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Apply NowFreelancing and the gig economy are here to stay. Today, millions of Indians across industries are thriving while being their own bosses. However, if you don't actively get gigs, you won’t generate any revenue with freelancing work. Besides, if you have multiple clients lined up, you cannot take them all up due to time constraints. Changes in the economic environment or shifts in demand are other real concerns for freelancers.
While the unpredictability cannot be totally eliminated, you can surely plan to minimise its impact. Whether you are just testing the waters or a seasoned freelancing professional, here are some tips that can help you build financial security and business credibility that can improve your chances of securing finances and take your business to new heights.
To manage your finances effectively, get a fair estimate of your essential living expenses. This includes expenses such as rent or maintenance, groceries, utilities, travel, and other household expenses like medicines or children’s school fees. It would also include any loans you are actively servicing, excluding non-discretionary expenditures such as socialising, shopping, or vacations. Knowing your baseline expenses will help you know the minimum monthly income you need to stay solvent. After taking care of essential expenses, most of your income should go to your savings plan.
You may face some rough patches along the way. So, having a contingency fund to tide over lean business periods can do wonders for your financial and mental well-being. Put away money towards a liquid debt fund or flexi fixed deposit linked to your savings account to build a safety net. This contingency fund should be large enough to cover at least 4-6 months of living expenses and liquid enough to access at short notice.
This can be tricky, especially for new freelancers and entrepreneurs who usually operate out of a single bank account. Distinct record-keeping is important for both yourself and the business entity. Pay yourself a fixed salary first to ensure all personal expenses are taken care of. Many young entrepreneurs ignore their personal needs and put all receivables into their business. Redistributing income ensures your personal and professional needs are taken care of, and one segment of expenses doesn’t create a liability for another. Having a separate profit-and-loss statement is also essential to build your business credit.
Having a separate record of all business expenses allows you to claim income tax deductions that can bring down your taxable income. In addition to operational expenditures, you can claim miscellaneous expenses such as work-related travel, lodging, and outsourcing or subcontracting of work as business expenses. If you use your laptop, car, camera, etc., for business work, depreciation can also be claimed on these assets. So, keep all bills and invoices filed correctly for tax purposes. If TDS is applicable to your services, ensure that your clients are filing the same. You can check your TDS credit statement for each month on the TDS-CPC website.
Given the unpredictability of freelancing work, you must explore other sources to generate additional revenue. You can either monetise some other skill you may have during downtime or look for online gigs that can help you generate a passive income. No matter how small, a supplementary income can help you secure finances and fast-track life goals. Multiple income streams can help lighten your financial stress while also helping you hone different skill sets that may come in handy someday.
A health scare can have a debilitating impact on your business and finances. To safeguard against the consequences of unexpected health issues, you must get adequate coverage for all dependents. Likewise, safeguarding your family’s future with a life insurance plan for yourself is vital. Proceeds from the life insurance claim can help settle any outstanding liabilities and ensure other shared goals – such as your child’s education or spouse’s old age – are taken care of.
Systematic Investment Plans (SIPs) offered by mutual fund companies help you undertake a wealth-building journey and secure your finances. The biggest advantage is that you don’t need huge savings to get started. Most SIPs start for as little as Rs 500 a month, and you can decide the investment threshold depending on your savings. Many new-age SIPs allow pausing your SIP if you cannot invest for a while. Your invested funds continue to gain from market appreciation, and when your financial situation improves, you can resume the SIP investment.
Start a retirement savings plan at the earliest to avoid the uncertainties of today spilling into your golden years. A head start gives you enough time to gain from the power of compounding to build a substantial corpus for retirement. A part of the savings can go towards SIPs, as mentioned above. However, consider making regular allocations to an annuity plan to generate a regular income stream. The annuity plan will start paying a regular income after 60, which can be used to manage your living expenses.
You need to start working on it immediately if you intend to secure your finances over the long term through borrowing for growth and expansion. As mentioned earlier, the first important step is to have a clear profit-and-loss statement and balance sheet for your business. It gives potential lenders an insight into your cash flow and ability to service a loan. You can begin building credit by trying to get an overdraft facility on your business account and getting a credit card in the business' name. These will help start the credit trail for the business and build for any bigger credit products in the future without any need to risk your personal equity.
Being your own boss has a lot of perks. While building financial stability may take time, it is achievable with investment discipline and focus. If you are a freelancer looking to embark on a financially rewarding journey, obtaining a secured credit card is a good way to start. A secured credit card, like the IDFC FIRST WOW! Credit Card, gives you premium credit card benefits while helping you establish a solid credit profile. That way you get more breathing space to focus on your business and mitigate the challenges of not having a regular paycheck.
With the FIRST WOW! Credit Card, you get a credit limit that’s 100% of your fixed deposit. Plus, it’s lifetime free, which means you won’t have to pay any joining or annual fees for the card. Click here to apply now.
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