At present, there are over 15 million freelancers in India. Reports suggest that the Indian freelance community is anticipated to grow to $20-30 billion by 2025. Evidently, there’s so much to like about freelancing – from being able to choose the clients you want to work with to having a flexible schedule. Even if you are already working full-time, freelancing simultaneously is an excellent way to add an extra income source and build your skills. But freelancing also brings with it large swings in income, which can make budgeting difficult. Moreover, as a freelancer, you don’t receive bonuses, incentives, or rewards. As a self-employed individual, you need to manage your personal finances and set aside enough for taxes and investment planning. If not done well in time, poor financial planning can cause severe cash flow problems. Thus, there are ways to budget, save, spend money and survive as a freelancer without a steady paycheck.
Whether you are a freelancer or planning to start a venture, keeping a separate personal and business account is of utmost importance. Your business account can help you maintain track of payments and expenses incurred for business purposes. The surplus can be transferred to your personal savings account on a monthly basis and be used as a “salary”. Moreover, having a business account also simplifies your tax returns and helps build your credit rating. This way, you also get access to tons of additional perks such as funding opportunities and small business services. Initially, managing two separate accounts may seem tedious, but it’ll help get things organized and easier at the time of filing taxes. This way, you can evaluate how much you are spending in your business and identify areas where you can save and allocate funds towards safe investment options.
The feast or famine cycle of freelancing is known to all. You likely earn significantly different amounts every month depending on the number of projects that come your way. Even as your income grows, this fluctuation will never change. So rather than considering your productive phases as “normal” and other days as a stroke of luck, embrace the slower months and plan for rainy days by analyzing your average income. Set up a realistic solution: like throughout the year, set aside a fixed sum alongside the savings you are building up, in order to cover for months that don’t fetch you enough income. Alternatively, you can also direct those savings towards short-term investment plans that can be liquidated easily.
Another important personal finance habit as a freelancer is to set aside money for taxes, which can seem a bit daunting at first. Unlike a full-time job, none of your taxes will be withheld, so you are responsible for calculating as well as paying the tax amounts on time. A good way to ease the stress of taxes is to start a high-interest savings account to hold deposits just for tax purposes. Finance experts recommend setting aside a set percentage of your monthly income into this tax account (the percentage may vary as per your financial capacity). When it is time to pay taxes, you will already have funds ready to pay them.
The best part about being a freelancer is the amount of freedom you get regarding the how, when, and where of your profession. But technically, as a business owner, the same freedom also drives you to pick up some major financial responsibilities, particularly insurance. In uncertain times like these, ensuring your insurance policies are taken care of is more important than ever. For instance, liability policies offer protection to both you and your business from potential legal action. Similarly, health and life insurance policies are the safest investment options, especially if you and your family rely on your income to meet daily needs and pay bills. In the event of a mishap, your insurance will help pay off debts, if any, and provide for dependent members.
Striking out on your own means you’ll need to set aside and constantly build an emergency fund for unforeseen circumstances that may come up. Open a separate account (even if it seems a lot) to accumulate your emergency corpus, which must be used only when you fall sick, have run out of savings, or need to pay a huge bill. Towards the end of each month, look at what’s left and deposit a part of that amount into your emergency funds account. When you continue this practice for years together, you will end up creating a backup for yourself for times when you run out of work or have a financial obligation to fulfill.
Stepping into the world of freelancing can be petrifying, but that definitely shouldn’t be because you are uncertain of how to approach your personal finances. Reach out to other freelancers in your industry and seek advice from finance experts to learn how you can adopt healthy financial habits. With plenty of research and confidence, you can gain professional and financial freedom, and flourish as a freelancer.
To seek guidance on investment planning, personal finance management, or the best investment schemes, approach a reliable wealth management company like Dezerv.