The realm of self-employment offers a tantalizing prospect: the freedom to pursue your passions, set your schedule, and be your boss. But it also comes with the responsibility of managing your finances effectively.

Having met thousands of freelancers over the years, I’ve seen the same seven costly mistakes over and over again. And in pursuing your entrepreneurial dreams, it’s essential to be aware of these common pitfalls that many self-employed people face.

Whether you’re just starting your self-employment journey or have been rocking the 1099 life for a while, these are the mistakes to avoid.

1. Confuse income with profit

Don’t let the lure of high income cloud your judgment. Learn the importance of distinguishing between income and profit to accurately assess the health of your business.

To do this, subtract your total expenses from your total income for a specified period of time (usually a month, quarter, or year).

The resulting number is your net profit, which represents the money you’re left with after all expenses are paid. And keep in mind that since you’re self-employed, you’ll also need to factor in your self-employment tax payments that are due each quarter.

Remember, it’s not just about increasing your sales – it’s about improving your sales.

Related: 5 reasons employees prefer self-employment and why you should use it to your advantage

2. Prioritize short-term gains over long-term success

While it’s normal to be cautious about spending, it’s essential to strike a balance between short-term gains and long-term success. Sustainable and scalable revenue growth often requires investment in your business.

First, explore the concept of profit and find out how putting profit before cost can help you build a sustainable business. You should be familiar with the importance of strategic investments, proactive budgeting and scalable revenue growth for long-term financial stability.

Think of it like the toothpaste theory: If you have an abundant supply of toothpaste, you tend to use it more freely. Conversely, when the tube is almost empty, you painstakingly extract every last drop.

By proactively budgeting and prioritizing profit, you can set your business up for sustainable and scalable growth.

3. Selling yourself short

Avoid underestimating your skills and expertise, as this can hinder your long-term career prospects. Embrace a vision for your business and price your products or services accordingly. Learn the art of building rock solid relationships, delivering undeniable value and creating a reputation hotter than the latest TikTok dance trend to build a lasting pipeline.

Related: Don’t sell yourself short in the gig economy

4. Focusing on stats that don’t matter

Shift your focus from vanity metrics to meaningful data that really impacts your business.

A common mistake is to look only at your profit without taking into account the tax owed. If you don’t account for taxes, you may be overestimating your actual profits and underestimating the amount you owe the government, creating a cash flow problem for your business in the future.

Spend time defining the metrics that align with your business strategy and goals.

Related: The 4 Deadly Sins That Are Sabotaging Your Business

5. Not making your money

Inflation is constantly eroding the value of our money, meaning the longer you leave your money in a bank account, the less it is worth. So it’s critical to make your money work for you.

Try exploring different investment options such as reinvesting in your business, investing in real estate, stocks, mutual funds, retirement accounts, peer-to-peer lending, and cryptocurrencies. Understand how to make your money work for you and use compound interest.

6. Avoid smart debt

Debt can be a useful tool if used responsibly.

One type of debt to consider is short-term debt. This can be useful to cover expenses that crop up unexpectedly or to take advantage of opportunities that require immediate capital.

Long-term debt, on the other hand, is typically used for larger investments in your business, such as purchasing equipment or expanding your business. For both types, it’s important to carefully consider the terms and interest rates, as this will affect your bottom line over time.

It’s also worth considering other types of debt, such as lines of credit. These can be especially useful for businesses with fluctuating cash flow, as they allow you to borrow money when you need it and pay it back when your cash flow improves.

Related: Self-Employed Without Employees? You can still get a PPS loan

7. Ignore the seasonality of your business

Understanding the seasonality of your business is critical to its success. It can help you forecast cash flow, inventory needs, and staffing needs throughout the year. It is essential to recognize the trends in your business and be prepared for the fluctuations that come with them.

When you start tracking seasonality, you’ll learn how to better forecast cash flow, forecast inventory needs, and plan staffing needs based on seasonal fluctuations. It also helps avoid unexpected expenses and stay profitable all year round.

You possess the remarkable ability to shape your future, and by avoiding these financial sins, you can set yourself up for extraordinary self-employment success.