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
Your Final Breakup
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.
Visit: www.retirebharat.com
Visit: http://www.retirebharat.blogspot.com
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