Freelancers often don’t have regular income. They earn well in certain months and very little in other months. Hence, thorough financial planning becomes even more important for them in comparison to salaried and professionals. As such, freelancers should use at least 10% of their earnings for investments. Depending on their financial goals, one may invest even more. But it’s critical to make this a habit. Regular and smart investments will not just consolidate their financial base but the power of compounding will work in their favour and help them grow their wealth too.
Mutual funds are managed by fund managers whose job is to identify and select the best investment assets available in the market. These assets could be equities or debt. Freelancers often do not have the time and the expertise required to find the right set of investments. So, it is better to have mutual fund investments in their investment portfolio. However, do note that each mutual fund scheme comes with its own set of risks and rewards. So, it’s important to select the right type of fund which is aligned with their financial goals (like raising funds for a home down payment fund or to build an adequate retirement corpus) while considering aspects like risk factor, return expectations, impact of tax and inflation on returns, liquidity requirement, etc. The other investment instruments that they can consider include FDs or RDs, PPF, ELSS, etc. Freelancers should consult a professional financial advisor if they get stuck at any point.
Even when freelancers do not have consistent income, they can start a Systematic Investment Plan (SIP) in mutual funds with a small amount to avail rupee cost average benefit and mitigate risk. As a freelancer, you can opt for an auto-debit facility directly through the bank account to save time.
Many banks offer savings accounts in which if the amount is above a specific limit, the excess fund automatically gets transferred to a fixed deposit that gets you higher returns. So, freelancers should select a bank that offers the sweep-in facility. Another option is to keep the fund in a high-interest savings account offered by some of the banks. It allows you the flexibility to withdraw funds anytime without compromising the interest rate on the remaining balance.
Insurance is important for everyone – not just to protect finances but also to save on income tax. Generally, companies provide a group insurance policy for their employees – something that freelancers cannot avail. As such, freelance must consider going for a comprehensive health insurance plan with a good sum assured for themselves and their dependents to safeguard their savings during a medical emergency. Plus, they should also aim to take a term insurance cover (with a sum assured which is at least 10 times their annual income) to protect the financial interests of their family members if something untoward happens to them.
The freelancing journey is often marred by roadblocks like clients not making timely payments or withdrawing a project midway. However, some of these uncertainties can be overcome by using a contract before signing up for work. A contract provides longer stability and guarantee of employment and income in comparison to ad-hoc work. Insist on a written contract before you proceed for freelance work. In the beginning, you may find it challenging to get work on contract, but things will fall in place as you gain experience.
Getting yourself registered with different agencies, organisations and government bodies will not just help bag more projects but also boost your credibility. Also, depending on your eligibility and income, you may get registered with GST and get the Micro, Small and Medium Enterprises (MSME) certificate.
