6 MinsApril 11, 2022
One of the misconceptions around regular saving and investing is that it is meant for or possible only for those who earn a fixed salary every month. But this leaves out a large section of people who have fluctuating or variable incomes. These
could be freelance workers, consultants, doctors, lawyers, chartered accounts, interior designers, actors, musicians, sportspersons, entrepreneurs, shop owners, and many more. If you fall into any of these categories, you need to invest smartly,
given the uncertainty of your income. Here are a few tips you could follow:
1. Consciously save money, and preferably more – For this, follow the words of Warren Buffett, “Don't save what is left after spending; spend what is left after saving.” When you are doing well in your chosen
line of work or receive a windfall income, don't give in to instant gratification and spend money.
2. Prepare a budget and stick to it – When you do this, possibly involve your family. Rationalise regular, unavoidable monthly expenses so that recurring costs are kept low. Keep your credit card expenses under control.
Further, note that all your loan EMIs should not exceed 30%-40% of net monthly income. Avoid splurging by taking on too much credit.
3. Keep aside a sum for a rainy day – There could be unexpected expenses that may catch you off guard. To deal with such situations, ensure that you set aside at least 3 to 6 months of your regular monthly expenses,
including EMIs on loans for emergencies. Add 5%-10% extra for medical emergencies, if there is a history of illnesses, in your family.
Saving for a rainy day, i.e. building an emergency fund is based on the premise: Hope for the best and prepare for the worst – which is a key element when it comes to money management.
You may consider opening another savings account, investing in term deposits (choosing a tenure of 12 to 18 months), and/or consider liquid funds/overnight funds for emergency purposes.
[Also Read: Your Investment Strategy to Invest in a Volatile Market]
4. Have optimal health and life insurance – Insurance is for indemnification of risks involved. Having adequate insurance cover, particularly for health and life, is fundamental to your financial planning. The
amount of health cover will depend on the number of family members dependent on you, your family's current health condition and medical history, where you stay (to assess the healthcare facilities, the cost, and networks of hospitals that
have tie-ups with the health insurer) and so on. Similarly, in the case of life insurance, make sure you buy a pure term insurance plan with adequate coverage. This would provide financial security to your family in your absence. Axis Bank’s Life Insurance Cover Calculator will
help you estimate the optimal life insurance cover you need.
5. Invest sensibly – Since your income is unpredictable, often you may have lump-sum amounts as surplus to invest. You can invest this at one go, for instance, in a bank Fixed Deposit or slightly longer tenure debt
mutual funds. When investing in FDs/Debt MFs, choose your tenure and the investment amount taking into consideration your liquidity needs.
If you can handle some amount of market risk, you could consider investing in equity mutual funds, by way of a Systematic Investment Plan (SIP). Select the scheme based
on your risk appetite, nature of the goal and set timelines as to when you will need that sum among other factors. They also help address the inherent volatility of the equity market.
By investing in a mix of Fixed Deposits and Mutual Funds, you can earn
steady returns and also potentially grow your corpus. Ensure that you review your portfolio once in six months, or as and when financial circumstances change.
Warren Buffet has said, “Never depend on a single income. Make investment to create a second source.” If you invest sensibly and systematically every month, you will be able to make your money work for you, i.e. create another source
of income. Earning a fluctuating income does not mean you put off investing; all it requires is some sensible planning.
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision