Earning an Irregular Income - Follow these Financial Planning Tips!

Even the people who run their businesses do not have a guaranteed monthly inflow. For such people, the income is likely to be chunky and it follows no particular pattern as such.

Now,

If you are one of those, and have been thinking that since you are unable to predict your cash flows, there is no need to focus on financial planning, then, it is time for you to make some changes in your thought process. Financial planning is very important irrespective of your profession or income. In fact, having an irregular income gives you more reasons for focusing on financial planning.

Here are a few financial planning tips that may help you in turning your irregular income into a regular one for leading a stress-free future. 

Tip #1: The Basic Formula- Control your Spending, Increase your Savings

For those of you who spend your salaries irrationally, this is an instant solution for you. You can also try the 2-plan theory that includes both- cutting down on useless spending and increasing the savings in the areas you have not saved earlier. You can start with a saving plan. Check your options where you can save funds from your daily expenditures to start with. 

Tip #2: Buying Insurance

Without an insurance plan, your financial planning will remain incomplete. An insurance plan offers you a financial cover for a particular time period. From the perspective of investment planning, an insurance policy can act as a contingency plan for those who have an irregular income. The best thing about getting an insurance policy as an investment option in UAE is that it will offer coverage in the event of any mishaps or accidents. 

Tip #3: Forming a Budget

In order to secure yourself financially, you must start saving. Planning daily or monthly expenses and forming a budget can help those with irregular incomes in saving a considerable amount of extra outlays. Begin with a list of your daily expenses. Then, keep the inevitable expenses such as bill payments and travel fares aside from the list. Spend wisely on purchases such as bags, footwear, clothes, etc. 

Tip #4: Debt Repayment

No matter how small your debt is, it keeps consuming your finances. Those of you, who earn an irregular income usually, have a lesser amount of funds. Therefore, for quick solutions, they opt for debts or loans. The debts from local lenders or banks include rates of interest, which adds up to the amount of repayment by a particular percentage. You can avoid these interest charges if you repay the debts as soon as you can. 

Tip #5: Investment in Income-Boosting Options

Saving is important, but so is an investment. Sometimes when you spend in the correct places, you can gain more as opposed to savings. Investing in sources like equity funds or debt funds not just adds up to your monthly income but also lends a helping hand in your daily expenditure. Before you invest in these sources, you must gain basic knowledge of the stock market and the working of these investment tools. 

Tip #6: Creating Contingency or Emergency Funds

Whenever you think you have saved enough funds, it is necessary to make sure you have sufficient funds that can last for 6-8 months at least for tackling any emergency condition. If you do not have contingency or emergency funds, you will end up liquidating your assets for financial help. Therefore, it is suggested that you put aside a small amount of your earnings out of your monthly income towards contingency funds. Even though you have an irregular income, a small amount saved regularly may prove to be helpful at some point in time. 

An ideal financial planning can help you save as well as invest money to make your financial future better even if your income is irregular. If you earn an irregular income, you must check on sources that can offer you a regular income.

You also have the option of investing in sources that offer favourable returns and become a regular source of income for you.

Here are some good investment options in UAE that you can check out.

1)    SIPs (Systematic Investment Plans)

With SIPs you can invest a particular amount in mutual funds at regular time intervals. You have the option to start monthly, quarterly, or annual SIPs. Simply put, SIP investments may help you in building a huge corpus with time. The best part about this option is that you can start with a very small amount of money.

2)    ULIPs (Unit Linked Insurance Plans)

ULIPs are unique because they provide benefits of both insurance as well as investment in one plan. When you invest in a ULIP plan, you get both insurance coverage as well as the opportunity to make an investment across the bonds and stocks. Simply put, it gives you the option of earning market-linked returns while taking care of your insurance needs at the same time. Along with the long-term creation of wealth, ULIPs are also a good way of learning investment discipline. Investors can gain good returns and make use of the funds invested for meeting their financial objectives.

3)    Bonds

Bonds can be referred to as a very favourable asset class that provides a consistent income source at low risk. But just like other investment tools, it is best to proceed carefully with this investment option in UAE. The bonds have a heavy ticket size and have low liquidity. Generally, bonds are not recommended for middle and lower-income groups. Some bond funds do make it simple to invest, though a majority of them are accumulators of several corporate bonds and hence, must be studied carefully before making an investment in them.

4)    Gold

Since the time humankind can recall history, Gold has been a symbol of wealth all across the world. One of the main advantages of making an investment in gold is that it generally stays in line with inflation. If you are able to invest 5% of your funds in gold, you can expect high returns and secure your savings from the reduction in their value due to inflation. Gold is also termed as a safe haven that performs well when equities don’t. Hence, it adds a good diversification to traditional investment instruments such as mutual funds.  Gold can thus, be an ideal investment for most people.

5)    Stocks

These are also an amazing investment option in UAE. You can earn the benefits of investing in stocks even though your income is not a part of the high net worth group. Stocks are affordable; you can invest in stocks from your choice of firms that are high performing for as low as AED 100. Buying multiple stocks, say around 5-6, can add some good diversification to your investment portfolio.

While purchasing stocks, do not forget to enlist a discount broker’s services instead of a full service professional. Although full-service professionals are good they generally have high commission rates and minimum deposit. They are more suitable for those investors who have a huge amount of funds to invest.

This can be done by contacting a discount brokerage company online and opening an account with them. If you do not want to pay a third party brokerage at all, you can purchase shares from the company directly. This way you will not have to involve the broker at all.

6)    ETFs and Mutual Funds

ETFs (Exchange Traded Funds) can be classified as an open-ended investment option in UAE that is included in the stock market. Their low cost and easy trading have made them popular amongst the investors.

There are different kinds of open-end funding products for serving to the varying requirements and wishes of the investors. If you make an investment in the open-ended funds, you do not have to worry about fluctuations in the daily market. Your fund manager will take responsibility for that.

Mutual funds are an amazing option for the people who want to hold a position passively. It is particularly a convenient method (courtesy- the market exposure that offers built-in diversification and an easy and stress-free mechanism). Typically, you make an investment in a tool, which is a pool of investment options. The management of mutual funds is taken care of by a professional funds manager. 

In a Nutshell!

Earning an irregular income is generally considered to be a reason to skip financial planning. However, financial planning is even more important when your cash inflows are not certain.

You must have sufficient emergency corpus for meeting your unexpected expenses. You must invest the surplus in the liquid corpus. Invest in SIPs for critical objectives such as retirement. Invest in adequate life and health insurance. You should make a budget for expenses and be prudent at the time of spending.