Devika Pathak began her journey as a marketing and content consultant eight years ago. She enjoys her work and the fact that she is free to choose what to take on and also which sector to work in. Along with that, it’s also the ability to maximise earnings based on the work and time put in, which appeals to Pathak.
Reem Khokhar has been a part time freelance writer, along with having a full time job, for many years. She took it up as a full time profession in 2018. This is not just work for her, but as she terms it, “the most organic form of expression,” which she explores by writing across the periphery of social, cultural and lifestyle-based ideas.
For Sonali Chowdhury, a freelance media professional, the ability to save time and effort by working from home appeals the most. She gets to work at her pace, while saving energy and time for her seven-year-old daughter and other commitments around managing her home.
When it comes to freelance work, it’s really about the freedom that the structure provides, be it creative or the ability to dictate the terms and time at which work gets done.
Despite the benefits, at times, freelancers may need to find that hidden ounce of extra energy to push harder, given that income can be irregular, uncertain and there are no additional benefits like paid leave or medical insurance.
“We might lose a client in as little as two weeks’ notice, which can change one’s entire income overnight,” Pathak explained.
For all three, irregular payments were a reality when they started out and it became imperative to be selective about the assignments they took on. When it comes to finances, this also means that focusing on financial health needs to be a priority right from the start. To stay on top of one’s financial health, a freelancer must put in dedicated and specific efforts into their personal finances.
Saving more initially
One should get started as a freelancer with the full knowledge that income can be irregular. It can also be uncertain, which means losing clients in a moment’s notice or not getting paid for work done months ago.
Khokhar is a prudent saver, which has its benefits as she manages work and money.
“I had all my savings from my former fulltime jobs to fall back on – that really helped me in those first two years and also during Covid-19. Luckily, work didn't slow down in Covid-19, but I had to pivot to cover more diverse topics and push myself to look for international outlets as many domestic ones dried up,” she said.
Being innovative with work is part of the freedom that freelancers enjoy, but it also means being conservative with money: spend less and save more. In the initial years, without adequate savings, some might even have to get used to the idea of downgrading lifestyle expenses for a while.
If you have the cushion of a working partner or an overdraft from your parents, it may be easier at the start. However, avoid extravagant decisions that may result from this ease of initial capital.
“Freelancers need to ‘front-end’ savings, but that is easier said than done. In the initial stages, income can be just enough to sustain oneself. The focus should be on compulsory savings, whatever the amount may be, or at least regular savings,” said Srikanth Bhagavat, MD of Hexagon Capital Advisors. “Front-ended savings are good for the future and can serve as a reservoir in lean times. In this respect, aiming for a retainership can change the equation and make cash flows more predictable.”
Avoid expensive loans
Home loans, credit card overdrafts, and personal loans are all easy to access and impart a sense of enhancing your life choices. Loans are a double-edged sword and can just as easily create a financial burden or emotional anxiety if your income is unsupportive.
For Pathak, there were tough times when she needed to ask for money, but she has recently focused more on managing money better.
“There have been months that are extremely slow; in those times, because I didn’t have any savings, I’ve had to ask my parents or friends or my partner for money. I have not been very good at saving at all, and actually only started saving in a structured way this month,” she explained.
For freelancers, until such a point in their professional journey where the foundation for regular income becomes strong and one’s services become like a wanted brand, avoid adding to your financial burden through high-cost loans.
Also, do not be in a hurry to buy large assets such as a new house. That can wait till you can truly afford it. Consumer loans are a strict no-no – don’t even touch them with a bargepole.
“Often, the events that lead to one becoming a freelancer can be an impulsive choice rather than a planned one. It’s not always that one will have a savings cushion to begin with,” said Deepali Sen, founder of Srujan Financial Advisors. “If a loan has to be considered, then there is no harm in asking; certain types of work like starting a franchise might make it easier to get a loan. For some individuals, a loan can well be the sword that makes them go that extra mile to focus on income generation, though high-cost loans like credit cards and personal loans are avoidable.”
Should you just invest your savings in the equity markets, hoping your money will double in a few years? When it comes to long-term investments, taking calculated risks is encouraged to build inflation-plus returns.
However, equities are volatile in the short term. For freelance professionals, in the absence of regular income and financial safeguards that come from working for an organisation, relying heavily on market-linked investments can hurt when the capital markets are trending lower.
It's not just investing though, but overall risk management that is important.
“If there are dependents, a low-cost term life insurance cover is necessary to protect the family. Health insurance and disability cover are also critical for freelancers to consider and plan for,” said Bhagavat.
Add insurance covers like motor and home, for events like car accidents and theft; you can be financially well protected against a variety of emergencies.
Prioritise creating a financial hedge (insurance) along with a stable return investment portfolio with securities like fixed deposits, short- and medium-term debt mutual funds and a suitable pension fund. Once this part of the portfolio is well-funded to take care of professional or personal emergencies, then seek out risk assets like equity or property.
Beyond understanding the risk dynamics of earning and investing as a freelance professional, one also has to rely on self-discipline. For Chowdhury, there is financial comfort as her spouse’s earnings are also in the family pot.
“Most of my income straightaway gets invested in mutual funds (SIPs); I retain 10-20 percent for my personal expenses,” she said.
For Khokhar, self-discipline not only helps stick to deadlines but also helps her save and invest regularly.
“I try to keep a fixed amount in my account that I know I need to spend and anything extra I invest in mutual funds or put away in a separate account that I don't touch unless I need it for emergencies,” she said.
Starting out on your own can give you the much-needed work-life balance and the fulfillment of creative expression, but building your financial health into this is just as important. There is no easy route; being conservative when it comes to spending and investing is your best bet till income itself becomes large and regular enough to support your lifestyle choices and future financial health.