Are you a professional with an irregular income? We have got 5 easy Financial Planning tips just for you

Professional such as designers, artists, TV personalities, contractors, Free lance writers and IT professionals, consultants and commissioned sales person all have one thing in common-an irregular income . They all have some good months or weeks when there is a lot of work or sales are high. Then there are other times when sales are low and work is marginal. Financial Planning is critically important for these professionals since their expenses and savings have to be planned around their irregular income.

Here are 5 easy and simple to follow steps that will ensure you don’t go broke during the dry spells.

1) Know your expenses
It’s human nature to splurge when the times are good and to be frugal when the means are limited. It is important to strike a balance and avoid going overboard with the spending. This can happen only when you know your expenses.

Typically there are 2 types of expenses- Living and life style expenses.

Living expense are the basic necessities that need to be paid for regularly and can’t be missed. Under this you have food, utility bills like electricity, gas and mobile. Your monthly expenses like travel, rent, EMIs and credit card bills. And lastly annual expenses like school fees and insurance premiums.

Life style expenses are those which are neither a priority nor your basic necessity and can be avoided for a while. They include expenses like movies, restaurant, partying and shopping online.

2) Uncertain months
Think back and count the number of months that you went without an income or had very little work. This will help us create a back up fund to cover you in case you face any similar situations or if there is a loss of income.

3) Planning for a better future
Not having a steady income is no excuse to not plan your financial goals. When you have a regular income, divide and invest your income into the following 3 categories.

  1. a) Living Expenses– Keep an amount equal to your living expense in your savings account. This will take care of all the automated payments such as your EMI and utility bills. Invest anything more than that in your Emergency and Dream Funds.
  2. b) Emergency/ back up Fund– This fund will be used in case of loss or any short falls in your income and in emergencies. You can create this fund by investing in a Liquid Mutual Fund. Liquid Funds generate a return of 6.5-7% which is much more than the 4% that your bank offers. With an irregular income you want to make smart investment choices.

Remember to use this Fund only for your basic necessities and emergencies only.

  1. c) Dream Funds– Everyone has Dreams and it is crucial that no Dream is left behind. Start by creating financial goals. SIP in a Mutual Fund is the best way to achieve goals like your child’s education, Retirement Fund and buying a house. Invest any surplus and the amount needed for the SIPs in a Liquid Fund. This will ensure that the SIPs for your major financial goals do not stop and your dreams are kept alive when the money is tight.

4) Go easy on your credit card

Credit cards help you to go cashless and offer discounts and points which can help with saving some money. But it is easy to get carried away and lose track of your expenditure. So use your card but stick to your budget and financial plan.

5) Create another source of income

This might not be possible for all. But, if you can get a part time job or a contract which might not be high paying but will still provide some extra income.

Now if you have dependents then a Term Life insurance Plan and a Health insurance are a must. This is to protect your family in case of unforeseen events or hospitalisation.

The bottom line is, don’t be the Grasshopper, be the Ant and save during the hay days to secure your financial future.

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Written by Preeti Chauhan
Certified Financial Planner & a newbie Runner