FINANCIAL PLANNING: Freelancers must be disciplined in saving

Financial planning is important for everyone, but more important for those who have opted out to work on a freelance basis. Being a freelancer gives the flexibility and freedom to work on one's own terms. But sometimes it may work against one's financial goals and planning. As a freelancer one's income pattern becomes irregular but expenses continue to be fixed.

First of all, understand that not getting a regular income should not be construed as a choice to save as and when money comes. Always follow a disciplined approach, irrespective of the amount.

You have to focus on building a strong saving base that can help you fight the stress of irregular income, fixed expenses and financial emergencies. Have a contingency fund equal to six monthly expenses.

Always go frugal but remember that investing is all about behaviour. Be careful while spending money, but do not get bogged down by the fact that since you are a freelancer you cannot spend.

Let me give you an example. While I was doing my chartered accountancy, I found many students (applies to students appearing for any competitive exam) not moving out of their home at all. They were creating an atmosphere that exams are approaching so they can't do anything. I am not suggesting that one should relax on the eve of examinations or take studies lightly. I am saying that there is no need to make the situation more severe or serious than it is. This causes stress and leads to many other problems, including irrational decisions which ruin bigger goals. So keep it simple and live a simple life till the time you build a regular steady flow of income.

Make a budget and stick to it, to avoid unplanned expenses. The best way is to open a separate bank account for your business and personal expenses. Also, follow an adaptable financial strategy to suit your income and expenses pattern. Do get sufficient health insurance cover. If you have dependents, then buy sufficient life insurance cover as well. Follow an asset allocation suitable to your freelancing work. For instance, if you are a professional, say a doctor, then your income will be regular than other freelancers and also free from economic movements thereby enabling you to take more risk and earn higher returns.

Freelancers also need to manage their taxes in a smart way. Many freelancers whose income is below Rs 50 lakh can opt for a presumptive tax scheme u/s 44ADA, which allows them to claim 50% expense without the requirement of maintaining books of accounts. Besides, you can also claim lot of expenses as spent towards business. Freelancers do not have access to any pension. So retirement planning becomes more important for a freelancer. So keep that in mind as well.

The writer is chief gardener, Money Plant Consultancy