Financial Planning For Freelancers & People With Irregular Income
Whether you’re a freelancer or someone with an irregular income, remember that you’re not alone. There are countless people working self-independently just like you. What’s crucial to understand here is it’s important to establish a roadmap for your financial planning which can help you manage income, however irregular.
Self-employed professionals, freelancers, budding entrepreneurs, and aspiring artists are a few examples of individuals who have irregular income. They do not get the time to meticulously plan the flow of their income in the right order. Therefore, the need to plan finances becomes even more crucial. Contrary to popular belief, financial planning is a must for all age groups. It is ok to not have an immediate goal, but that does not mean you cannot work for your long-term needs. Here are some ways your irregular income can be regular with the correct financial planning:
Consider having a separate bank account
The first step is to create a separate account, which will help you monitor your income. This will also enable you to keep track of your expenses. While you’re aware of the money outflow through expenses, management of money inflows can be taxing. Therefore, keeping a separate account for this will be helpful.
Make a monthly budget
Following a monthly budget lets you take control over your finances. For freelancers, it is likely to be more useful by first recording what you need to get by—rent, utilities, groceries, loan payments. You may additionally want to create a second budget that includes other wants — trips, outings, movies, shopping or dining. The monthly registering will inform you how much you’ll need to work as well.
This gets you in a good position to manage cash flows, pay short-term dues and make arrangements for other goals. Of course, the budget of one person may vary from that of another, depending upon lifestyle and choices. Having well-defined short-term and long-term goals for yourself makes the path easier as decisions can be made in accordance with them.
Save more, spend less
Saving more is always the primary solution for those with irrational incomes. Cutting down on necessary expenses will help you keep an alignment with inflow and outflow.
- Regular and Non-Discretionary Expenses
These are your regular expenses, which include grocery, phone bills, electricity, domestic help, transportation or fuel, laundry, entertainment and eating out expenses. As these are unavoidable, you can certainly try and put a limit to not let these go out of control. Another way is to make bulk purchases which can fetch you good discounts. The right modes for such transactions, ideally, are cash transactions, debit card and/or credit card.
- Irregular and Discretionary Expenses
This include expenses like purchasing furniture, consumer durables, valuables like jewellery or going for vacations. One must plan accordingly and smartly, since these are heavy expenses. For example, when it comes to purchasing furniture, make sure to do a price-value analysis and determine the quality and store you can buy from. Various payment options like cash discount, zero-interest EMIs, etc. are available these days.
Even if your income is irregular, a small amount regularly saved can come handy for the later part in life. Make sure you have a few months’ worth of expenses saved in an emergency fund to help you in times of need. Keeping it liquid will ensure that you can always get to your money quickly. If there is difficulty in deciding how much you need to keep in hand, consider the standard expenses you have in a month, and then estimate all the expenses you might have in the future.
Invest to boost income
Invest not only in your finances but also on yourself. This can be in the form of a professional training around your passion, upgrading your skills, connecting with friends, and developing a network.
It’s important to start thinking of insurance if you haven’t already. Don’t turn a blind eye to health insurance needs. For people with irregular income, insurance can be like a contingency plan. With rising medical costs, you must consider getting a medical insurance to to cover your medical costs. Make sure to follow it by other insurance policies. The earlier you get these, the lesser the premium amount, and complications you will have to face. Insurance policies will bail you out when needed. An insurance policy offers you financial coverage for a specific period of time.
Debts, regardless of the income type, consume your finances. It’s common for people with irregular income to fall short of funds. This makes them choose loans or debts as quick solution. Debts with higher interest rates can be avoided if you pay off the loans as quickly as possible. Working freelance can vary from working regular hours to having a flexible schedule that may change weekly. This requires discipline with the budget. Make a record of your credit score and focus on paying off your debts and loans consequently. Stop carrying large credit card debt for a longer period as this will only dampen the situation.
Think and plan for retirement
The lack of retirement benefits is one reason why self-employed people struggle with a retirement plan. Unlike salaried employees, the self-employed and freelancers are not covered by employer-funded retirement plan such as Employees’ Provident Fund (EPF). There also is no gratuity and leave encashment. Therefore, having a retirement plan in place saves the trouble. Keep a retirement fund aside in the form of deposits in your own name. Experts suggest that the best option is to choose an investment with a longer lock-in period such as Public Provident Fund (PPF).
Use the power of digital
Everything is on digital these days and using the platform wisely can benefit your financial management routine. Automating your finances can help save you time and money. It’s conveniently easier to save if you automate a transfer to your savings account every time you get a pay cheque. It’s also easy to keep a track of all of your bills if they are automatically deducted from your bank account.