If you don’t have fixed monthly salary then fixed process may not work well for variable cash flows. So don’t think that it is difficult for you to get into financial planning, even though you understand its importance.
In the name of financial planning investing into save taxes, insurance policies in the name of children and pension plans for themselves and properties, there is no clear guidance on future. Even after having so much of assets you may not sure where your life is heading to.
Financial planning is not about tax saving only. It definitely does not mean tax evasions, which most of the self-employed professionals do by hiding their actual income and then deploying that money into assets like real estate and gold. Neither does it mean having insurance policies in the name of every family member. It is all about organizing your financial life, so you can enjoy, use and distribute your wealth comfortably.
But it is also true that you need to follow a structured approach to achieve your goals. So how do you form that structure in the case of the self-employed, let us figure that out.
Understanding of personal cash flow is very important for a proper financial plan, so first things first list down the details of your personal spending. Make a list of items you spend on like rent, EMIs, grocery, clothes, petrol, vacations etc. It’s not that difficult once you start working on it. To make your cash inflow clear, start paying yourself a fixed salary every month. Yes, start imagining yourself as employee of your firm and pay yourself whatever you feel like you deserve, or may be enough to fund your personal expenses. Create a decent emergency fund at business level so that your salary payment should not get stopped in case of any slowdown period. Creating emergency funding at personal level is also very important to manage personal expenses in case you stop getting regular salary from your own business.
Once you get hold of your cash flows and create separate emergency fund at personal and business level, look for insurance cover. Having adequate insurance coverage gains more importance when you are self-employed. As you are your own employer so your absence from work will definitely cost a lot at your business as well as personal level. Insure yourself and your family for health and accidents, so the hospitalization cost should not be a burden to your business. Take adequate life insurance cover, so your personal goals and expenses, and even your business liabilities get comfortably paid off from insurance proceeds in case of untimely demise. If your business involves taking heavy loans and which includes your personal liability too then better to buy life insurance under Married Women’s Property Act.
You should understand the difference between accountant and planner. Every profession is specialized in a specific area. Some may be expert in your business accounting and some are expert in managing your personal finances. Now being into a business, you should know whom you should approach for what questions. Engaging with a financial planner for your personal finances is as important as engaging with a Chartered Accountant for business needs.