Freelancing is tricky, managing money is trickier. Stay ahead with these practices

For the 45-year-old, the journey has been both rewarding and challenging. It took her some time to grasp a firm understanding of financial planning, but one lesson stood out: saving is the real game-changer.

She now seeks projects with better pay, explores new skill-based opportunities, and focuses on alternative income streams to maintain the emergency fund.

If you are also a freelancer, the following strategies can help you achieve financial security.

Maintain a safety cushion

First things first. As a freelancer, you do not enjoy the luxury of a steady paycheck, so an emergency fund isn't all about coping with unexpected expenses—it's your lifeline during periods of income drought.

The most effective way to build it is in layers. “The first step is to ensure that whatever income you generate through your gigs, put away 3-4 months' worth of your living expenses from that income into a liquid fund or high-interest savings account that you can withdraw instantly," said Shruti Jain, chief strategy officer, Arihant Capital Markets.

Once you have secured it, use your next income to invest 3-6 months' worth of your expenses in short-term fixed deposits or debt funds that pay a slightly higher rate but are just as safe. And if your income comes in long gaps or through big projects, aim for a 9- to 12-month cushion instead.

“As a rule of thumb, it is a good idea to build an emergency fund that can cover your 6-12 months of minimal living costs, depending on how regular or irregular your income is likely to be," said Jain. This will keep you secured during dry spells, so you don’t have to worry financially.

“I maintain a separate savings account where I put aside money every quarter—it’s my ‘do-not-touch’ fund unless something really unexpected happens," said Khanna.

Create a health and life safety net

Freelancers don’t have HR teams protecting them in the background. Therefore, insurance serves as a personal safety net.

Start with health insurance—it’s essential. “A ₹10-25 lakh individual or floater policy with no room-rent caps and a restoration benefit protects you from medical shocks. Add a super top-up to expand coverage affordably. From September 2025, goods and services tax (GST) on health premiums is 0%, lowering costs," said Chakravarthy V., co-founder and executive director, Prime Wealth Finserv.

Next, buy term insurance only if someone financially depends on you. The cover should be about 15-20 times your fixed annual draw.

Third, get disability or personal accident insurance. It replaces income if illness or injury prevents you from working, more likely than death for freelancers.

“It’s an optional thought suggested: critical illness riders ( ₹10-25 lakh) to cover income loss during recovery from major conditions like cancer or stroke," said Chakravarthy.

“You don’t need the most expensive plan. Start with essential cover levels, choose longer-tenure policies to lock in lower premiums, and keep upgrading as income grows," said Charu Pahuja, director and COO, Wise Finserv Pvt. Ltd.

Tame the cash flow

The classic 20% formula assumes a predictable salary. Freelancers don’t live in that world. Their planning must be built around their numbers.

It would be a good idea to target saving 30-40% of your average annual income, considering your income volatility is higher. This will keep you financially worry-free if you can't find a project to earn you income.

“So unlike salaried employees who save 20% of their monthly savings, you can plan your savings on an annual and not monthly basis to smooth out the peaks and troughs," said Jain.

During high-earning quarters, aim to save 30% to 50% and use that surplus to cover slower quarters. The goal is still healthy long-term savings, just with flexibility that respects the ups and downs of freelance life.

Invest smart

Freelancers should start with flexible systematic investment plans (SIPs)—offered by most Indian asset management companies—that allow pausing, skipping, or adjusting amounts. This builds discipline without straining cash flow during slow months.

Dynamic asset allocation funds are good investment options. “It allows you to shift the decision-making of asset allocation to the experts if you don’t have the expertise and time to decide how much allocation to which asset class will be optimal," said Jain. This will ensure your investments have a smooth ride even in times of volatility, and as a freelancer, you don’t have to time the market or manually rebalance your portfolio.

Add opportunistic lump-sum entries only after fully funding your emergency corpus and setting aside taxes. Use this approach when you receive large payments or the market dips sharply.

Avoid rigid SIPs or investing from client receipts directly. “First, transfer income to a personal account, set aside taxes and expenses, and then invest from the remainder. This keeps your investments consistent and stress-free, regardless of income fluctuations," said Chakravarthy.

For unexpected money, such as a large project payout, consider lump-sum entries into equity or hybrid funds, preferably with a short-term systematic transfer plan on the market. “Instead of transferring into an equity fund every month, you can divide a lump sum into several tranches and invest them over a period of six to 18 months. Invest larger tranches after a market correction, as this can increase your long-term returns," said Ishkaran Chhabra, chief investment counsellor and founding partner at Centricity WealthTech.

Freelancers should also keep a base allocation plan. When income increases, consider increasing investments. “When it slows, reduce amounts, but never break the habit. The trick is making investing feel like a routine cost of doing business rather than a luxury," said Pajuja.

Akanksha Jain, a 40-year-old communications specialist based in Delhi, invests the first 30% of her income. “The next 30% is the contingency fund. The next 30% covers the month. And the last 10% is for upskilling, since I always have the itch—'let me learn something new', she said.

The fluctuation is taken care of by the monthly expenses and contingency fund.

Keep a separate tax account

For freelancers and consultants, Section 44ADA of the Income Tax Act offers a smart way to reduce tax liability. Under this provision, you can opt for presumptive taxation and declare only 50% of your gross receipts as taxable income, automatically accounting for presumed business expenses.

Professions eligible for presumptive taxation include legal (advocates), medical (doctors), engineering, architecture, and others. “Communication consultants may qualify if their work is considered as technical consultancy," said Vivek Jalan, partner, Tax Connect Advisory Services.

This simplifies compliance, avoids tedious bookkeeping, and often reduces the effective tax rate. However, it is important to note that your gross receipts cannot exceed ₹75 lakh in a year (if certain conditions are fulfilled) to be eligible for presumptive taxation.

However, even with lower taxable income, freelancers must pay advance tax quarterly if the total tax due exceeds ₹10,000 per year after the tax is deducted at source (TDS). The four due dates are 15 June, 15 September, 15 December, and 15 March. Miss them, and you owe 1% monthly interest (Sections 234B/234C). You can pay the entire advance tax in one lump sum by 15 March of the fiscal year instead of quarterly instalments.

To manage this, set up a separate “tax account". Transfer 25-30% of each client's payment here. Park it in a liquid fund or short-term FD. Use this for advance tax. Additionally, if you have multiple clients, your IT return becomes more complex, requiring you to pay a higher fee to your chartered accountant for filing your taxes.

“Don’t delay tax payments based on ITR deadlines—even if filing dates extend, unpaid tax still attracts interest. Stay aligned with the advance tax calendar, not your accountant’s reminders," said Chakravarthy.

Treat taxes like a non-negotiable business expense. Automating this protects your investments and prevents year-end cash crunches.

As Akanksha sums up, “One rule I live by is—if money is paper, then sail in that paper boat. Get yourself many lifeboats—savings, emergency funds, and investments—and enjoy the journey".

By building multiple financial cushions, freelancers can navigate uncertainty with confidence, taking calculated risks and embracing the freedom and adventure of their career without fear of sinking.