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How to Protect Yourself Financially as a Freelancer

09/25/2012 05:05 pm ET | Updated Nov 25, 2012

As working from home becomes easier and easier, and a sure-fire alternative to working in an office -- many people have made the move into working freelance or as independently contracted individuals. This can be great in terms of flexibility and freedom (after all, working in your pajamas sounds like heaven!) but it isn't always a sensible option if you're either reluctant to look after yourself financially -- or if you struggle with the concept of handling figures and money.

It's nothing to be ashamed of, but it is definitely something you'll want to be open about improving and something you'll need to embrace. If there is one thing that can keep you up at night and make you lose sleep -- it is financial worry - so keeping yourself stress-free and protected is paramount.

There are lots of traps you can fall into as a freelancer -- meaning your money may not always be secure. Here I'll aim to provide you with a few simple tips to help combat those tips, and protect yourself and your bank balance.

1. Be careful of tax

Tax can creep up on us pretty easily, so researching your tax laws is important. It obviously ranges from country to country -- so a good idea is to a join a forum online where your questions will quickly be answered. Keeping on top of tax is really important -- because the last thing you want is a hefty tax bill creeping up on you when money is low. Keep a record of everything -- and create a separate account where you can transfer your tax payments -- that way, you know you always have it to hand and you won't be losing sleep over it.

2. Hire an accountant

There are many accountants out there who will work a couple of hours a month for you -- and just make sure you have everything in tact. They'll probably be freelancers too -- so they may give you a decent discount if you explain the situation to them. Just let them know that you want to be sure the right money is coming in and going out, etc. It's not a big job and it's something that you can then forget about.

3. Use secure transactions

Getting paid for your freelance work can be tricky -- especially when some companies will be reluctant to hand over the cash (even when all the work is completed). For this reason, always ask for money through a secure system such as WorldPay. You can do account transfers, credit card processing and international transfer too through companies like this -- and it means all your transactions are recorded too -- which is great when you're totaling up things like expenses and income at the end of the month.

4. Ask for money up-front or secure a deposit

For large orders or big projects that are likely to require time and effort, make sure you protect yourself by getting a deposit upfront -- or if possible -- the whole amount. There is nothing worse as a freelancer when you've completed a lot of work for a client -- only to have them disappear come payday. You could learn the hard way here -- but it's easier just to get as much as you can upfront. If the client has any issues with this -- then maybe they aren't to be trusted anyway.

5. Be clear about the work and the time-scale

If you charge by the hour then be clear with your client how long it's going to take and what they should expect time-wise. This is important for obvious reasons -- if you end up working 20 hours -- but your client was only expecting you to work 10 -- then you're going to be at an awkward point in the project. Either they only pay you for 10 (and you loose out on 50 percent of hours worked) or they fork out more money than they can afford -- which puts them in a hard place and means they view you in a less positive light.

Hopefully, by following these tips you can learn through the mistakes of others -- and keep yourself protected financially. Keep in mind also, the smoother your payments go through and the smoother you run your freelance business -- the better you'll come across to clients and the more likely they are to recommend you in future.