Globally, India has the second largest number of freelance workers after the United States with more than 15 million individuals working on their own in diverse sectors. However, people who are self-employed are not entitled to employee benefits like the salaried workforce. Hence, financial advisors who have self-employed clients must take the following steps to ensure their financial future and well-being:
- Create an emergency fund
Income is sporadic for freelancers and self-employed professionals. Therefore, the first thing financial advisors should ask them to do is develop a contingency reserve, which is basically funds kept aside to take care of unforeseen events. The fund must have sufficient amount to cover 3-4 months of living costs. Moreover, encourage them to keep a monthly budget.
- Have adequate insurance
Individuals who work on their own must purchase health cover since they don’t have any coverage from their employers. While calculating health insurance for self-employed clients and their families, financial experts must keep in mind that the amount must be equivalent to 1 year of their annual income.
- Invest in SIPs and ELSS
Self-employed workers can begin investing in Systematic Investment Plan (SIP) with amounts as low as Rs.500 and invest in lump-sum quantities when they have more funds. Financial advisors should explain to them the importance of investing in Equity Linked Savings Schemes (ELSS) for tax planning. Under ELSS, one can claim tax subsidy up to Rs 1.5 lakh under Section 80C of the IT Act.
- Start saving for retirement
Salaried individuals have the option of investing in Employee Provident Fund (EPF) to develop their retirement corpus. Your clients who are self-employed don’t have this alternative hence it is vital to advise them to begin saving and investing for their retirement through other avenues such as Public Provident Fund (PPF) and National Pension System (NPS) which have longer lock-in periods.