Salaried people may have a bit of mismanagement in finances. But if you are a non-salaried person, you must be focused on your financial planning because you must understand the phenomenon of uncertain earnings. Non-salaried people are those whose expected annual earnings is a not fixed as compared to salaried people and who generate their income by doing small business (i.e. freelancing, etc). They do not receive a monthly pay cheque from company or boss. Their income is dependent on several factors like workflow, competition, demand, etc.
For most of the salaried people the financial planning i.e. PF, Insurances etc, are taken care by their organisations. But for non-salaried people, they need to plan all these by themselves. It is the Strongest reason for non-salaried people to make effective financial planning.
Now let’s have a look on How to do Financial Planning for Non-Salaried people.
Every non-salaried people have so many questions in their mind about their financial planning because their income is irregular. Here we have solution for How to get prepared? – when your income is irregular.
Four Pillars of Financial Planning :
If your personal finance is like a building, then it must stand on these four powerful pillars, which are Emergency fund, Insurance, passive income, Retirement Fund and these Four pillars are equally important. Now let us understand these four pillars in brief to help you make powerful financial plan.
#1. Build an Emergency Fund :
When you build an emergency fund, it should be huge enough to protect you for minimum six months. Because in case of your income falls or income stops due to some reasons, Emergency fund will help you to survive during this kind of situation.
What is emergency fund? – Saving safely in bank deposits (i.e. savings account) and you should keep increasing the size of emergency fund with time and keep one thing in your mind that building the minimum emergency fund should be the first priority.
Minimum Emergency fund = 6 × monthly income. Here, for non-salaried person, monthly income is equal to sufficient money to run your expenses for a month.
#2. Buy Insurance :
Need for the Insurance is same for both salaried and non-salaried person. In general, most of salaried person get insurance from their company or organisation. But for a non- salaried person, there is no one to take care of it. And it must be done by self only.
The quantum of insurance is based on standard of living and you must buy these insurances which are:
-Life Cover (minimum 15 * annual income)
– Medical Insurance (minimum 5 * monthly income)
For all self-employee person, Mediclaim is an essence. And in case of life insurance policies most people are going with the endowment plans that includes “life insurance + Savings”. In addition, you can buy home insurance, family insurance, etc as per your preference.
#3. Invest to Establish Passive Income :
For self-employee, passive income can be supports you to take care of expenses. Passive income is that income which doesn’t require your active time. Once your passive income generator system is set up, you don’t need to invest your time in that it will automatically generate income for you. It can be in any form i.e. rental income, interest from equities, dividends, etc. In addition, your passive income should be big enough to fall – back upon in times of need.
#4. Retirement Fund :
Building a Retirement fund takes time. This financial goal that must start as early as possible and shall continue till income flows in. For salaried people, EPF can be one of the best retirement plans but for non – salaried people, they must have built a plan for theme selves. These retirement plan can be built with the help of different investment schemes, mutual funds, etc.
The ultimate aim of the financial planning is to make oneself safe. A non – salaried person must have goals to build the healthy financial plans to live a happy financial independent life.