Financial moves for individuals with staggered incomes

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The employment landscape in India is changing with more people opting to be their own boss. Content creators on various platforms like YouTube or Instagram are increasing by the day; and so are freelancers across various domains like tech, accounting and finance.

Working independently or as a part of the gig economy comes with its own set of challenges with regards to financial management and the journey to financial freedom. Unlike a salaried job, incomes are not regular and most gig workers don’t have access to employment benefits like EPF, EPS, and insurance.

One can still ensure that financial goals are met by 1) setting aside a liquid reserve for 6 months of planned expenses, 2) reducing one’s exposure to unplanned events by insurance, 3) having emergency funds for uninsurable events, 4) maintaining good credit history to have access to cheap credit, and last but not the least, 5) investing towards life goals as per one’s risk appetite.

1)Liquid reserve for 6 months of planned expenses: This money is meant to cover predictable outflows like food and groceries, rent, school fees, daily travel costs, insurance payments and EMIs for any loans. Saving accounts and withdrawable FDs are good avenues to maintain liquid reserves. Obviously, minimizing monthly expenditures will help ensure there is a large surplus available for investments.

2)Insurance to reduce exposure to unplanned events: Unpredictable events can derail one’s journey to financial freedom. Insurance is an effective instrument to minimize that risk by turning unplanned events into monthly planned insurance premiums. Health insurance, property insurance, life insurance and vehicle insurance are strongly recommended for this purpose.

3)Emergency funds for uninsurable events: Insurance, unfortunately, does not cover all possible events and setting aside at least another six months’ worth of monthly expenditure is recommended for uninsurable events. However, due to the availability of all necessary insurance covers, the likelihood of experiencing uninsurable events is low, so one can take a bit more risk on this and divide this corpus across high yield debt funds, money market mutual funds and low beta commodity ETFs.

4)Good credit history for access to cheaper loans: Upheavals in the economy and high potential growth options could prompt individuals towards credit. Strong credit history goes a long way in reducing the cost of credit. Taking a LOC (line of credit), where charges only accrue on withdrawal, helps ensure quick access to a cheap loan when needed.

5)Life goal investments: Making investments as per one’s risk appetite and timespan of the goal will help maximize the returns and efficiency of investments. A goal that is due soon, will warrant a larger proportion of the corpus in debt investment, while for a goal that is due after many years (e.g. retirement), a higher proportion of the corpus could be put into equity options. Adding a SIP into the monthly expenditure plan is recommended to average out market fluctuations and effortlessly stay on track with your financial plan.

Freelancing gives one the flexibility of choosing work hours, clients as well as the type of work. With a bit of time spent on financial planning, one can also cherish the peace that comes with financial freedom.

(The writer is the head of consumer risk at Capital Float. Views expressed are personal)