Money Management And Financial Planning For Writers

Written By: Vijay Sankaranarayanan

Investing wisely is a challenge for most people. If you are however a self-employed writer, then the importance of a financial plan matters more since fundamental luxuries such as assured and regular cash flow are not available to you. A self-employed person needs to be careful to ensure that he or she has enough savings corpus created, so that this crucial aspect is taken care of.

Now, I know that most of you are young writers, and creative people like us don’t really care about money. Well, although philosophically you are correct, we dwell in this real world where holding real wealth is crucial in order to meet one’s physical and emotional needs. In this post, I propose to offer some tips and ideas that will help you achieve financial security and save enough for your retirement years.

Split Your Investments

I typically advise my blog readers to invest in proportion to one’s age in fixed interest instruments such as Bank FDs/RDs, Government Bonds, etc. Hence a 30 year old, should ideally invest 30% of his income in such instruments, while investing the remaining 70% in high risk high return avenues such as Equities, Derivatives, etc. However for a self-employed person, high risk taking is not a viable option due to the associated uncertainty of daily cash flows.

It is important that at least a good 50% of your investable money should be placed into debt instruments, whereas an amount equivalent to around 40% of the investable corpus could be put into a balanced Mutual fund or Equity investments. With the remaining money, a self-employed individual has to ensure that his or her medical and life insurance aspects are taken care of, as there is no company sponsored group insurance cover to bank on in this case.

A decent family floater cover for around 5 Lakhs would cost a premium of around 12,000 per annum, while a term insurance for 1 Crore would start with a premium of around 10,000 per annum. These two insurance will ensure that your finances will remain unaffected despite medical emergencies or loss of life.

Planning For Your Retirement

If you are able to cover these above aspects and are planning to retire completely by the time you touch 60, then it is also a good idea to start providing for an annuity to start flowing in at that point. For this, I would recommend the Government NPS scheme, where you as the investor could actively manage your pension fund between 3 categories - Equity, Government and Corporate Bonds.
However, the maximum limit of Equity exposure for your fund is limited to 50% of your corpus. NPS is a good scheme as the “management fees” is the lowest in the industry, and also a reason why none of the organizations who are the Point of Sales for this scheme, promote it actively as they should.

Save Up On Taxes

 If your annual income falls in the taxable bracket then, investment into PPF is highly recommended. An investment of up to 1 Lakh rupees in PPF is possible and is exempted from income tax under section 80C. Similarly, the medical insurance that you procure is also subject to income tax exemptions up to a limit of 15,000 under Section 80D. For senior citizens, this limit is 20,000 rupees.

Your Final Breakup

Below is the breakup of a conservative investment plan:

It is also wise, for the self-employed to always maintain an emergency corpus equal to 6 months expenditure in the bank, in order to cover for any exigencies.

What I have listed in this post today, is basically a conservative approach for the self-employed and of course this approach could always be tailored based on two critical factors, the confidence in your monthly cash flows and the quantum of money you are making. Happy saving!

Author Bio:

I am the author of a blog for those who plan to retire young. This is a personal finance blog covering topics on investments, macro economy and avenues for growing your wealth in your march towards financial independence. I am also a Techie outside of the blogging world, and love to review latest gadgets and gizmos.  


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