The pandemic has widened the scope of the freelance and gig economy – today, more businesses are open to hiring skilled talent without having to put them on the payroll. Besides, people are realizing the benefits of being their own boss.
There were an estimated 16 million freelancers and independent contractors in pre-COVID-19 times, and the sector is expected to grow at a compound annual growth rate (CAGR) of 17% to become a US$450+ billion industry by 2024.
Freelancers and gig workers need to constantly upskill and re-skill if they are to stay relevant. And outside of their core expertise, they also need to be skilled in managing their finances efficiently.
If you are a part of the gig economy, here are some tips for better financial management:
Figure out your expenses
You need to get a better idea of your baseline living expenses to manage your finances effectively. This will include essential expenditures such as rent/maintenance, utilities, groceries, transport, etc., as well as debt and repayments such as a mortgage, Car Loan, or Education Loan and other business expenses. It does not include non-discretionary expenses –what you might spend on leisure travel, eating out, or shopping.
This is a crucial exercise, especially for new gig workers, to understand the minimum business they need to generate and manage savings for a rainy day.
Separate the personal from the professional
The line between personal and business expenses can blur very easily for freelancers and self-employed professionals. However, maintaining a distinction between the two is important – for both yourself and your business entity.
Of course, you should pay yourself enough to cover basic expenses and ensure that all your financial obligations are fulfilled. Plough the rest back into the growth of the business. Clear all loans and Credit Card bills on time to maintain a good credit score; this will impact your ability to source financing later for personal or business needs.
Plan ahead for lean spells
Given the possibility of income disruptions, it is important that you assess the adequacy of your capital reserves. Put aside a part of your income periodically towards a contingency fund that can help you cover at least three-six months' worth of living expenses. Invest the earmarked funds in a bank deposit or liquid Mutual Fund to generate some passive returns and can be accessed easily when required.
Organise your finances
After accounting for your basic expenses and emergency savings, set aside some funds for your financial security and long-term goals. The first step is to get health insurance to safeguard yourself and your family. Make different investment buckets for different life goals, such as purchasing a house, setting up an office, or saving for retirement.
In the months that you earn more, save more. This way, even if there are lean periods, you won't be significantly off your savings target by the end of the year.
Monetise your downtime
The revenue they can generate for many freelancers is directly tied to the effort or hours they can put in. In some cases, this can limit one's earning potential and add to the pressure of 'being on the job' at all times.
Depending on your business segment, look for opportunities to supplement your income. For example, you could advertise your skills, product, or service through informative blogs and videos while monetising the same.
Take advantage of tax breaks
A host of business-related expenses can be claimed as deductions to reduce your taxable income and boost profitability. Overheads such as power, telephone/internet bill, office supplies, website costs, and depreciation on assets such as laptop, camera, vehicle, etc. (if used for business purposes) can be claimed as a deduction.
Be sure to keep copies of all bills and invoices while filing your tax return. Additionally, if TDS is being deducted on your service by clients, ask them to furnish the TDS certificate (Form 16A) to understand your tax credit.
Don't lose sight of the big picture
To sustain and thrive in the gig economy, you will need to invest time and money. You may have to lease an office space, hire people, get more/new equipment, purchase a vehicle, develop a website, spend on marketing/branding, and more.
To ensure that your business prospects don't suffer for lack of capital, apply for HDFC Bank's over-the-counter Business Loan. HDFC Bank offers quick and easy funding of up to Rs 75 lakh at competitive interest rates and pocket-friendly EMIs. Speedy disbursals and flexible tenures (12 to 60 months) mean you can structure the loan as per your budget and cash flow. What's more, the interest you pay towards the loan can be claimed as a deduction against your taxable income as a freelancer.
Click here to apply for a Business Loan now!
A little financial prudence can go a long way. Who knows, maybe your gig might become the next multi-billion brand!
What are the things to ensure when taking business online? Click here to know more.
*Terms and conditions apply. Business Loan at the sole discretion of HDFC Bank limited. Loan disbursal is subject to documentation and verification as per Banks requirement.