This issue assumes great importance when you realise the number of people involved. According to a study by Niti Aayog, in 2022 the gig economy in India employed 7.7 million people and is expected to grow to 23.5 million in 2029-30. India is also home to 63 million** micro enterprise owners, with 75,000** recognised start-ups.

Major Financial Challenges of Irregular Income

• Cashflows - Irregular income throws up formidable challenges of meeting on time regular expenses like groceries, utility payments, transport, besides credit card bills and personal loan EMIs.
• Budgeting - Unlike those with salary, people with irregular or fluctuating income struggle to have a home budget that apportions pay to current and imminent expenses like buying a laptop and major future goals like children’s higher education.
• Preparing for major financial goals - Besides formidable challenges to maintaining regular investment regimen, people with irregular income often end up investing in comparatively low paying and taxable investments like fixed deposits (FDs), resulting in inadequate savings for major long term needs.

Preparing for Financial Goals with Irregular Income

Here is a broad outline for financial planning for people with irregular income and those who have separates their business and individual finances.

• Estimate income and expenses for a budget - Some experts suggest taking the lowest of the previous 12 monthly incomes for reference. Make a list of regular monthly expenses as well periodic expenses like insurance premium and tax payments. This information helps determine the income-expense gap.
• Plug cashflow gap with emergency fund - For the salaried, an emergency fund is money set aside to meet emergency expenses like medical emergencies, not covered by insurance, besides income disruption as in a job loss. For people with fluctuating income, an emergency fund helps smoothen the cashflow. It ensures that you always meet regular and anticipated expenses. For this reason, experts suggest a larger emergency fund of 3-6 months which can be even higher depending on family size and number of dependents.
• Emergency fund can be parked in bank savings account for money immediately needed while remaining money can be in a low risk mutual fund like a liquid fund, besides short term debt mutual funds like ultra short term debt funds.
• Ensure adequate insurance - This involves ensuring adequate protection with insurance for life, health, income, and major assets like a car. The premium payments can be made from the emergency fund or raised with regular contributions in a liquid fund through a Systematic Investment Plan (SIP). For life insurance plans, one can also explore the monthly premium payment option.
• Manage the illusion of cash surplus - Business owners and the self-employed typically get bunched up payments or inflows. This creates the illusion of surplus cash and often irresistible temptation to splurge. To counter this, here is a playbook with the following key elements.

First, examine if you need to replenish the emergency fund. Have a system of annual review of emergency fund needs. Second, provide for imminent expenses such as annual insurance premiums and essential expenses like upgrade of laptop. Money for imminent expenses can be deployed in short term debt mutual funds like ultra short term debt funds.

Third, fully repay any credit card outstanding amount and prepay expensive personal loans as their repayment is financially debilitating. Fourth, experts recommend that you, like those with regular income, commit a fixed percentage of your total inflows, say 10%, to investments. A provision can accordingly be made in the home budget and increased later. Money can be directed to a separate bank savings account from where you can invest.

Establish investment discipline Investments in mutual funds help in making regular investments through SIP(Systematic Investment Plan). With SIP, amounts as small as Rs 1000, you can invest in equities through equity mutual funds like index funds and large cap funds which invest in the most valuable companies in the stock market.

You can also consider tax saving mutual funds such as ELSS (Equity Linked Savings Scheme). Such equity investments typically may help raise substantial amounts for children’s higher education and retirement due to their high long term growth potential, riding out short term market turbulence.

Diversify investments People with fluctuating income need different sources of income to create smooth income and cashflows in the future. This requires diversified investments to bring down the overall risk of investments. Thus, equity funds can be supplemented with lower risk debt investments such as Public Provident Fund (PPF) and debt mutual funds besides gold investments through gold mutual funds or gold exchange traded funds (ETF).

The other and more convenient diversification option is investing in hybrid mutual funds such as balanced advantage funds and equity savings schemes. Such funds primarily invest in equities and are supplemented by other investments in debt and derivatives, with the investment mix changing according to market conditions. To benefit from gold investment, one can consider another type of hybrid fund, multi asset allocation fund, which invests in at least three asset classes.

Compared to individual investments, apart from diversification, hybrid funds provide the benefit of investment rejigging by expert fund managers in a tax efficient way. The investment selection process can be guided by a mutual fund advisor known to family and friends.

Invest lump sums, interest, and dividends In months with unusually large surplus, due to booming business or peak season, invest the lump sums to supplement regular investments. This can be conveniently done in mutual funds with Systematic Transfer Plan (STP). Here, the lump sum is parked in a low risk fund like a liquid fund with regular investments in equity mutual funds or hybrid funds. Similarly, dividend, interest and refund amounts can also be invested.

To conclude, irregular or fluctuating income is like butter on a knife, you need to spread it on the toasted bread to enjoy it. Financial planning helps you do that.

*https://www.hindustantimes.com/business/gig-economy-in-india-to-employ-23-5-million-by- 2030-says-niti-aayog-report-101656324945164.html;

https://indbiz.gov.in/indias-gig- economy-to-have-23-5-million-workers-by-2029-30-niti-aayog/

**https://www.forbes.com/advisor/in/business/msme-statistics/