Not everyone has a regular income. Freelance writers, business owners, self-employed professionals, etc., often don’t get a regular inflow of cash. Their expenses, however, remain relatively constant, making proper financial planning extremely essential. However, financial planning for these individuals can be a challenge, though investing in assets like Fixed Deposits (FD), liquid funds, etc., would make a huge difference in their lives.
The best method to overcome the defects of your irregular income though, is to come up with a well-thought-out financial plan to manage the cash flow. Here are a few financial planning tips that will help you do so:
Have a Buffer/ Emergency Fund
As a person with irregular cash inflow, it is extremely important that you have an emergency fund for the drier days. Ideally, you should lock away enough money for a year’s expenses. This can be either in FDs or a savings account for the stability of your principal amount. Moreover, these assets also offer returns and help you grow your savings over time.
Bajaj Finance FDs offer high interest rates of up to 8.75%, along with various other benefits, including choosing your tenor and the frequency of your interest payouts. You can easily maximise your returns by investing in such an investment avenue.
Additionally, having such a fund will prevent you from liquidating assets meant for key goals, during emergencies and low periods.
Determine Your Current and Future Expenses
You need to have a baselie, i.e., you need to know how much your minimum monthly expenses are. Food, rent, and electricity/water bills are of course included, along with transportation and internet charges. Moreover, knowing your expenses helps you create a budget.
Over and above your basic monthly expenses, you also need to be careful of your possible future expenses. For example, you would need to plan for your children’s education, and your own retirement. Proper investments – in the right assets – will help you manage these goals. Ideally, you can invest in both fixed assets and equity to create the corpus you would require for them. In case of fixed assets like FDs, you can use an FD calculator to check how much interest you would earn on your principal.
Separate your personal and business expenses
Keeping separate accounts for your personal use and your business is very important for self-employed individuals. Doing so gives you a better idea of how much you spend for each and lets you keep a tab on your expenses for both. Moreover, any surplus income – professional or personal – can be invested.
You can consider parking them in FDs to receive future benefits. You can also invest them into Systematic Investment Plans (SIPs) to help you build a corpus for a future goal – for example, retirement (personal), and expansion of your business (professional).
Purchase insurance cover
Apart from FDs and other such assets, having adequate insurance cover is also extremely important to avoid extra expenses during emergencies. You should, at the very least have a term life cover, and a basic health insurance cover for your family. Term covers provide substantial sum assured at low premiums, and will be affordable even with your irregular income.
Moreover, it will help your family maintain their lifestyle in case something were to happen to you, by paying off your debts and replacing your income. To achieve this, though, your term life cover should be at least 10-15 times your annual income.
The health cover, meanwhile, will help you protect yourself and your family, from the high healthcare costs in the current market. You can even protect your entire family under a single-family floater policy instead of taking individual health covers for every member. Remember, health insurance is an essential expense because without it, you’ll need to pay out of your pocket for incidences of hospitalization.
Create additional sources of income
Investments in FDs, equity, and debt are sure to generate extra income. However, all these types of investments should be opted for only after careful consideration. Debt assets like personal loans and credit cards may affect your long-term finance if not utilized properly. Moreover, taking on small additional projects, and/ or creating alternative sources of income would provide you a lot more financial stability.
Stick to your plan
Lastly, remember even the most elaborate and well-thought-out plan isn’t going to help you, if you don’t stick to it. So, once you create the budget, follow it. Try to avoid any unnecessary spending that may affect your financial plan, and in turn your long-term goals. The power of compounding works best in the long-term. So, leaving the money you invested untouched for a longer period will provide you a bigger corpus to meet your financial goals.