If you have trouble paying your bills on time or are constantly concerned about when the next assignment will arrive, you need to improve your money management abilities.
Here are crucial money management recommendations for those who have recently entered the realm of freelancing, such as yourself:
1. Examine your monthly earnings: As a freelancer, you may not be paid on a monthly basis, and your clients may defer payments for weeks or even months. Furthermore, unlike a traditional work, there is no guarantee of a long-term pay out because your clients can decide to end the project at any time. As a result, you should be financially prepared to tackle any issues that may arise.
The main aspect here is to review your monthly income. You can't plan your budget or your savings if you don't know what's coming your way.
2. Separate accounts are required to stay organised: A freelancer should have a specialised account to receive his remuneration, similar to how office workers have a salary account. Mixing personal and work-related cash is a sure-fire way to get into financial trouble. You may also neglect to assess your financial situation.
You can start arranging minor investment plans like an RD or a SIP, as well as bill payments, with a dedicated account for your payments
3. Setting aside money for rainy days: Because freelancing does not provide a steady stream of income, it is advisable to save aside money for rainy days, i.e. months when you do not receive adequate jobs or payments.
Recessions, weak markets, and changes in your client's fortunes can all have an impact on your earnings. As a result, always set away a reserve fund as a backup, preferably from your first few payments.
4. Tax fundamentals: As a freelancer, you are an entrepreneur. As a result, you must prepare everything, including your taxes, from the perspective of an entrepreneur. The money you earn from freelancing is considered professional income and is subject to taxation according to the applicable slabs. Whether or not your annual income exceeds the income tax minimal threshold limit, you must file your returns.
All of your clients that deduct TDS from their payments will need to fill out Form 16A. Use the services of an income tax consultant to better understand your tax obligations and to learn about tax savings opportunities through investments and claimable expenses such as phone and internet bills, travel expenses, and so on.
5. Managing bill payments: Late bill payments cannot be excused because of your unpredictable revenue stream. This is because a bad credit score might ruin your financial life if you make late payments. So, whether it's credit card payments, phone bills, or loan EMIs, be aware of your bill due dates.
Because you can't predict exactly how much money you'll get in a month, you can securely arrange your bills for the middle of the month, or at varied intervals, so you can relax.
6. Savings planning with irregular income: Savings planning might be difficult for freelancers. Based on your normal monthly earnings, you can have as many regular little savings plans as you choose.
One-time investments, such as ULIPs, might be prepared when you receive a large sum of money. Knowing where your revenue comes from, whether it's from temporary one-time tasks or long-term contracts, will help you organise your finances for the future.
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