How should freelancers manage their money?:How much should they set aside for taxes

Today freelancing is a popular way of earning income. Freelancing means working independently for a company. There is no pressure to work in shifts, but there are some challenges too. Proper money management amidst irregular income is the biggest challenge. Where regular jobs provide a fixed salary every month, freelancers’ income can sometimes be more and sometimes less. In such situations, proper planning of budget, savings and taxes is necessary. With the right strategy, financial stability can be achieved despite irregular income. Lets understand how freelancers should manage their finances. We will also learn that- Expert: CA Anurag Sachan, B. K. Khare Company, Nehru Place, New Delhi Question- Why should a freelancer’s financial plan be different compared to those with regular jobs? Answer- The earnings and risks of freelancers and those doing regular jobs are different. Therefore, their financial plans should also be different. The biggest reason for this is ‘unstable income’- Regular Job- Fixed salary is received every month. Freelancer- Income remains uncertain, it can be less sometimes, more at other times. Question- If a freelancer’s income is irregular, then how should they create a budget? Answer- Due to irregular income, freelancers’ budgets are not like those with ‘fixed salaries’. They should adopt a slightly smart and flexible approach. For this, keep some things in mind- 1. Set a Baseline Income 2. Divide Expenses into Two Parts Essential Expenses Rent, food, essential bills. Variable Expenses Travel, shopping, entertainment. First cover essential expenses, then spend the remaining money. Question- What should be the main focus in a freelancer’s budget? Answer- The biggest problem for freelancers is stability. Therefore, while making a budget, keep in mind the points mentioned in the graphic- Question- How should freelancers plan their savings? Answer- Saving is more important for freelancers because their income is not stable. See the saving methods in the graphic- Question- How important is an emergency fund and how much should it be? Answer- Emergency fund is the foundation of financial safety. It becomes even more important when there is unstable income in freelancing. Why is an emergency fund necessary? Protection in emergencies: It helps in situations like hospital bills, home repairs. Support when income stops: It provides support when work is not available. Mental peace: Stress reduces during difficult times. Protection of investments: There is no need to stop long-term investments. Question- What is a buffer account? Why is it necessary for freelancers? Answer- This is a separate account in which you deposit your extra income. When work is less or payment is late, this money comes in handy. For freelancers, a buffer account is not an optional thing. It is a practical way of stability in income uncertainty. Why a buffer account is necessary, see in the graphic- Question- How should freelancers start SIP or regular investment? Answer- Starting SIP for freelancers is a bit difficult because their income is not fixed. However, it can be made easier by adopting the right approach. See investment rules for freelancers in the graphic-
Question- How to manage tax in freelancing jobs? Answer- Tax management for freelancers is a bit different, because tax is not deducted from salary, you have to plan it yourself. See the tax planning rules for freelancers in the graphic- Question- Which expenses can be claimed in tax? Answer- Freelancers can claim work-related expenses in tax, which can lead to savings. The only condition is that the expense should be related to work (business/profession). Claimable Expenses 1. Work-Related Expenses 2. Internet and Communication 3. Software and Tools 4. Office or Workspace Expenses 5. Travel and Meeting Expenses 6. Professional Fees 7. Marketing and Promotion 8. Skill Development Question- Suppose a freelancer’s income fluctuates between ₹30,000 to ₹80,000 , then how should they manage their money? Answer- It is necessary to create a system to handle this, so that your lifestyle and finances remain stable every month. Keep some things in mind- 1. Set a Fixed Salary 2. Create a Buffer Account 3. Keep Expenses Under Control 4. Adopt the 50-30-20 Rule 5. Divide Money According to Needs 6. Must Keep an Emergency Fund Question- Why is retirement planning important for freelancers? Answer- Freelancers do not have facilities like pension, PF or gratuity like salaried people. Therefore, they have to plan their retirement themselves and the sooner they start planning, the better it is. Why is it necessary? 1. There is no fixed income. 2. Working becomes difficult with increasing age. 3. Things become expensive over time. 4. Health expenses increase with age 5. Financial independence is essential. When and how to start?