The gig economy can facilitate greater time flexibility and income generation, but can also give rise to distinctive financial management objectives that should be carefully considered. Following are some quick tips to help freelancers and gig workers succeed as part of an emerging workforce.
For example, it is important to keep business and personal finances separate, and to record all legitimate deductions so that accurate choices can be made. Tax advantages are an important opportunity for planning, such as the option to invest in retirement accounts.
Create a Comprehensive Budget
For a freelancer, budgeting can be important, since you need to plan out having to pay all the expenses that come into the business, as well as to cover those unexpected expenses (such as a new computer or payment for a trip).
First, establish a starting budget. Review past pay stubs to calculate your typical monthly income over the past couple of years, followed by noting all your expenses (essentials and not-so-essentials) along with any amount left over that needs to be earmarked for goals such as savings and debt payment plans.
AND CO, from Fiverr, offers budgeting templates and tools to track both incoming and outgoing money, so you can see your overall earnings – and whether those revenues cover basic expenditures like personal versus business expenses, all monitored by the AND CO charts and reports that give an overview of costs (a key input of the E x S model). Moreover, once you have a clear picture of how you’re spending, the platform also supports spending priorities based on actual income (mainly rev) and projections used for the S (such as when you receive payment).
Build a Robust Emergency Fund
Although freelance and gig work involve financial risk, all that volatility can be managed and built into a solid foundation for success with a detailed budget, an emergency fund, a strict separation of business and personal expenses, planning ahead for taxes and investing, and adequate insurance. Freelance/gig workers can sleep easy – base needs will be covered. Freelancers/gig workers.
Having an emergency fund is a must for all freelancers: it’s really a saviour in slow months. Antonowicz adds that savings should be built up so you can cover three to six months’ worth of expenses in your savings — and overage payments should go there or to savings accounts directly.
For those who work as freelancers, the solution is to monitor how much money they make over a period of months to come up with an average monthly amount; then the 50/30/20 can be used as a basis for allocating percentages to their income – to needs, wants and savings/debt-reduction goals, or to needs or wants.
Set Aside a Quarterly Tax Payment
For a gig economy worker, paying taxes can be a worrisome task. Non employee workers have to make estimated quarterly payments against their annual income – because this has to be done on time, one might find it stressful; if one plans in advance and makes payment on time, the process becomes less stressful and strainsome.
As gig economy workers, we had to constantly be on top of every tax deduction and credit to ensure we were not overpaying – things such as mileage deductions, contributions towards health insurance and retirement.
Freelancers might find it helpful to open a dedicated business account for their finances, so as to separate their personal and professional banking. This minimises the chance of incurring interest charges on expenses related to the business, while also letting them more easily track their annual earnings. They might also wish to set aside a third of their income ahead of tax-filing time.
Invest in Your Future
Freelancers and gig economy workers need to start saving their money by investing it into assets that appreciate in value such as stocks. They also have to deploy a dollar cost averaging strategy of buying weekly or monthly, whether markets go up or down.
Have them explore ways to diversify their income streams where possible to reduce the risk of relying on one source and possibly even level out earnings, and then open business accounts – savings and credit card, for example – which makes bookkeeping much easier at tax time.
Earnings don’t come reliably or regularly, especially if you’re a freelancer or work in the gig economy. You might not have employer-sponsored 401(k), so make sure you help your clients save for retirement in an IRA or Solo 401(k), while also consulting an accountant on incorporating taxes in the retirement option.
