Top 3 Personal Finance Tips for Gig Workers
The gig economy is booming with no end to its growth in sight. Estimates vary due to the broad definition of “gig worker,” but most studies on the subject show that about 36% of the U.S. labor market – or roughly 57 million Americans – currently fall into this category.
Even though there’s no universal definition of gig workers, they all share one thing in common – a complex financial situation. Being your own boss or holding down multiple gigs often equates to unpredictable cash flow, which makes money management more challenging.
Before you can do anything, it’s best to track your money. Every month, you should add up all the wages you earned. Paid invoices can help you calculate this amount. If you’re starting out, it can help to go back three months to understand an average amount you’re earning. Once you have that amount, you’ll want to build a spending budget, set aside savings, and tend to taxes (because these don’t always automatically come out). Let’s now break these three things down a bit.
1. Build a spending budget.If you’re starting out, it’s critical to have a budget so you don’t overspend your hard-earned money. To create a budget – which you can do with an online tool or even a word processing program – you’ll need to break down by expenditure type:
- Recurring bills with a set amount like rent or mortgage, car payment(s), and auto insurance.
- Variable expenses, or those without a fixed cost. Examples include groceries, utilities, clothing, car repairs, or business supplies.
- Discretionary spending, or the amount you put towards entertainment, gifts, and other miscellaneous expenses – yes, it’s okay to have fun! It’s best to build this into your budget so you’re comfortable because most people tend to underestimate these incidental costs.
Review and adjust your budget periodically based on more recent spending patterns.
2. Set aside savings.It’s important to know this: any amount is better than nothing, but we do have some guidelines that will help you make the most of your income. Savings is especially important for gig workers who don’t have steady incomes, so you’ll want to consider this when you’re budgeting. One aspect of savings is an emergency fund, which should cover six months’ worth of expenses in case of accidents or anything else that would prevent you from working.
Another good rule of thumb is to set aside 10% - 15% of every paycheck for unexpected expenses. If you can’t afford that much every month, again, just set aside an amount that works for you. Try to get into the habit of putting a portion of every payment you receive into a savings account whose funds are reserved for the proverbial rainy day.
Jobs in the gig economy don’t often offer company-sponsored 401(k) plans or other long-term investment options, so retirement planning for your future will be important. It’s best to start early to reap the full benefits of compound growth over time and accrue enough money to cover living expenses after you retire. Consult a financial planning expert for advice.
3. Tend to taxes.Freelancers and independent contractors are responsible for paying their own taxes – typically on a quarterly basis – as their employer won’t automatically take it out of your paycheck. Everyone’s situation is different, so it’s helpful to talk to a professional like a certified public accountant to ensure you pay the correct amounts to state and federal officials by their corresponding due dates.
I get it, when you break it down it can seem like a lot, but to have effective money management as a gig worker with inconsistent income requires organization and planning. It can definitely help to find a trusted financial partner who can help you build a budget, work on your savings, and address your taxes. CommunityAmerica understands everyone has a different financial journey they’re on, and our goal is to put you on a path to financial peace of mind. If you want help with this or anything else, feel free to reach out to us today.