Finance For Freelancers: Amid Rising Uncertainty, A Guide To Stay Afloat And Build Wealth

Jatin Raut (name changed), a software engineer, has been freelancing since the pandemic. The choice was thrust on him, and he was supposed to move to Australia in 2020, but with lockdowns the job offer vanished.

"Later, I didn’t want to join another job in India, because I was tired of a corporate life. So, I started freelancing and the offers were decent. Also, from my last job, I had my PF (provident fund) and gratuity, which created a little nest egg from it, and I built my finances from there," explained Raut.

In spite of starting off on a good base, it took him over a year to make as much as what he made on a monthly basis with a job. "The only reason I could manage is because I had a house and didn’t have to pay rent, and kept my expenses low even after the lockdowns ended. I eat only at home, go out little and even when I do, my needs are simple," Raut gives an idea on how freelancers have to save money to keep their heads above water.

With a frugal lifestyle, Raut manages to hold as much as seven–eight months of his monthly expenses as an emergency fund — in case work gets too sparse in the future, which is a definite possibility. "Having as much as six months' worth of expenses in the bank is non-negotiable for me. It gives you confidence as freelancing payments are staggered," he says.

Financial planner Amit Suri, who is also a mutual fund distributor and founder of AUM Wealth, says freelancers need at least 12 months of expenses in reserve — not just eight. "Rent, groceries, utilities — all essentials must be covered. Without this safety net, freelancing can be stressful. With a monthly salary, there's confidence; without it, anxiety rules. An annual expense reserve takes care of that," he explains.

Ankit Chatterjee (name changed), a freelance copy writer from Kolkata, is of the same opinion. "The key part of freelance money management is to first build a reserve for expenses. Then, they should go for insurance and later, they must spend on whatever they like," he explains.

Unlike Raut however, Chatterjee has fairly high expenses with a good lifestyle. He regularly goes to cafes to break the monotony of working from home, and also travelled to London earlier this year with his wife.

"I know it’s a bad idea but freelancing is a painful job and one needs to balance it," he says. While Raut made the difficult choice, freelancing was thrust on Chatterjee whose life also changed after the pandemic.

After many years as an ad copywriter, Chatterjee shifted to public relations right after the pandemic with a hefty salary at a financial services company. A year and half half later, the new marketing head retrenched the job itself, leaving him with no options. 

By then, ad jobs slimmed down, and jobs were few and far between. "I now take up individual projects and after 15 months of struggle, I am working on four projects at once. It's an unhappy experience to work alone," he laments but also agrees that this path is better than sticking to a single job, which carries risks of retrenchment, especially in a rapidly evolving market.

While Chatterjee has been procrastinating on building his expense fund, he has been investing regularly in mutual funds. "I invest as much as Rs 80,000 per month across all types of mutual funds to build a retirement fund. I missed only one month in between because I was short of funds," he says.

Raut, too, invests in mutual funds — mostly in liquid funds. "I think liquid funds offer me the advantage of taking them out at any time — in case I need money for emergencies. It offers me flexibility," he says.

Liquid funds are short-term debt funds — which range from overnight funds to seven-year funds but the most popular ones mature in 91 days. They do not carry an entry or an exit load, and also have the lowest interest rate risks compared to others. Raut basically parks his expense funds in these mutual funds.

As per experts, both of them are making the mistake of not demarcating their savings in the right manner. Money has to flow into different buckets for freelancers. After building an expenses fund, freelancers 'must' get health as well as life insurance if they have dependents. Later, come investments — which also have to be diversified into fixed deposits, gold as well as mutual funds.

Freelancers carry the tendency to become extra conservative in their approach towards investments due to the bad experiences they've had in life. Sheela Verma (name changed) was working at a publication house as an editor from Mumbai, who had to quit her job after she had her baby.

"It was a high pressure job and also involved the marketing of books. So much travel was impossible after the baby, so I quit. Within a year, however, I took up freelance editing jobs because I wanted to earn money and also wanted to do something productive with my time," she says.

Her earnings however nosedived — for over a year, she could only make only 30% of what she once did. Later, too, her clients kept churning due to the advent of generative AI — which had become the tool of choice for many people in her sector. In the last four years, she hasn't been able to match the annual income she once made as a high-powered executive.

"I don’t think it will ever get back to what it once was. It could even get worse than what it is  now. I am now 42 and planning for retirement but always go for large-cap funds and index funds, where returns are more stable. I do not want any more uncertainty in life," she says.

Suri adds that many freelancers fail to structure their savings correctly. "It's common to become risk-averse because payments are irregular. That's not the right approach. Planning should always be goal-oriented: retirement funds for retirement, mutual funds aligned with a child’s college fund, and so on," he says.

Freelance life needs a lot of financial discipline — twice as much as salaried individuals. Most of them spend a lot of time waiting for payments and when a chunk comes in, they tend to go on shopping sprees because it gives them a high. Financial planners say that such highs must be fought with determination and fortitude. 

He recommends maintaining two bank accounts: one for personal expenses (salary account) and one for business-related costs — networking, skill-building or paying outsourced help. "Every month, transfer a fixed amount to the salary account and don’t touch the business account," Suri advises.

The business account must be used for expenses they incur as a part of them like networking, skill building or paying anyone they hire or outsource some work to. Without discipline, they might as well go back to a low-paying job as finance management is very difficult for freelancers. 

Most freelancers underplay the importance of two accounts as they believe that both of them belong to them. He also advises them to think like business owners instead of individuals — which can help them scale their business.

Freelancers must also avoid too much dependence on one or two clients. Chatterjee says that he has an anchor client who pays a certain amount every amount — the rest come and go. Raut, too, has two clients who are regular but the rest pay in a staggered amount so takes work from them irregularly as and when they pay.

Drawing personal boundaries with clients is very important. "I have a strict rule. If two months of payment is blocked, I work for the third month only if they clear the earlier payments. I do lose some work time but I am sure of it. Most pay and restart but I give them secondary importance with my time," says Raut.

Verma, too, has similar rules. "I have well paying clients with scant work and clients who do not pay well but provide regular work. I balance between them both," she adds.

While all the above are good ideas, good freelancers must keep looking for new work even if they have their hands full. "Anchor clients aren't guaranteed. Losing one can dent 30–40% of pay. Freelancers should diversify work, accept as much regular work as possible, and outsource overflow. Forming collectives to share projects while retaining clients is how true business owners operate," says Suri.

Most freelancers have something in common — no one wants to remain where they are — in the long term. Raut wants to build as much as possible until he turns 50 and then go in for teaching or pursue his hobby of archaeology. "I do not want to be a software engineer all my life, I don’t advise it for younger people as they need to learn and also have social lives," the 45-year-old says.

Chatterjee wants to be on the other side of the bench — he wants to do his PhD, and some of his savings are dedicated to that. "I chose a creative field which gave me pleasure. But, it might not last long with rapid digitisation. I want to settle down after I get my doctorate," he says.

Verma, whose growing child has given her some free time, is preparing for another career too. Amid work, she is also training to be a teacher in international boards. "I want a career that won't be affected by AI. I think teachers will always be in demand and international boards pay well and I am longing for a stable job," she says, as she is disillusioned by her chosen sector.

Freelancers balance many balls in the air — careers, personal lives, ambitions and investments; and a perfect sync as impossible as it seems  — is a necessity.