With so many people switching to freelancing full-time and FIRE lifestyle, read how to become financially independent.
You must have come across all sorts of financial advice, like saving 10-15% of your income every month for your retirement, paying yourself first, planning your taxes, and so on.
But when you’re a freelancer with fluctuating income, these tips are usually unrelatable and ineffective, right? Most of these simply don’t apply to you.
Like, if you have an irregular income, it is sometimes hard to take out 10% of it and keep it aside for retirement.
You can’t make a large payout to pay off any of your debt because you never know when a delayed payment would leave you scratching your head for cash.
We all wish to achieve financial freedom. While it’s already hard enough to achieve when one is working 9-to-5, it gets trickier if you’re a freelancer.
This is why it becomes all the more crucial for you to take charge of your finances if there’s uncertainty about the inflow.
The upside is that you as a freelancer have more control over your hard-earned money and decide where it goes, unlike what happens in corporations.
According to Researchgate, 33% of freelancers worldwide live in India (every third freelancer out there), which is approximately 15 million.
In fact, experts believe that this number could double up every 5 years by 2035. Woah.
Now, with so many people switching to freelancing full-time and FIRE (financial independence/retire early) lifestyle, how can you manage your finances, achieve your financial goals and become financially independent?
Jar has got you covered with all the financial tips you need :
1. Setting your rates right
Often, freelancers undervalue themselves and charge too little when they start. It's because they're stuck in the employee mindset and fail to take into account all of the benefits their prior employer used to provide.
You must make your fee high enough to pay for the perks you must offer yourself, as your own boss.
Calculate your minimum expenditure and consider costs like savings, health insurance, emergency and retirement funds, taxes as well a long dry spell where you might not get clients before setting your rates.
Whether you wish to never stop working, you must prepare for a day on which you no longer generate revenue, or if you dream of retiring at the age of 35.
You will also learn how much minimum money you need to get through in one month.
2. Cut down unnecessary expenses
You're probably spending your hard-earned money on unnecessary items you don't need. Take the smart decision of checking your personal and corporate expenses and eliminating stuff.
Why not reroute the money to automated investments or another bank account made specifically for savings instead? Like the Jar app.
Also, never borrow money for anything that is more expensive than the value it creates. Make savings a habit.
Only focus on making more money and sending new revenue towards your financial goals for self-sufficiency.
3. Start Budgeting
Budgeting is a must for everyone, whether you're a 9-to-5 employee or a freelancer. List your recurring expenses and put them in order by prioritizing them.
Once you know your monthly outlays, set up a budget. Keep a track of all your expenses and savings.
The trick here is to begin at zero. Don't just look at how much you have spent over recent months on average.
Then you order and prioritize these expenses, starting with basic necessities like rent, food, water and electricity.
As you get paid throughout the month, you will start spending the money on the most important items on your list and work your way down.
The point is to take care of all necessary expenses and invest the rest of the excess money.
4. Build a separate account for emergency funds
As a freelancer, your income may be fluctuating, but that does not mean that your expenses are not fixed.
Therefore, it can't be stressed enough to build an emergency fund. You need money in your emergency fund enough for sustaining up to at least six months.
Accidents, delayed payments or car breakdowns, you never know when you might need urgent funds. Always stay ready for unexpected bumps.
Even before you quit your full-time job to lead an independent or self-employed life, you should have this corpus in hand.
Stock away all your extra funds after necessities and taxes in a separate account made only for emergency funds.
It will ensure smooth cash flow during dry months. You can transfer the difference of your actual income and minimum requirement to your main account.
Maintain the balance during cash-rich months. This will give you some peace of mind and you won't be completely dependent on your cash invoices.
5. Think of your savings as a monthly bill
Think of all your savings as a monthly bill. If you've managed to make your basic income stable, you should start to pay yourself.
Count this as a regular expense. They won't seem like a burden to you then but a part of life.
This way, you start building up little by little and then see the numbers pile up. It gets so exciting!
6. Revisit and refine your financial goals regularly
We all have different financial goals apart from saving for retirement. Once you have your emergency and retirement fund in place, you can turn to your other expenses. Like - buying a house or car, trips, education, medical emergencies, etc.
These short to medium-term goals should be addressed alongside or ahead of your retirement savings.
Keep revisiting and reconsidering them from time to time. But long or short, you should always have some goals.
Set your eyes on achieving them and build your lifestyle around them. That's the best way to become financially independent as soon as possible.
7. Get an Insurance
As you're not working in an organization full-time, you need to take care of yourself. You should get both, good health insurance and a term insurance policy.
The premiums are not too costly for these two policies and you can even get it tailor-made if you start younger.
This is one thing you can't do without, given the healthcare situation in the country.
Research and choose the policy that best suits your individual needs. There are currently insurance policies that offer not just death, but disability and disease insurance too. So before committing, shop around.
8. Invest In Gold
While freelancing might be very beneficial, with time your money will depreciate. Blame inflation.
Therefore, you should counterbalance this by making your income stable. How? By investing in gold. It's an excellent approach to diversify your portfolio and tackle inflation.
There are several other options too, like silver and platinum, but let's stick to the most accessible option: gold. Because of its proven experience, it's an easy to buy and reliable asset. You don't even have to keep it in physical form. You can buy it as digital gold or SGBs.
This precious metal has stayed consistent even in turbulent markets compared to other typical investment vehicles.
However, it is vital to first establish your risk appetite, like investing in stocks and bonds. Then invest in gold and grow your money efficiently. Try investing through the Jar app.
Freelance or full-time, everyone faces some struggles when it comes to financial planning.
But there are none that can't be overcome. With these tips, at least your finances wouldn't be a hurdle in living the life you want and achieving financial freedom.