7 reasons why you need a savings plan if you are a self-employed person

2021-01-18

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As each new day in life brings with it a ton of opportunities and possibilities, it also packs with itself a spate of unforeseen and unexpected mishaps. Irrespective of the preparations that you have set in place to launch yourself headlong into the topsy turvy journey of life, it always serves you well to have contingency plans up your sleeve.

This is precisely where savings plans come in extremely handy. No two days in life are the same, and the expense you incur in one is not certainly going to tally up with the rest of your days. Thus, a savings plan assumes foremost importance because it teaches financial discipline in your routine and virtually ensures your long-term goals and ambitions. More so, if you happen to be a self-employed individual.

Challenges of being self-employed

Being your manager can be thoroughly rewarding. However, the gig comes with its own set of financial considerations and concerns. Often, devising an efficient savings strategy proves to be quite a challenging task for a self-employed person. This is on account of multiple reasons. Firstly, when you’re self-employed, the inflow of cash can tend to be highly unregulated.

More often than not, you are held at the mercy of their whims, and subsequently, any financial management on their behalf reflects heavily on the punctuality of your paychecks. Furthermore, self-employed individuals do not require abiding by a traditional salary structure mandated by most corporate ecosystems. As a result, they tend to lose track of their expenses. Listed below, are a set of 7 reasons that shed light on the importance of a savings plan for a self-employed person, besides reflecting on the significance of a savings philosophy in general.

Allows you to set up an emergency fund

In an untimely disaster or accident, a savings plan effectively doubles up as your emergency fund and allows you to take care of all unforeseen expenses. On average, our day to day savings is only capable enough to tide us over for a few months. To that extent, most of us have to resort to borrowing to cater to even the mildest of emergencies, should it happen to raise its head at the wrong place and time. Hence, it becomes rather imperative to set up an emergency fund with a savings plan. It serves as a contingency and offers you several possibilities to multiply and invest that sum in a disciplined and systematic manner.

As a self-employed individual, should you ever happen to run into a disagreement with your client leading to subsequent contract termination, opting for a guaranteed savings plan and an emergency fund will help you effectively tide through this inconvenience. Consequently, it lends you stability until you can secure and start working on a new project altogether. Ideally, one’s emergency fund should be able to cover up for them for a period of 6 to 10 months.

Plan for a worry-free retirement

When you are self-employed, the chances are that you are most likely not entitled to a pension scheme and plan that most corporate and government officials generally are. In such a situation, having a savings plan in place serves as the only viable means of securing a worry-free retirement for yourself. While it is generally understood that there is no concept of a “retirement” when you are self-employed, everyone deserves a break from the hustle and bustle of every day of life post reaching a certain age.

It is a general rule of thumb that the sooner one starts saving for their retirement, the less they have to worry about their future. Besides stabilizing your future, individual special retirement accounts exist that even hold the potential of appreciating the value of your invested amount by helping you earn compounded interest upon your furnished sum. A savings plan helps facilitate these eventualities for you with absolute convenience. Consequently, you get the liberty of leading a life of retirement that is both debt and worry-free.

Get your place

Having a savings plan in-store gives you the necessary funds to save up for a downpayment on the house of your choice. Once you can afford a 20% down payment, you get to stay free of private mortgage insurance (PMI), besides getting to access the possibilities of receiving improved interests on a home loan. Additionally, these funds also serve the purpose of diminishing the amount that you need to borrow, making mortgage payments extraordinarily affordable and convenient for you in the process.

We live in a time and age where real estate valuation continues to shoot up with every passing day. Without proper planning and investment, bagging a fair deal for yourself can become quite an unassailable task. As a self-employed individual, having your place not only fulfils a basic necessity but also acts as a means for you to conduct and expand your business ventures. Moreover, the investment made on real estate is more often than not a one-time affair; the dividends you get to reap for all of the time to come.

Access various investment options

Most savings plans give you several options for investing your money in various financial instruments. These alternatives range from the typically safer fixed interest securities of corporate bonds, government securities, and money market instruments to the reasonably high-risk choices of equities.

As a result, you get the opportunity of increasing and multiplying your wealth without having to shift focus from your primary line of business. Moreover, getting into the habit of investment at an early stage of your professional career is considered a sound financial practice and one that stands to secure sizable returns for you in the longer run.

Helps you regulate taxes

In essence, savings plans are life insurance plans. Hence, they offer you the same spectrum of tax benefits offered by most life insurance plans out there. More noticeably, as per section 80C of the Income Tax Act, you get the option of availing an exemption amounting up to a sum of ₹1.5 lakhs towards your premium payments.

Additionally, death benefits and maturity benefits falling under the ambit of a savings plan are also eligible for tax exemption as per section 10D of the Indian Income Tax Act. All of these factors make savings plans the tax-saving instruments of choice for many.

Allows you to be flexible

No two individuals on the face of this planet are the same. Consequently, their ambitions, priorities, and life goals are radically different from one another as well. The best part about having a savings plan is that it caters to all such different perspectives and viewpoints and allows you to chalk out a savings plan that is best aligned with your needs and requirements.

As a result, every individual is accorded a great degree of flexibility to devise their own savings strategy and abide by it for the rest of their lives. As a self-employed individual, the importance of flexibility in your daily life and routine is, without a doubt, paramount.

Having a savings plan in place not only accommodates this particular requirement but also gives you access to a whole other set of personalized alternatives. Additionally, customized offers for funds and investment criteria and terms and payouts are also accorded to the plan holder. Moreover, depending on your capital needs change and risk appetite, you can always dabble around with your investments choice. At no point in time, are you required to make a definite call and uphold it religiously for the rest of your life?

Meet your goals by resolving irregular expenses

Individual savings plans are tailor-made to cater to the requirements of your friends and families. Hence, to identify the plan that best suits your needs and requirements, it is essential for you first to sort out your investment priorities and your ambitions and goals. Chalk out both your short-term and long-term goals so that you can benefit suitably from your savings plan.

Additionally, always be mindful of the specifics of the plan that you are opting for. This enables you to efficiently narrow down your risk appetite and finalize on an investment horizon of your choice. Vital factors such as the plan’s add-on riders, inherent flexibility, and unique features are to be considered while making these calls.

As a self-employed person, a savings plan poses a precious asset due to the many benefits it packs with itself. It helps them stay on top of unforeseen incidents and provides much-needed insurance to their family and other dependents. It is an essential tool that helps you achieve your life goals and certain things in the longer run.

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