Investment strategies for freelancers and gig workers

Saheli Sharma (name changed) has had a steady source of income right from her college days. A chance opportunity to create content for a friend’s website got her drawn into the world of freelancing and since then there has been no looking back. Five years into the world of the gig businesses, Sharma has been able to set up a team of her own and has built a loyal client base across the globe.Sharma’s journey is one of the countless examples of how the gig economy is becoming a preferred working apparatus for workers across the country. Instead of being employed with one company, gig workers juggle a varying set of recurring tasks for multiple organizations simultaneously. The gig employment essentially entails a system where skills and talents are compensated for a certain project, job or assignment. Contract workers, freelancers and moonlighters are some examples of workers in the gig economy.In a report published by the World Economic Forum citing the UK government, the gig economy has been defined as “involves the exchange of labour for money between individuals or companies via digital platforms that actively facilitate matching between providers and customers, on a short-term and payment-by-task basis.” Until a few years ago, the gig economy landscape looked bleak and the majority of the workforce viewed it with skepticism. Although part-time workers were not unheard off, opportunities were scant and the remuneration was far from impressive. Consequently, those who chose to take the gig route would keep it only as a secondary/part time thing besides a full-time set-up. However, the last couple of years have brought about a tectonic shift in the gig economy and the coronavirus pandemic has only served to attract more takers for the gig ecosystem.As per a report by ASSOCHAM, India’s gig sector is expected to increase to US$455 billion at a CAGR of 17% by 2024. Another study conducted by the Boston Consulting Group in collaboration with Michael & Susan Dell Foundation (MSDF) revealed that that the gig economy has the potential to serve up to 90 million jobs (roughly 30% of India’s non-farm workforce), add up to 1.25% to India’s GDP in the long-run, and create millions of new jobs across all sectors of India’s economy.While the freelance life can be charming with the enhanced earning potential because compensation depends on the number of assignments or order requests completed and the flexibility and the freedom to work on your own terms, there can be troughs too on this trajectory. One of the most pressing concerns for freelancers can be the uncertainty of income and the lack of a safety net that comes with a salaried job in the form of benefits and insurance. This can make financial management slightly tricky.Sharma says, “A superficial glance at my career can make it seem like freelancing can be a smooth sailing. But I have had my fair share of stormy days – there have been dry spells when I didn’t know when I would get my next pay cheque. Those periods taught me the importance of diligently sticking to a budget and building an emergency fund that would help me sustain through periods when work was difficult to get by.”For freelancers, especially those who are yet to build a loyal client base, the uncertainty of getting a steady stream of work can be stressful. Unlike the salaried class, incomes can dip sharply when work opportunities are few. As such it is imperative to have an emergency fund that helps cover your essential expenses during periods when your business is in the doldrums or during emergencies. “As a rule, I maintain enough money in my contingency fund so that it can cover all my essential expenses for six months. I have also invested in liquid funds to supplement my contingency stash – the volatility is low and they can be easily accessed during times of need,” Sharma narrates.For freelancers, adequate health coverage for themselves and their dependents as well as a sound term plan is also crucial for ensuring their financial safety. Since freelancers do not have the aegis of employer-provided health covers and given the erratic nature of their incomes, ensuring adequate family health insurance can safeguard you during medical exigencies. Sharma narrates, “In the early days of my freelancing career, when my income was lumpy, I would struggle to pay my insurance premiums on time. So my financial advisor suggested that I park a lump sum amount when I get it and put it in a short-term debt fund with a maturity date close to the premium payment date. This simplified things for me tremendously.”Sohesh Shah, a partner at InvestRite Advisory says, “Freelancers can take the ETF route as they entail less of decision making, do not require close monitoring and can aid in capital appreciation. Also, if periods of uncertainty make SIP commitments difficult, systematic transfer plans from liquid funds to either hybrid or equity funds can be a better way to meet long-term goals. This way you can invest the lump sum and also reap the benefit of market averaging.” STPs allow investors to switch a pre-defined amount into another scheme of the same fund house. “This way you can easily switch between debt and equity in varying market conditions and average out the risk element in equities,” Shah adds.Key takeaways- Demarcating between your personal and business expenses is sacrosanct – it will help you draft a clearer picture of your financial strategies. This segregation will also ensure that there is no spillover of financial troubles from the professional to the personal front and vice versa.- Be judicious with juggling debts because a high debt liability during a period of low income can throw your financial goals off gear.- Freelancers can take the ETF route as they entail less of decision making, do not require close monitoring and can aid in capital appreciation.- If periods of uncertainty make SIP commitments difficult, systematic transfer plans from liquid funds to either hybrid or equity funds can be a better way to meet long-term goals.This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.