Steering Finances for FREELANCERS

"Beware of little expenses. A small leak will sink a great ship" -Benjamin Franklin

In recent times there has been a significant rise in the "Gig Economy, "which loosely translates into an economy that is run on short term labor contracts and freelancing. It aims at creating flexible jobs for part-time employees, freelancers and contractors instead of long-standing full-time employees. Almost one-third of the population in the US is associated with the Gig Economy and India, too, is becoming the largest Gig economy in the world. According to a report by Truelancer in 2018, India has the world's second-largest freelance workforce after the United States. The report also states that nearly 60 percent of the freelancers in India are millennials (Individuals below 30 years of age).

Many factors integratively have contributed to the growth of Gig Economies. A significant contributor to this being the internet, which makes it possible for people to work remotely. Many individuals nowadays desire greater flexibility regarding where they work from, when they work, and whom they work for. Employers, on their part, increasingly depend on freelancers to deal with temporary increases in workload. On the face, it appears that the gig economy is here to stay, more so as the demands for different types of skills change the new economy and learning, unlearning and relearning becomes the norm.The usual question that pops into everyone's head is how to deal with the instability of income that freelancers might have when compared to a full-time employee? We'll find out in this blog!

Tackling uncertain cash flow is one of the most significant challenges that freelancers face in the gig economy. There is also a threshold on the number of projects a freelancer can work with at a given point of time and the same might result in peaks and troughs in the workload. This factor differentiates freelancers from full-time workers who are offered a significant level of fixed compensation, which comes on time every month.

Since cash flows are likely to be erratic, both financial planning and cash flow planning need to be significantly different for such workers, depending on their family structure and the number of financial dependents.

There are several ways and means in which Freelancers can manage their income –


Budgeting proves to be an uphill task for individuals who freelance as they do not have a structured form of income earning or spending. This leads to going a tad bit over the board while spending without realizing the amount that is wasted. Incorporating a fixed budget for voluntary and optional spending is, therefore, very critical. It should also be monitored very carefully, as there is a high possibility of increasing the amount of expenditure after a large project is completed. Hence, it is essential for freelancers to create a separate budget for fixed and discretionary spending and then track both of them meticulously.

Establishing a robust contingency fund:

Individuals will have to develop something called a "Confidence Pot," which acts as the torchbearer of emergency funds for freelancers. With the erratic and unstable cash flows, creating a fund to save money for the future instills confidence in freelancers' minds.

Maintaining separate bank accounts:

There has to be a different bifurcation between a personal savings account and the current account used for business. This will aid in tracking the areas in which your money is getting spent and it will also be beneficial to analyze the amount that is reinvested into the business.

Devise a well-planned investment strategy:

It is crucial to chalk out a well-defined investment strategy that covers aspects such as health covers, terminal cash flows and ensures liquidity of funds. Diversifying the portfolio plays a significant role in expanding the corpus. Systematic Investment Plans (SIPs) or Systematic Transfer Plans (STPs) are a good source of investment wherein the money is invested in a lump sum and then gets divided into Equity or balanced funds. Investing in tax saving schemes like Public Provident Fund (PPF), Equity linked Saving Scheme(ELSS), Unit linked insurance Plan, Fixed Deposits, National Pension Scheme (NPS) and others will also prove to be advantageous in the future.

As part of the gig economy, the way you work might undergo a radical change, but all of your financial goals will remain the same. It is essential to ensure that there is a much greater emphasis and focus on the financial goals as a freelancer and that a sufficient amount of money is set aside for achieving them!

About the Author...

Samhita Chandrasekaran is a CA Final student of The Institute of Chartered Accountants of India. She is also pursuing her III Year of B.Com (HONOURS) in Chennai. She is highly articulate and analytical. She is a precisionist with excellent interpersonal skills and works well in a team. She is an ardent follower of the stock markets too!

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