Financial planning when you have a fixed source of income is easy as you know. That an x amount of money will come in and after your expenses, some will be saved, some invested, etc.
But when you are non-salaried such as a freelancer, you don’t have a fixed amount of money coming in, and you need to manage expenses and investments very carefully to ensure that you don’t overspend.
Here in this article, we will help you understand where your money should go apart from your usual expenses.
1. Emergency fund –
This is one of the most important steps in financial planning. As a non-salaried one doesn’t have a fixed source of income, and sometimes it is also possible that you won’t have any income in that particular period, or maybe sometimes your income is lower than your expenses in such cases you need an emergency fund which you could use to pay for necessities. For building an emergency fund you would need to save some from your income. And for building an emergency fund, first, you need to list down all your expenses in a month, an emergency fund is made up of necessities only. If you’re done with making a list of your expenses, then you need to decide how many months of the emergency fund you would like to build. Usually, people prefer an emergency fund of 6 months, but you may do it according to your preference of how many months you require. but building an emergency fund should be your priority.
2. Buying insurance – The need for insurance is the same for both a salaried and non-salaried person, as insurance covers unexpected and usually expensive expenses. It is necessary for a person to buy insurance as one doesn’t know when some emergency can arrive, also it’s important with time to buy health insurance as the medical treatment is so expensive it’s hard for anyone to afford and to cover such expenses we need insurance. One should buy health insurance for them as well as their family, also life insurance is a must-buy to provide for the family financially in case of some adversity.
3. Building retirement fund – Maybe you are earning now but you won’t earn forever, you will retire and you would need funds to financially sustain yourselves, so you need to plan for that from now on. Usually, salaried people have the EPF option which automatically creates a pension fund but for non-salaried you would have to create it yourselves, and to create a retirement fund you would need to decide a retirement age, if you decide to retire early then you would need funds accordingly but if you retire on average retirement 60, then the rule of thumb says you should have a corpus, 35 times that of your annual income.
4. Invest to generate a passive income – This is another one of the important points as, if you’re non-salaried then having a different source of passive income is the best option as it would create a regular income. There may be different ways that you create passive income that could be as having a side hustle, or investment which provides you with regular returns such as in the form of dividends. But make sure that you don’t have to invest much of your time into this.
2. Buying insurance – The need for insurance is the same for both a salaried and non-salaried person, as insurance covers unexpected and usually expensive expenses. It is necessary for a person to buy insurance as one doesn’t know when some emergency can arrive, also it’s important with time to buy health insurance as the medical treatment is so expensive it’s hard for anyone to afford and to cover such expenses we need insurance. One should buy health insurance for them as well as their family, also life insurance is a must-buy to provide for the family financially in case of some adversity.
3. Building retirement fund – Maybe you are earning now but you won’t earn forever, you will retire and you would need funds to financially sustain yourselves, so you need to plan for that from now on. Usually, salaried people have the EPF option which automatically creates a pension fund but for non-salaried you would have to create it yourselves, and to create a retirement fund you would need to decide a retirement age, if you decide to retire early then you would need funds accordingly but if you retire on average retirement 60, then the rule of thumb says you should have a corpus, 35 times that of your annual income.
4. Invest to generate a passive income – This is another one of the important points as, if you’re non-salaried then having a different source of passive income is the best option as it would create a regular income. There may be different ways that you create passive income that could be as having a side hustle, or investment which provides you with regular returns such as in the form of dividends. But make sure that you don’t have to invest much of your time into this.
Conclusion –
A non-salaried person is exposed to more risks as compared to a salaried person. And they have a higher income uncertainty, so the above-given methods could help you as a beginner to build your own financial plan if you’re a non-salaried person.