Investment & Financial Planning Tips for Freelancers and Business Owners

June 2020

3 min read

 

What is common between Freelancers and Businessmen? The common thing between these two is the irregularity of the income. And with irregular income, how should you plan your finances to ensure that; all the financial goals are met with enough liquidity in hand? What is the right way of making the investment SIP or Lumpsum? What if you do not have enough surplus to invest? We will help you with all these important questions with our Investing & Financial Planning Tips.

So, Who is a Freelancer? A Freelancer is someone who does work for other people on a contract basis. Hence, in turn, is self-employed. Whereas, as Businessman is also self-employed but he/she also employs other people. As you get busy in making your business grow or to make yourself the expert in your field, the money matters should not be overlooked.

As both; freelancers and businessmen are self-employed, they do not get a regular stream of income. This affects the financial plan adversely. Hence, we need to find ways that will help in fulfilling the financial plan. Here are some of the financial & investment planning tips you can use:

Investment & Financial Planning Tips for Freelancers and Business Owners

Set up Insurance & Emergency First

This is the most important aspect for freelancers and businessmen. The uncertainty in income should not impact the base of the financial plan i.e. Adequate Life, Health insurance, and emergency fund. Hence, buying life and health insurance policies should be a top priority.

In usual cases, the Emergency fund is recommended to be 6 times the monthly expense. However, in this case, the emergency fund should be at least 9-12 months of expenses; because, during an economic slowdown, it might take longer for business to recover and start generating revenue again. Hence, having adequate liquidity during financially challenging times is important.

Decide the quantum of investment for the year and increase it every year

While making regular investments may be difficult, decide the total corpus you will invest in a year. And stick to that figure. By doing this you will be able to maintain discipline in investments. Also, decide upon the % increase in investment every year.

With increasing inflation, the investment rate should also increase every year. You can decide the % of increase every year based on your income. If your income increases by 5%, increase your investment by 5%. However, if your income decreases then try to cut down on expenses instead of investments.

Invest in less risky funds since there is a already substantial risk in the variable income

For most freelancers and businessmen, the income varies every month. This variable income is also a type of risk since it is unpredictable. In addition to his, increasing risk in the financial portfolio can get too overwhelming. Hence, investing less risky funds is a better strategy to reduce overall risk in the portfolio.

For example, you can completely avoid small-cap, thematic, credit risk, and long term debt funds considering the fund volatility. In Equity funds: Large-Cap, Multi-Cap, Large Cap & Mid Cap are better options. And in debt funds: Short Term Debt and Corporate bond Fund are feasible for the investment of 1-3 years.

Look for ways other than SIP to invest like Lumpsum, STP

Investing via regular monthly SIPs can be challenging with irregular income. But that shouldn’t stop you from investing. You can opt for lumpsum investments. Or if you have a larger corpus to invest in which you do not wish to invest in one go; you can invest the amount in a liquid fund and do weekly or monthly STP to invest in equity funds gradually.

STP investments have two benefits, one is an investment in liquid funds which gets a better return than a savings account; another is getting the benefit of market volatility by staggering the entry points in equity. In this process, take some exposure in debt funds to maintain the asset allocation.

Invest higher amounts whenever possible to cover for the shortfall

For the times you miss your annual investment target, there should be times when you make up for that amount by investing higher amounts during your good days. You will have to be mindful of the gaps created in your financial plan and fill those whenever you can.

To do that, you can review your financial plan every year and take action accordingly.

Needless to say, doing all this by yourself in addition to managing your projects and business is practically impossible. Taking the help of a qualified financial advisor can take you a long way. If you do not know where to start, get in touch with our support team and they will put you through a financial advisor who can help you in managing your money better.