Saheli Sharma (name changed) had a stable source of income right from his university studies. A serendipitous opportunity to create content for a friend’s website drew her into the world of freelancing and since then there has been no looking back. Five years in the gig business world, Sharma was able to create her own team and built up a loyal following across the world.
Sharma’s journey is one of countless examples of how the gig economy is becoming a preferred work tool for workers across the country. Instead of being employed by a single company, construction workers juggle a diverse set of recurring tasks for multiple organizations simultaneously. On-demand employment basically involves a system where skills and talents are compensated for a certain project, job or assignment. Contract workers, freelancers, and moonlighters are some examples of gig economy workers.
In a report published by the World Economic Forum quoting the UK government, the gig economy has been defined as “involving the exchange of work for money between individuals or businesses through digital platforms that actively facilitate the matching between suppliers and customers, in the short term”. and payment by task. Until a few years ago, the landscape of the gig economy looked bleak and the majority of the workforce viewed it with skepticism. Although part-timers were not uncommon, opportunities were few and the pay was far from impressive. Therefore, those who chose to go the gig route would only keep it as a secondary/part-time thing in addition to a full-time setup. However, the last two years have caused a tectonic shift in the gig economy and the coronavirus pandemic has only brought more takers to the gig ecosystem.
According to a report by ASSOCHAM, the live music industry in India is expected to reach US$455 billion at a CAGR of 17% by 2024. Another study conducted by the Boston Consulting Group in conjunction with the Michael & Susan Dell Foundation ( MSDF) revealed that the gig economy has the potential to serve up to 90 million jobs (about 30% of India’s non-farm labor force), adding up to 1 .25% to India’s long-term GDP and create millions of new jobs in all sectors of the Indian economy.
While the freelance life can be lovely with the increased earning potential, as compensation depends on the number of assignments or work orders completed and the flexibility and freedom to work on your own terms, there can also be challenges. hollow on this trajectory. One of the most pressing concerns for freelancers may be income uncertainty and the lack of a safety net that accompanies salaried employment in the form of benefits and insurance. This can make financial management a bit tricky.
Sharma says, “A superficial look at my career can make freelancing seem like smooth sailing. But I’ve had my fair share of stormy days — there have been dry spells where I didn’t know when I was going to get my next paycheck. These times taught me the importance of sticking strictly to a budget and building an emergency fund that would help me through times when work was hard to get.
For freelancers, especially those who haven’t yet built up a loyal following, the uncertainty of securing a steady stream of work can be stressful. Unlike the salaried class, incomes can drop sharply when job opportunities are scarce. As such, having an emergency fund that helps cover your essential expenses during times when your business is in the doldrums or in times of emergency is imperative. “I typically keep enough money in my provident fund to cover all my essential expenses for six months. I have also invested in liquid funds to supplement my emergency reserve – the volatility is low and they are easily accessible when needed,” says Sharma.
For the self-employed, adequate health coverage for themselves and their dependents as well as a good term plan are also crucial to ensure their financial security. Since the self-employed do not enjoy the aegis of employer-provided health coverages and given the erratic nature of their income, adequate family health insurance can protect you in the event of medical requirements. Sharma says, “Early in my freelance career, when my income was lumpy, I struggled to pay my insurance premiums on time. My financial adviser therefore suggested that I set aside a lump sum as soon as I receive it and put it in a short-term debt fund with a due date close to the premium payment date. It made things a lot easier for me.
Investrite Fintech LLP’s Sohesh Shah RIA says, “Freelancers can go the ETF route because they involve less decision-making, don’t require close oversight, and can contribute to capital appreciation. Additionally, if times of uncertainty make SIP commitments difficult, plans to systematically transfer liquid funds to hybrid funds or equity funds may be a better way to achieve long-term goals. This way, you can invest the lump sum and also enjoy the benefits of the market average. » STPs allow investors to transfer a predefined amount to another system of the same fund house. “That way you can easily switch between debt and equities in varying market conditions and spread the risk element of equities,” Shah adds.
Key points to remember
– The line between your personal and business expenses is sacrosanct – it will help paint a clearer picture of your financial strategies. This segregation will also ensure that there is no spillover of financial issues from professional to personal and vice versa.
– Be judicious when juggling debt, because high debt during a period of low income can disrupt your financial goals.
– Freelancers can go the ETF route as it involves less decision making, does not require close monitoring, and can contribute to capital appreciation.
– If times of uncertainty make SIP commitments difficult, plans to systematically transfer cash to hybrid or equity funds may be a better way to achieve long-term goals.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.