Guide to Financial Independence for Freelancers and Gig Workers

The gig workforce is expanding at an exponential rate. According to a government report, there will be 23.5 million estimated workers by 2029-30, which is about three times the 2020-21 statistics of 7.7 million. This surge is driven by several factors.

Gig work offers individuals the flexibility to choose projects aligned with their skills and schedules, which appeals to those seeking independence. Meanwhile, companies benefit from reduced costs and the ability to scale up or down based on demand. With ongoing digital transformation, new opportunities for gig workers are emerging across India, making this model increasingly attractive.

However, gig workers might face challenges with their financial management. This is because they have to manage everything themselves, be it work, earnings or taxes. It is one of the reasons why many people hesitate to opt for freelancing. But with proper financial planning, this hurdle can be eliminated completely.

This blog will take you through strategies to achieve financial wellness and independence. So, let's begin.

Important aspects you need to take care of when planning your financial independence as gig workers and freelancers:

1. Budgeting
   As a freelancer or gig worker, you may face issues with having a regular income. Therefore, it is essential to allocate funds to various activities and plan a proper budget. Consider expenses, such as rent, utilities, bills, groceries, etc. Allocate a part of your income to cover these necessities. Furthermore, since gig work is unpredictable, it is wise to create an emergency fund in a separate savings account online or offline, whatever works for you. It is advisable to apply for a digital account so that you can operate it from anywhere, at any time.
2. Find more sources of income
   Relying on one source of income is not recommended, especially in this field of work. To minimise risk, you can explore opportunities to generate more income. For that, you can offer different services that are relevant and related to your main work. Let's say you are a freelance graphic designer. You can offer web design, video editing or digital marketing services with your primary work. You can also expand your client niche or use gig platforms to explore new markets.
3. Making the right investments
   As freelancers, you do not have employer-provided health benefits. Therefore, obtaining a health insurance plan is vital to protect against unexpected medical expenses. Other than that, consider investments with a mix of equities, mutual funds and bonds tailored to your risk tolerance and financial goals. Furthermore, invest in retirement plans like the National Pension Scheme (NPS) or Public Provident Fund (PPF). They offer tax benefits while securing your future. You should regularly review and adjust your investment portfolio to align with market changes and evolving financial needs.
4. Tax planning
   Freelancers have to manage their own taxes. They face unique tax challenges due to variable income. Therefore, effective tax planning is essential. To know more about tax planning, you should understand the different tax slabs. Freelancers must also be diligent about quarterly advance tax payments to avoid penalties. Staying updated with changes in tax laws and possibly consulting a tax professional can help optimise the process.

Freelancers can further claim several specific tax deductions to reduce their taxable income:

• Professional expenses: These are the costs directly related to your work. You can claim deductions for internet bills, phone bills, software subscriptions and equipment.
• Home office deductions: This is when you use a portion of your home regularly and exclusively for business. You can claim expenses like rent, electricity and maintenance proportional to the space used.
• Insurance: Premiums paid for health insurance for yourself, and your family can be claimed under Section 80D of the Income Tax Act.
• Investments: If you have made contributions to eligible tax-saving schemes, you can claim deductions under sections 80C and 80CCD.
• Education: Costs incurred on education and training relevant to your business can sometimes be claimed if they add value to your skills.

Start by choosing the right savings account

Managing your money is important, whether you're a full-time worker or freelancer. For that, you can apply for a separate bank account. This will help you streamline your finances and make transactions swiftly. A Zero Balance Digital Savings Account is a great option. You do not need to maintain a minimum monthly balance, which is beneficial when you have an irregular flow of income. So, act today and secure your financial future.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.