following year need to be prepped and organized.

Keeping everything organized will help everything go much more smoothly when you eventually need the item. It’s easy to let each little thing slide and all of a sudden your disorganization will take over your life.

It might become impossible to find anything, and you might even lose important documents.


2. Thinking being self-employed will be easy.

Now, this one isn’t necessarily too common, but I do think it’s a common way that people who are NOT self-employed think.

I recently read an article about someone who quit their job and entered the self-employment world because they wanted to do something easier in life. Sadly, they found out the truth was the exact opposite.

Being self-employed isn’t a never-ending vacation. This is something too many people think. Just because you work for yourself and/or at home, it doesn’t mean that life is automatically easier.

You will need a plan for your business, research about how you will actually make an income, organize your finances, handle the legal side of owning a business, manage to not let your business takeover your life, provide services, sell products, find health insurance, save for retirement, and so on. Oh yeah, and don’t forget about taxes!


3. Not having an emergency fund.

I have seen too many people enter the self-employment life, only to have a few bad months and completely give up. I understand that running a business can be hard (see above), but I do think having an emergency fund can be a lifesaver in many situations.

Different people like to have a different amount in their emergency fund. I have a full year of expenses just in case everything completely tanks, or if something major happens to either of us or our home. Keep in mind that we do have a $12,000 deductible before we can actually use our health insurance, so we keep our emergency fund extra inflated with a year’s worth of expenses because of that as well.

An emergency fund can really help if you have a bad month, if something goes wrong with your business plan, or if you have some major expenses coming up.

Instead of completely giving up on your dream, your emergency fund can help you power through any bad months so that you don’t have to quit (unless you truly want to, of course).


4. Spending a crazy amount of money.

Luckily, my business is very cheap to run. I don’t need much in order to make an income. All I really need is my laptop and internet. Everything else I pay for are really just little luxuries to make everything a little bit easier.

When I first started my hustles, I ran it much more cheaply than I run it now. I wanted to save as much money as I possibly could.

This is not how everyone runs their business though. I have seen some business owners start their business by spending TOO much money on items that they probably do not need. Yes, some items are a need, but others can probably wait a little bit until you know you have a viable business plan.

Also, some spend a lot of money on their business just so they can write the expenses off on their tax return. Let me say this, just because you get to write it off it does not make the item free! You still have to pay for the item.


What mistakes have you seen or made?


Filed under:

Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

Like this article?

Join the Conversation

Leave a Reply

Your email address will not be published. Required fields are marked *

  1. Good post.I would add 2 more things:

    1) beware of borrowing on credit cards to buy stock / equipment. For most people that should be DON’T borrow on credit cards but there may be 1 in a 100 where it is a good idea! Be honest with yourself, you are probably in the 99.

    2) put money aside for the taxman as it comes in. Make a good guess at your marginal tax rate and start putting that aside every month, don’t wait until tax form time and find you have spent it. If your tax bill turns out to be less, then you have money to put back into the business which will make next year even better.

    1. Thanks Sara! Both of your tips are great. Not enough people save for taxes. It’s best to save throughout the year and pay quarterly taxes.

  2. I was and still am a bit bad at being disorganized. I hear you on the people thinking you don’t work hard enough when they’re self employed. I work SO hard! I guess my biggest problem now is not mentally switching off… so I’m always working, even if i’m not.

    1. That is my problem. I don’t have anyone to help me so I often feel like I’m working 24/7!

      1. Yes, I’m constantly working as well, and I feel like when I tell others I am busy that they don’t believe me :/

  3. Though I’m not self-employed, I’d have to guess that no plan or strategy to bring in income would be another huge mistake. Simply thinking that you can quit your job and freelance your way to thousands of dollars per month is never going to happen. You need to know ahead of time how you’re going to attract and retain the type of customers you want.

    1. Yes! You said it perfectly. Everyone needs some sort of plan in place.

  4. Being self-employed aint easy and joke. From the moment I made my decision to be one to organizing every work and plan I have to carry out. It takes really determination and hardwork to keep that busy growing. Never lose that big picture in mind!

    1. Nope, it’s no joke! ๐Ÿ™‚

  5. My father was self employed and looking back on it now; I can really appreciate the freedom it gave him to fit his work around his children and lifestyle.

    Amazingly; while being terribly disorganised with family life (my mother kept things in check!) his business was always totally controlled. This allowed him to build up such good business connections that eventually everything was just on auto-renew and he now operates the business from abroad whilst sitting by the side of the pool.

    I doubt I’ll ever be self employed; I enjoy the teamwork involved with office life and wouldnt enjoy the unpredictability of not having a steady paycheck. Maybe this will change though if I ever stopped enjoying my job.. in which case being self employed might be the way to go.

    1. Being self-employed is definitely not for everyone – just like how an office job isn’t for everyone. Glad you enjoy your job ๐Ÿ™‚

  6. I never had an emergency fund before didn’t think that was totally important. And when I entered as a self-employed, I was thinking that I have all of my time, that I can go out whenever I want even if it’s not really important. But now, I know how to say “No”, to some invitations especially during weekdays.

    1. Yes, I often have to say “no” as well.

  7. I don’t understand where the false connection between self employment and endless free time comes from. Since I started blogging, I NEVER have nothing to do. I used to remember feeling bored a lot, can’t imagine what that was like now.

    1. Yup, I agree! What’s boredom?

  8. I think it’s really important to have emergency fund. You never know if your business is going to thrive or fail, so you have to make sure to be able to support yourself whatever happens.
    Also, being organized is important. You’re pretty much the ‘captain’ of your business and all the responsibilities are on your shoulders, being organized really helps to manage your business.

    1. I agree! I don’t know what I would do without my EF.

  9. Robin McDaniel

    I think it’s hard to realize that you have to wear all the hats for your business when you are initially self employed. For example, if you are a great freelance writer, you also have to learn to be good at marketing and filing business taxes, etc (or else pony up and pay someone else to do it.)

    1. Yes! There are so many hats a self-employed person has to wear.

  10. I’ve noticed a couple of things with the self-employed. First, sometimes you have to admit when you need help and outsource some tasks that are time sucks! Two, expanding too quickly (especially in brick and mortar businesses). And, I think not having a schedule or being clear about what you would like to accomplish on a daily/weekly/monthly/etc. basis.

    1. Yes, every business will need help at least eventually. Too many people try to do everything themselves and end up hurting themselves or their businesses doing this.

      1. This is once again where one of the most important practices I learned years ago from reading Peter Drucker comes into play, understanding that there are only two things that a business owner must do themselves, but they must always do these: manage and market. You can farm out everything else.

        Many of the comments in this thread also revolve around what many call organization, but I think it is even better to think of it as self-management. It is not just your things, it is yourself. For example, I set aside a set amount of time for various daily or weekly tasks that must get done. Otherwise you just drift from thing to thing and important tasks may never get done.

        1. Thanks James! And yes, I agree. Setting aside time for tasks is a must.

  11. Yes, this is a big thing. Following up and getting paid are both very important.

  12. Amen on self employment not being easy! I get so frustrated when people say things like “it must be nice to sit at home all day” Self employment, especially in the freelancing world, is so much harder than a day job. You only get paid when you work. My other jobs had plenty of down time but it’s not like that when you work for yourself. You get out what you put in.

    I need to work on creating a better schedule for myself. I had gotten into a good routine but now my oldest daughter is in Kindergarten my entire schedule has went to pieces. We’ve been up at 6:45 every morning and I’m usually exhausted by 9pm.

    1. I don’t know how you manage it all as a parent. It has to be tough and I don’t get why people think it’s all easy.

  13. I definitely go through periods where my organization wanes and I need to recalibrate and regroup to get myself back together. When you are pursuing a number of different avenues (which happens when you are self-employed) it is sometimes difficult to keep them all balanced while you are adding them into your tasks.

    1. Yes, I’m not the most organized person. I am getting better though!

  14. I don’t know if I’ll ever be self-employed, mainly because the uncertainty scares me somewhat! I certainly don’t think it’s easy being self-employed and think the people who take the plunge are very brave.

    1. Thanks Nicola ๐Ÿ™‚

  15. I’m not self-employed but I know a few people are and what you’ve written is exactly what they say as well! I think I’d be interested in being self-employed at some point but not right now. I’ll definitely keep these pointers in mind if I ever start a business!

  16. No doubt Michelle all the mistakes mentioned by you are true. Though I am not self-employed fully yet as part time blogger I agree with your points.

  17. Bre @ The Weight of Debt

    Awesome post! As I am working to start my own business I am walking with a lot of caution in regards to all of these things! I am slashing back spending left in right just in order to get started with no debt. When we opened the business bank account last week the banker started talking about once the business has some credit opening a business credit card and I was like whoa whoa whoa…nope that isn’t going to happen. I would much rather go without or take longer to start my business than go into debt to get it started.

    Starting a business is most definitely NOT easy. I’m tired and I’m only about month into getting ready and I haven’t even started production. Staying organized from the beginning will definitely be key in my long term sanity even though it takes more time now.

    1. Yes, staying organized from the very beginning is very important. That was a big mistake of mine!

  18. Marilyn Blau

    Many companies fail for not seeing the forest for the trees Keep looking at the big picture

  19. My biggest mistake was thinking it would be easy! And I found that I’m not that great of a sales person. Go figure!

    1. Aww well sales is something you can always get better at ๐Ÿ™‚ It takes time!

  20. I think a big mistake for me would be not separating the work environment and life environment. When you’re passionate about your work it’s soooo hard to switch off and relax!

    1. Yes, it’s definitely very hard to switch off. That is something I’m still trying to do!

  21. Those are great tips Michelle!

  22. I made the mistake of trying to do everything myself…including the tax accounting and website coding, which I’ve now hired someone for. I nickled and dimed my own time and didn’t focus on the things that could have made more money or provided a good return on my time.. I would never be good at taxes, nor would I ever be able to code a website. My cost per hour was outlandishly stupid to do those tasks, I should have just hired it out- but of course, I thought I was “saving” money by doing it myself. Had I known how much it was really costing me, in frustration and tasks that could have provided a better return, I would have changed my ways!

    1. Yes! There are many times when I try to do something myself to save myself money, when in reality I am just wasting my time and money. UGH!

  23. I think not having a sizable E fund is the worst mistake that freelancers make. This line of work is very volatile and you never know when you will get a huge payday or be barren for weeks.

  24. M.Clark

    I am not self-employed, but I think these are very good tips, I’m sure a lot of people make these mistakes. Thank you for sharing this post.

  25. Paula Ball

    I was self employed for 25+ years & didn’t pay in like I should. Now I’m battling a serious illness & living on $800 a month. Not easy to do. Pay your taxes & social security!!

    1. I’m so sorry Paula. I hope things get better.

  26. Yes, a simple spreadsheet can save so much time. I make sure to track everything in a spreadsheet and it’s wonderful.

  27. Melissa

    If I ever get to be self employed, I will definitely need to work on the organization thing. I’d like to tackle that before I leave regular employment (if I end up doing that).

    Also, friendly aside – your signature/about you (at the bottom of your posts) is half third person, half first person. Just thought I’d let you know ๐Ÿ™‚

    1. Haha thank you for catching that! I wrote the signature on different days and didn’t notice ๐Ÿ™‚

      1. Melissa

        You’re welcome! I figured, and I know I would like someone to point that out to me, so I thought you’d appreciate it as well. Love your posts, Michelle!

        1. I definitely appreciate it. I’m guilty of rushing through things and not noticing my mistakes.

  28. Good post, Michelle.

    I hope to get there some day as well.. Although I have my doubts that it will happen with SDR alone.. I need a new project to take off (and I do have faith that it will).

    The important thing to realize when stepping out on your own is that your business will only go as far as you are willing to take it.

    1. Good luck with your new project!

  29. That’s a great way to do it!

  30. Thanks for writing these articles!!! Do you use an app like Paydirt to bill your clients? It’s keeping me far more organized than going it alone!

    1. No, I don’t use any apps. I simply use Excel and PayPal to track everything. Haha!

  31. These are great tips Michelle, I would also add time-mamagement. I actually worked twice as long as I used to work when I was actually in the office so that was an issue to be stricter with my own time.

    When I was younger, I was a Project Manager in London, then I moved to Berlin and worked as a freelance corporate trainer, then I moved back to working as a corporate employee when I had my son, which at this time suits me quite well as my hours of work are more flexible and I’m able to work other projects around my contracted hours.

    1. Yes, time management is very important. That is something I am still working on.

  32. Maria Carla Perez

    Again, i’m just curious, does your children affected your daily work being a self employed?

    1. I don’t have children. Sorry!

  33. Bren

    It’s a trap! Thanks for the tips Michelle!

  34. DNN

    Good morning Michelle,

    Stopping by to check up some of your previous blogs and wanted to add valuable feedback. I do admit that I’m guilty of not being organized at times and sometimes fall short in this area today. I’ve made enormous changes despite the fact that I still somewhat fall short. Major changes I’ve made was putting together a content marketing algorithm in my mind and coming up with a plan that Monday through Friday I’ll write content. And when Saturday comes around, I’ll do some external SEO work to promote the site. I do need to create an emergency fund just in case of anything by setting money aside or keeping a separate bank account. This way, I’ll get organized across the board and have my finances organized and separate accounts when challenging situations arise. And to be totally honest, I do agree the self-employment isn’t easy because one must work harder and smarter than they would on a traditional cushy day job.

    The only thing about a day job is a person starts making money the moment they clock in for work whereas with self employment, a person doesn’t make money until a sale is made. If you personally ask me, I’ll be okay with continually taking a risk at self-employment versus working a traditional form of employment. I feel more satisfaction taking a risk at being a side hustle millionaire then settling for sloppy seconds and earning a measly can of beans and taking home a biweekly paycheck.