Being in your pajamas, settling down with a fresh cuppa of tea and working on your own time.
This is your life if you are a freelancer. And it can be a blissful one, until the money is coming in.
Do you sometimes find it tough to pay your bills on time? Worried about when the next project comes in?
Here are six important money management tips for those who have just ventured out into the world of freelancing.
1. Review your monthly income: As a freelancer, you may not get monthly pay checks and your clients may delay the payments for weeks or even months. Moreover, there is no assurance of a long term pay out like a regular job as your clients can decide to stop the project at any time. So, you should be financially ready to face any such challenges that may come your way.
Reviewing your monthly income is the key point here. Without a clear idea of what would be coming your way, you cannot plan your budget as well as savings.
2. Need of separate accounts to stay organized: Just like office goers having a salary account, a freelancer should have a dedicated account to receive his remuneration. Mixing up personal funds and work related funds is a sure shot recipe for financial confusion. You may also fail to review where you are standing financially.
With a dedicated account for your payments, you can start planning some small investment schemes like an RD or SIP, or even bill payments through it.
3. Planning reserve money: Since you will not be getting a regular fixed income by freelancing, it is recommended that you plan some reserve money for the possible rainy days, ie, for those months when you are not getting adequate projects or payments.
Recessions, poor market and your client’s change of fortune, can all affect your income. So always keep aside a reserve fund, preferably from your first few payments, to have a backup in place.
4. Tax basics: Being a freelancer means you are an entrepreneur. Soyou need to plan everything including your taxes from an entrepreneur’s point of view. The money you earn through freelancing is your income from profession, and is liable for tax payments as per the slabs. Whether your annual income exceeds the minimum threshold limit of income tax or not, you will have to file your returns.
You will have to collect Form 16A from all your clients who are deducting TDS from their payments. Take the help of an income tax consultant to understand your taxation liabilities and tax savings through investments as well as through claimable expenses like telephone and internet bills, travel bills etc.
5. Managing bill payments: Your irregular income stream cannot be an excuse for late bill payments. This is because late payments can wreck your financial life with a poor credit score. So, have a clear idea about your bill dates, be it the credit card, telephone bill or loan EMIs.
As you cannot pin point the exact amount you may get in a month, you can safely schedule your bills to the middle of the month, or at varying intervals so that you can breathe easy with them.
6. Planning savings with irregular income: Planning savings too can be a tough cookie to crack for freelancers. You can have as many regular small savings plan like SIPs, based on your average monthly earnings.
One time investments like ULIPs can be planned when you get some big payments. Having a clear idea about the places from where the income comes, the temporary one-time assignments and the long term ones, will help you for a long term plan.
Getting to know your average monthly income is the important start in the money management of a freelancer, because you will be basing your savings as well as spending from this figure.
Once you’ve got this pat, you can settle in without a worry with a cat or a laptop, and get to work.
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