A freelancing career is a bold decision with freedom lying at its crux . Freelancing has been attracting individuals now more than ever before, with nearly 57 million people in the USA alone taking up freelancing gigs. The number soars to a multi-billion mark when assessed globally. However lucrative it might seem though, the life of a freelancer can have its share of financial challenges. Living on a project to project basis with an absence of steady flow of income and employee benefits as in the traditional 9-5, can leave many fiscally vulnerable. And statistics seem to agree. 43% of individuals admit that they are less financially stable after quitting their full-time jobs and being self-employed.
If you are looking to avoid the same fate, it is important to adopt an investor mindset and apply financial tips that go beyond the traditional – track your spendings advice, though its power to significantly increase resources can not be undermined. We offer you an investment guide that will not only keep you financially secure, but also aid you in building up wealth.
#1 Build Up Your Emergency Fund
Life is not a bed of roses, with challenging times capable of knocking you off course. An emergency fund keeps you financially secure in times of an unforeseen crisis. Being proactive about creating an emergency fund not only saves you from the fret of looking for money at crucial moments, but also protects you from the debt trap – incapability in repaying loans in an extended crisis scenario. Also, an emergency fund offers you monetary resources during lack of a paying project, a situation common in the life of a freelancer.
We thoroughly explore the process of building an emergency fund here.
#2 Plan your taxes
As the phrase often attributed to Ben Franklin goes – there are two things certain in life – death and taxes. It’s easy to appreciate the sentiment behind his. Taxes do eat a great chunk of your earnings. While salaried individuals have departments like HR and accounts to help them save taxes, freelancers need to take charge of their filings and utilize tax benefits and other opportunities all on their own. Most modern taxation systems allow freelancers to claim expenses incurred on travel, depreciation of assets, etc. In India, for example, freelancers with an income up to Rs 50 lakh can claim 50% of their total receipts as a business expense under Section 44ADA of the Income Tax Act 1961 without maintaining any logs of accounts. A significant portion of money saved could be invested to pack on those savings.
Therefore it becomes necessary to consult an expert and plan your taxes.
#3 Insurance
Health emergencies are often unexpected, and enormous medical bills can quickly drain financial resources for even those doing well for themselves. While your emergency fund might sustain you during testing times like the Covid-19 pandemic, amongst the worst pandemics in history, a dedicated health cover does more than that. In a scenario of personal medical tragedy that might put you out of work for months, exhausting emergency funds – first on medical expenditure and then on daily expenses, will quickly leave you financially unprotected.
A dedicated health cover on the other hand, does not let the emergency fund bear the heat of the circumstance and covers all your medical bills. Also at unfortunate times like demise of the sole breadwinner, a term insurance financially safeguards the interests of those dependent.
Clearly, investing in suitable health and term insurance compatable to your earnings is crucial for your future economic health.
#4 Plan your retirement
The investor mindset promotes planning your retirement at the earliest. For freelancers early in their career, saving up for retirement might look like an early undertaking but you’d probably want to start asap if you gave it a thorough thought. Retirements can be outlandishly expensive and if you plan on not living frugally during your final years, then the sooner you start, the better.
- Research about your country’s dedicated retirement accounts or fixed deposits which might offer you tax deductions and other incentives. Since you start saving early, the returns that you will enjoy during retirement will be drastically compounded over the years.
- Look for other passive investing modes like passive funds which will eventually help you in reaping high monetary rewards later in your career and can also be reinvested.
We discuss some other modes for investment in our next tip which are capable of supplying high rewards in future.
#5 Traditional investment routes
Money saved from other expenses can be invested in diverse traditional investment methods. Though there is no guarantee of returns in the short term owing to a bunch of macroeconomic factors, in the long run, most traditional investments, especially equity, only go up. Some solid options to always keep in mind are:
- Real estate
- Active investments in stock market
- Government bonds
- Material investment like gold, diamonds, etc
Apart from these, countries have distinct government backed schemes and entities for investing. A well researched and analysed investment on these routes will significantly expand your health.
#6 Invest in Your Endeavour
By now we have discussed areas that hold crucial importance to keep your financial health in check. But investing in your own endeavour will significantly aid in expanding your clientele and thereby generating more revenue.
- If there’s a skill which, coupled with your existing skills, can attract more projects, invest your resources and build it up. Hire the best instructor and grow that particular skill.
- If a manual job like creating and sending invoices or bills is consuming your time then invest your money in specialized software for this. It’s a no-brainer.
- Invest your resources in self promotion and other branding ideas that will present a wider prospective client range in front of you.
Investments like these, however small and big they might look, their benefits in the long-run can not be debated. Investing in areas that will bring more business or improve the existing business should not be re-thought and instead, actively pursued.
Investing as a freelancer: what to do?
By now, you should have a clear idea about the right investments that will propel your freelancing career towards financial security and aid you in amplifying wealth. While there isn’t much debate about the criticality of these best practices, understand that sacrificing your desires and living on a saving for future mindset will deprive you of all the adventures and experience that life has to offer. A balanced and disciplined investment approach, both for future security and present thrills is possible without leaning much on either extreme.
