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Financial Planning Tips For Freelancers

Not too long ago freelancing was considered job of the uneducated/unskilled people. It meant people with no degree or less formal education sold their skills to people who might need it. But with advent of internet, technology, valuing of skills above degrees and increase in penetration of internet connectivity all this is changing. As per a report by The Hindu, India could have up to 20 million ‘freelancers’ — individuals who use computers/internet to offer services in both domestic and export markets. Some experts believe the number of freelancers in India could double every five years until 2035.

With changing life dynamics, stress levels, pressures of balancing work home life, majority of us now want to be our own Boss instead of working in Corporate World from 9am-6pm. Freelancing offers flexibility and freedom.
But this comes with its own set of challenges. With no fixed salary and security of pay check job of a freelancer can be a tough one. As a freelancer one is the business owner and every facet of business needs to be sustainable and cared for. Financial life of a freelancer need not be unpredictable just because pay checks are not regular. Here are some ways you can plan your financials wisely and save even when your incomes fluctuate:

  • Plan for lean time and Pay yourself regularly

Freelancing can be a roller coaster ride. One is likely to earn different amounts from month to month depending on the number of jobs and timely payment. Even as earnings grow overall, uncertainty of monthly earnings will probably never change. So, it’s important to recognise this and accept the slower months as a risk of freelancing and plan for the lean periods by getting a realistic sense of your average income.
What did you earn last year? Divide that by 12 and you have your average monthly earnings. Do you have five years of freelance experience under your belt? Average those years out too and look at the numbers. Hopefully your earning are growing from year to year, but if they aren’t you need to take that into consideration and average out your income for the past few years to get a better sense of what you truly make. Once you have a solid number as
your average monthly income, use that number as a baseline for your budget.Based on the budget gift yourself a consistent pay check as if you are a regular employee of the business you are running. This will reduce stress and make monthly budgeting easier.

  • Track Everything

First step towards this is opening separate bank accounts for personal and business spending. Track every business and personal expense. Free apps are available on both Google Play store and Apple iTunes. It will give you a visual representation of spending habits and can highlight areas of waste in both in business and personal spending, as well as help decide how much one can spend each month.

  • Create an Emergency Fund-Non-Negotiable

Ideally, we should have this in place before we say good bye to safe and secure regular job. If not than this should be on top of the priority list. The fund can vary from person to person,but planners majorly recommend saving for at least 6-9 months expenses for both personal and business expenses. This will come to use during lean times or when you don’t want to take up work you don’t like. The stress of of irregular income is lessened when there is emergency Fund. In a perfect world client pay regularly as you work but in real world it seldom happens. Payment fluctuates and arrive late than the promised time line.

  • Save for Retirement

Being the business owner freelancers need to plan and fund their own retirement without the luxury of matching contribution from employer etc. Small contributions in Mutual Funds every month through systematic investment route can be initiated. One can also boost savings by making use of windfalls, such as Tax refunds or big client payments.

  • Risk Management

Some of the Insurance one can, consider buying:

  1. Term Plan – To cover the risk for your loved ones.
  2. Health Insurance – Most required and significant to ensure timely health facilities for yourself and your family.
  3. Disability Insurance – To be ready for any unforeseen and unprecedented happening and to cover the risk of dependency due to an accident, illness etc.
  4.  Professional Insurance – Professional liability insurance protects individuals from professional risks and related legal expenses. It provides indemnity in case a third-party sustains injury, harm, death or damage to property due to the professional service or advice provided by the insured.