Rapid dynamics in technology and workplace culture have redefined traditional employment models. There has been a rapid increase in the number of people considering freelancing as a serious career option.
India witnessed a huge surge in the number of freelancers in the past year and is now the world’s second-fastest-growing freelance market. As per reports, we have an estimated 15 million freelancers in our country, which has risen over 46% in a quarter.
But, freelancing is not as easy as it sounds, especially when it comes to financing. For one, your income can be highly volatile, i.e., there may be a lot of work one week and nothing to do the other week. Hence, money management is something that every freelancer has to master to keep your finances on track.
Here are seven money management tips that will enable freelancers to build a rigid financial foundation.
1. Diversify your Income
Flexibility is one of the best perks of being a freelancer. Since you are not tied down to your job, you can achieve multiple things on your own time. This flexibility allows you to make money from more than just one source.
Let’s say you are a freelance graphic designer and have worked consistently. You can take time off in the middle of your gig to create an online course or plan a designing workshop for just a few hours.
This way, you will be monetizing on your skill to earn double the income. You can also come up with other ways to monetize your skills in between gigs.
2. Create a Safety Net
Being a freelancer means being extremely busy during one period and having negligible income over another. Even with advanced planning and budgeting in place, there may be times when you run out of money for your expenses – because unexpected things happen.
So expect the unexpected and set up an emergency fund. Most experts suggest that it is good to have a buffer of 3-6 months worth of expenses in cash or a quickly withdrawable bank account. However, it is up to you to decide how much money you want to stash up for the dry days.
Here’s how you can earmark some of your income towards emergency funds.
- Put aside an additional percentage of your paycheck
- Transfer all income earned over your monthly targets
- Earmark just one recurring paycheck towards the buffer
It might generally take a few months to build this kind of funds. But, once it is built, you would have enough reserve to get you through times when you want to chill.
3. Budget Well in Advance
Whether a freelancer or not, budgeting is the first step towards money management, specifically, since freelancing income is not fixed, budgeting plays a crucial role in managing your finance.
It may be difficult to forecast how much income you will earn for a period. Still, if you have been at it for a while, you may know the average income you earn every month, even if it fluctuates slightly. As for the fixed expenses, they are just that – fixed.
Plan a budget using these figures, and you should have a fair idea of how much money you need to get through each month.
Once you have a strong budget in place, all you need to do is stick to it. You can revamp your budget once a while to adjust to your current financial situation.
4. Set Aside 40% of Your Paycheck Towards Savings
When you work as an employee for a corporation, the salary you receive in hand is after the deduction of taxes, insurance, pension fund etc. But since you work independently, you are responsible for accounting for these funds.
Between your gigs and living off on paychecks, you may completely ignore the savings bit. It may seem difficult to save since you do not earn a fixed income, but it is not that tough, really.
Make it a habit to earmark at least 40% of your income into savings, investments and retirement funds as soon as you receive a paycheck. This way, you do not have to worry about spending all of your money.
5. Plan for Taxes
Freelancing is not a job limited by geographical boundaries. Many freelancers are working for international clients and getting paid in other currencies.
Whether you work for Indian clients or international, be mindful of how you receive your payments. Streamline it into a single account so that its easier to calculate your taxable income.
Suppose your income crosses a significant threshold, it may be wise to talk to someone who is an expert in the field. Discuss with a legal advisor and plan for your taxes.
6. Maintain Books of Accounts
Bookkeeping is a fundamental process every freelancer needs to follow. Tracking your incomes and expenses can help you save more money than you would otherwise spend needlessly.
Set aside some time out of your week to update your earnings and spendings per client and job done basis. This will not only help you have full knowledge of your finances, but it will also help you track the invoices that are yet to be cashed.
7. Know Your Worth
Last but not least, know how much your skillset is worth in the market – charge accordingly. In freelancing, there are no performance reviews or salary hikes. As you grow and get experience in your career, you need to evaluate your worth and charge your clients accordingly.
Initially, you may have to settle for what is paid, but you will reach a point where you can command your work price as you grow and develop.
So make it a point to re-evaluate yourself and update your charges if need be.
Wrapping up, money management is something that none of us is taught at school. But as you grow into your career, you will find what works well for you. Find your niche and follow it consistently; you will be well on your way to building wealth.
[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]
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