Financial tips for young freelancers
Financial tips for young freelancers
Many people are now becoming full-time freelancers, which is a big shift in how COVID has altered the employment market. While freelancing is extremely rewarding, the lack of a consistent revenue flow and work pressure can easily divert your attention away from your financial objectives. This post will discuss some simple suggestions for working as a freelancer while still looking after the financial well-being of your family.
Tip #1: Reserve a decent emergency fund
You don’t have the same perks as a salaried employee as a freelancer. As a result, having a sizable emergency reserve is even more important. It not only saves you money on personal loans and credit card debt, but it also gives you peace of mind, which is beneficial to your day-to-day work. Make it a top priority as a freelancer to set aside 6-12 months’ worth of bills and EMIs. Have a separate personal and corporate fund if possible. This emergency money can be invested in liquid mutual fund schemes or sweep-in fixed deposits.
Tip #2: Be financially independent with proper insurance cover
A salaried employee is frequently covered by the employer’s group life, health, and personal accident insurance. A freelancer, on the other hand, does not receive these benefits. As a result, a freelancer must obtain basic term life, medical, personal accident, and home insurance (for both home and office). In addition, purchase property insurance for both your home and your business. If you are a married man, you can safeguard your wife and children’s interests by acquiring a pure term plan under the Married Women Property Act of 1874. The proceeds of that life insurance policy will be treated as a trust for the benefit of your wife and children, according to the MWPA. This will shield the insurance funds from any claims made against your estate by creditors after your death. This will stop creditors and banks from obtaining the proceeds of your life insurance instead of your outstanding debts. When estimating the amount of term insurance, don’t forget to factor in your business loans and liabilities. This will shield the insurance funds from any claims made against your estate by creditors after your death. This will stop creditors and banks from obtaining the proceeds of your life insurance instead of your outstanding debts. When estimating the amount of term insurance, don’t forget to factor in your business loans and liabilities.
Tip #3: Invest in the right avenues by paying yourself first
As a freelancer, you’ll have to put in a lot of work in the early years to get your firm off the ground and to new heights. In this hustle, it’s easy to lose sight of your financial objectives. You can take the following steps to get started:
- Make it a goal to pay yourself first – set aside 10% of your monthly salary for your financial goals. Make that SIP right now.
- Put your money in a liquid fund that suits your needs. You can take stock every quarter or so and invest that money in the right places to meet your financial objectives.
- Have an annual financial review system in place. Rebalance your portfolio as needed, and analyse the difference between where you are now and where you need to be.
- If you find the following procedures too time-consuming or difficult to complete, consider paying a nominal fee and seeking guidance from a reputable investment consultant.
Tip #4: De-risk yourself
When you first start out as a freelancer, you automatically add a certain amount of risk to your financial profile. However, you can mitigate this risk by adopting the following preventive steps:
- When deciding on your asset allocation, don’t go overboard with equity and other riskier investments.
- Diversify your clientele and revenue streams. Try not to have a single client account for more than 25% of your annual sales. This will assist you lessen your reliance on one client while also ensuring that if you lose that client, you will not face financial hardship.
- Continue to research industry trends and gain new abilities so that you can stay relevant and get good quality jobs.
- Don’t be afraid to promote yourself as a freelancer. Make a marketing strategy and devote some time each day to attracting new customers.
- Try to pay off any high-interest personal loans or credit cards that are past due. Also, make sure your EMI isn’t more than 20% of your monthly income.
Tip #5: Maintain your compliance obligations
As a freelancer, you are in charge of your company’s bookkeeping and taxation. Most freelancers become so engrossed in their work that they neglect to perform adequate accounting and tax management. In the long term, this backfires in the form of interest and fines. New laws, such as the Goods and Services Tax (GST), have expanded compliance responsibilities significantly. You should plan your work calendar such that accounting, tax, and compliance issues get their own allocated time every week or month. The following are some useful compliance tips:
- Separate your business and personal finances. Open a company bank account and keep your personal and business accounts separate. If at all possible, invest incompetent accounting software.
- Make a calendar for filing tax returns and other required compliances for your company. It’s also a good idea to outsource these compliances for a nominal cost to a reputable service provider.
- Be aware of the requirements for filing advance tax, keeping books of accounts, and TDS, among other things. Check with your CA if you’re unsure.
Tip #6: Maintain a healthy mental and physical state
It takes a long time to make a living as a freelancer. In the case of salaried employment, you are not obliged by the retirement requirements. However, in order to make the most of your extended working life, you must be in the good bodily and mental condition in your later years. To do so, you’ll need to make a daily commitment to meditation, physical activity, and a healthy diet. You must establish appropriate boundaries between your job and personal lives in order to avoid burnout. Include devoted family time in your daily routine, take time off to vacation and replenish your batteries on a regular basis.
Freelancing is a thrilling adventure. You have the freedom and flexibility to choose your own clients and types of work. You must, however, successfully deal with the financial concern that comes with an erratic income stream. Learning more about personal finance and outsourcing non-core activities can make a huge difference in your financial security.