Financial planning is crucial for sustaining the current economy and it applies to every individual, irrespective of their job type. With financial planning, you can acquire fiscal safety and assurance when conditions are unstable. Self-employed and freelancers carry the burden of having an uncertain income and so they must get involved in formulating a suitable financial plan.
With such rigid competition, having a financial safety net for your family and you is mandatory. Freelancers do not have the incentive of regular income and insurance from the company. Thus, financial planning is quintessential.
Eight Ways for Freelancers and Self-Employed to Create a Secure Financial Planning
Planning out your finances is not easy and requires appropriate knowledge and contemplation. Here are a few definitive steps that your financial plan should encompass:
1. Budget Planning
Maintaining a budget is the first step. Divide your earnings into three categories: needs, wants, and savings. Creating a budget plan will help you save money with irregular incomes. It helps you cover all your expenses and leaves you with an amount to save or invest.
2. Open a Business Account
Separating your personal account from your business account is significant. Open a different business account, exclusively for your business and revenue. This move keeps you from spending your revenue that is not profit and you can ask for bank credit with a business account.
Moreover, you could consider opening a high-interest savings account that provides you flexible fund withdrawal, without increasing the interest rate on the balance. Your business bank account should benefit your financial structure in several ways.
3. Create a Contingency Fund
With uncertainty at every step, an emergency fund can be a prudent choice. An emergency fund enables you to keep aside a sum of money which you can use only during emergencies. This emergency amount can even be used to fulfil long-term goals and commitments. Opting for liquid saving options or liquid debt mutual funds is the right choice for a contingency fund.
4. Mutual Fund Investments
If you have time and knowledge constraints, you can choose mutual funds to invest your money. Mutual funds are managed by fund managers, who select the best investment asset for you. You can even take the Systematic Investment Plan (SIP) route in mutual funds, which favours your inconsistent income and mitigates risk.
Invest 4G Plan by Canara HSBC Life Insurance is a secure option, as it offers a systematic transfer option where the entire fund is deposited in a liquid fund. Then gradually, the money is transferred to the equity fund in equal installments in the next 12 months.
5. Plan for Retirement
Saving for retirement from this amount can be difficult and so planning for your retirement is an important step in financial planning. You can purchase a retirement plan that allows tax-free withdrawals and the premium payment is flexible.
6. Life Insurance and Term Covers
Freelancers and self-employed individuals do not have the advantage of acquiring a group insurance policy like salaried individuals. Hence, an insurance plan is a must.
A term insurance cover is another smart investment, to protect your family after you. Like the iSelect Smart360 Term Plan by Canara HSBC Life Insurance offers multiple premium payout options, cover for the spouse, and increased coverage options.
7. Planning On Income Insurance
Freelancers and self-employed individuals can use the extra income from income insurance to meet daily expenses. A wealth pool creation can double up as a source of income at regular intervals.
Income plans are extremely beneficial as they are tax-efficient, being tax-free under section 10(10D). The insurance income plans are based on pre-decided investments and time intervals, establishing minimum customer intervention in the whole process.
8. Create Multiple Income Streams
Try to diversify your income streams from different clients so that if you lose one client, you have other clients to rely on. Widen your skill set to acquire more clients. Also, signing a contract with your clients provides longer stability of work and income.
Finance is a life aspect where uninformed decisions can cost you heavily. Diligent financial planning is essential and all of these tips have to be implemented while doing so. Being self-employed and a freelancer come with extra responsibilities as you do not have an institute to fall back on. With an effective financial plan, you can continue to be your boss without worry.