Financial Planning For Freelancers

‘Quit your job and travel the world!’ ‘Don’t waste your life behind a desk!’‘You have not lived until you have travelled!’

I read a lot of articles like these, and three and a half years ago, I actually did quit my job.

I was a good writer and I loved to travel, so I thought, “Why do something I’m good at for free?”

Plus, I was confident that the money would start rolling in almost immediately, because I had always been a great writer and I knew some people who could give me assignments.

Nothing could have been further from truth!

The first one year of my new life were not an easy time. The constant uncertainty and fear were at times too much to handle. But there’s no denying that I learned a lot.

If you ask me now if I regret my decision, you know what I would say? Absolutely not! I love what I do! The freedom to work from anywhere in the world and choose my own working hours? It’s amazing!

Today, my life is much better, but that wasn’t always the case. I made a lot of mistakes along the way- some bigger than others- but I am hoping that this article can ensure that you don’t make the mistakes I did and start enjoying your life as your own boss.

The toughest thing about my life as a freelancer was managing money.

Unlike a regular employee in a regular company,I didn’t have a fixed source of income, so it was tough to arrange enough money for my daily expenses.I had loan EMIs to pay off, phone and internet bills to pay, and of course, rent- with the price changing depending on which city I lived in!

Here’s what I learned:

· You must keep aside a minimum of six to twelve months of your average income and not touch it unless it’s urgent! My ‘emergency fund’ as I called it, saved me from going bankrupt multiple times

· If, like me, your parents are nearing retirement, or you have a younger sibling, or anybody who depends on you financially, you need to buy a term life insurance plan to ensure that in case something happens to you, they aren’t left without support

· You are never too young to buy life insurance. I bought it when I was 25, and was able to get 1 crore of cover for as less as Rs. 7000 per year, but my friend who waited till 28 had to pay almost 30% more

· If you are taking loans, make sure to choose an EMI you can afford even in a bad month when you are not able to get too many projects or income- even if that means taking longer to pay it back

Since I wasn’t an employee with a company who had a dedicated HR or Admin department, I had to manage a lot of things on my own.

Here’s what I learned:

· Unlike salaried individuals who usually have an employers' group health insurance, you will have to get your own health insurance policy. Let me tell you that if it wasn’t for my insurance, I would’ve lost a lot of money over the years paying for all the times I got hospitalised due to this or that illness I picked up on my adventures

· Since I didn’t have an employer to give me my Form 16 to file my Income Tax Returns, Imissed the deadline quite often. I eventually consulted a financial planner and was a lot less stressed

· I even picked up some costs you can claim to save tax as a freelancer:

a. Workplace costs: Rent paid for the office where you work can be considered as your freelance business expense and can be easily claimed. If you are working from your parent’s home, claim the portion of the rent paid to your parents (if supported by an agreement/contract). In case you work from your own home, claim a portion of the maintenance charges as freelance work expenses. 

b. Asset costs: Depreciation on assets such as laptop, computer, printer, mobile phone etc., that every one of us uses to work

c. Daily costs: Daily expenses such aselectricity costs, telephone costs, interest costs, courier charges, commute charges, stationery costs and even meal and entertainment costs incurred on clients, provided you have receipts and invoices

d. Travelling expenses: Business travel expenses may also be considered deductible expenses and you can only imagine how much of a relief this was for me to know!

e. Subcontracting costs: If you are paying anybody to help with your freelance work, that may be deductible

f. Other expenses: Expenses you incur on creating an online presence (registration of domain, web hosting and server costs and other expenses incurred for the purpose of earning the revenue

g. Investments: Under Section 80C and 80D of the Income Tax Act, you can claim for investments such as PPF, NPS, ELSS funds, tax-saving fixed deposits, etc., up to the overall limit prescribed under Section 80C

h. Insurance: Lastly, you can even claim on life insurance, health insurance, children’s tuition fees, etc., up to the overall limit prescribed under various sections of the Income Tax Laws

People are right when they say that the moment to start living life, is now. But to ensure that it’s a great life full of memorable moments and no regrets, you need to plan for it, like I did.