In the connected world, freelance is the future. As more and more corporates are outsourcing projects to cut down on heavy work force, professionals like content writers, journalists, photographers and designers are also preferring to go the upwork way. This not only helps them to strike a good work-life balance, but also lets them experiment with their craft more wisely.
Making money is easy for freelancers. Get a client, do your job and then get paid. Do it consistently, you will have a steady income stream. However, for this clan, challenges come from a different quarter namely, money management.
According to Standard and Poor’s Rating Services Global FinLit Survey of 2016 – only 24 per cent of Indians are financially literate. This translates that more than one-third of the Indian population is terrible at managing their money. And India being the hub of freelance professionals, second only to the US, the problem gets aggravated by factors like fluctuating income and lack of company benefits like health insurances, paid leaves and bonuses.
Couple in their mid-30s, Ipsita Dutta and Nilava Ghosh both work as freelancers. They earn around Rs 1 lakh per month on an average. Ghosh’s live in their family house so they don’t have to pay rent. Though they are big spenders, the couple has invested in mutual funds, health insurance and an LIC tax saving policy. Soma Gana, a Kolkata-based Chartered Accountant, said, “Since, none of them have a fixed income, they should build an emergency fund for at least six months. It will not only help them survive the lean months but also help them in case of a sudden need of liquid money.” For this, they can opt for liquid mutual funds instead of hoarding cash in their saving accounts.
Delhi-based Sugandh Bahl, 25, meanwhile, is a part-time freelancer. Along with her regular salary, her extra income varies between Rs 10,000 to Rs 20,000. Bahl stays with her parents and doesn’t have any added responsibilities. However, as an investment, she has started a systematic investment plan mutual fund of Rs 10,000 every month. “She should look at tax saving instruments like public profit and fund or NSC, otherwise she might end up paying heavy on taxes,” Gana added. Further, Bahl should also consider buying a health insurance.
Separate your freelance account from your personal account. As a freelancer, your income is not fixed. Suppose, you have landed with a four-month project and have taken half of the payment upfront and rest will be paid on the fourth month. Though, the cash flow is significant in the first and fourth month, it is nearly nil on second and third. So treat you freelance account as a business account and draw a salary from it every month.
Again since the income is not fixed, freelancers need to create a three to six months of buffer in their business account. This will help you to survive in the dry months.
Whenever we receive our pay cheque, first things we think are, what bills to pay and what to buy and whatever is left, we save. But, the basic saving formula needs to be a little different, especially for freelancers. First you save and whatever is left should be your expenses.
Try to maintain a low-key lifestyle. Many millennial have the tendency to spend beyond their capacity. If they earn Rs 50,000 a month, they tend to blow up Rs 60,000. This habit is infectious and harmful in the long run.
Investing is basically reaping the benefits by compounding your interest. For this, you can invest in stocks, bonds and mutual funds. If you find the subject difficult to understand, you can delegate the job to financial advisors who are qualified for the job.