10 Smart Money Moves Every Gig Worker Should Make
Are you managing your money wisely as a gig worker?
Gig work can offer flexibility, independence, and freedom, but it also comes with financial challenges. Without the stability of a traditional job, managing your money as a gig worker requires careful planning and discipline. Whether you’re a freelancer, consultant, or independent contractor, taking control of your financial future is essential. Below are some straightforward tips to help you stay on top of your finances and achieve financial stability.
1. Set Up an Emergency Fund
Unexpected expenses or sudden work shortages are common in gig work. That’s why building an emergency fund should be your first step. Aim to save enough to cover at least three to six months of essential living expenses. Keep this money in a separate, easily accessible account, and don’t dip into it unless it’s a real emergency. This fund will provide you with a financial safety net when the unexpected happens.
2. Get the Right Insurance
Insurance can feel like a big expense, but it’s crucial for protecting your income and health. Here’s what you should prioritize:
Health Insurance: Health coverage is essential, even if it’s a high-deductible plan. If you're a freelancer, you can check out options on Healthcare.gov.
Liability Insurance: If your gig involves services that carry any risk, such as driving for a rideshare service, make sure you have liability coverage that protects you personally and professionally.
Disability Insurance: Consider this to cover long-term absences from work due to illness or injury. Private disability insurance might be expensive, but it offers a vital backup plan.
Life Insurance: Review your life insurance coverage to make sure you have adequate and appropriate coverage.
3. Consider a Health Savings Account (HSA)
If you have a high-deductible health plan, opening an HSA is a smart move. Contributions to an HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free. Plus, you can invest unused funds, allowing them to grow tax-deferred. This can double as an additional retirement savings tool, as you can withdraw funds penalty-free after age 65, although non-medical withdrawals will be taxed.
4. Start Saving for Retirement Now
Gig workers often overlook retirement savings, but it’s critical to your long-term financial security. Here are your options:
Traditional IRA: Contributions may be tax-deductible, and earnings grow tax-deferred.
Roth IRA: This offers tax-free growth and withdrawals, which can be a smart choice if you expect to be in a higher tax bracket when you retire.
SEP IRA or Solo 401(k): If your gig income is substantial, these accounts allow you to save more. For example, a SEP IRA lets you contribute up to 25% of net earnings from self-employment, or $69,000, whichever is lower.
No matter which option you choose, make it a habit to save consistently. Automating your savings is a great way to ensure you’re paying yourself first.
5. Stay on Top of Your Taxes
As a gig worker, you’re responsible for your taxes, including Social Security and Medicare contributions (15.3% self-employment tax). Failing to pay quarterly estimated taxes can lead to penalties. Here’s how to stay organized:
Set aside a percentage of every paycheck for taxes.
Mark your calendar with tax deadlines to avoid penalties.
Keep thorough records of all your business expenses to maximize deductions.
Automating your tax payments can save you from scrambling when the deadline hits. Consider working with a tax professional if you're unsure about how to handle your self-employment taxes.
6. Budget for Lean Months
Income from gig work can fluctuate. To avoid financial stress during slow months, create a budget based on your lowest projected income. Automate your savings during higher-earning months to cushion the lean periods. Diversifying your gig work is another way to create income stability. For example, if you’re a freelance writer, you could also offer related services like editing or content consulting.
7. Avoid Debt and Build Credit Wisely
Debt can quickly spiral out of control, especially when your income is irregular. Pay off high-interest debts as soon as possible and avoid using credit for non-essential purchases. However, building credit is important too. Use a credit card responsibly and pay it off in full every month to help boost your credit score without accumulating debt.
8. Pay Yourself a Salary
One of the most effective ways to manage your finances as a gig worker is to set a salary for yourself. Calculate your average monthly expenses and pay yourself that amount from your business income. Any extra earnings should be saved or reinvested back into your business. This helps ensure that you’re not overspending during high-earning months and that you have money set aside for slow periods.
9. Invest in Your Business
Think of yourself as a small business. Invest in tools and education that can help you grow. Whether it’s upgrading your equipment, paying for a course to sharpen your skills, or spending on marketing, these investments can lead to higher earnings in the long run.
10. Consult a Financial Advisor
As a gig worker, your financial situation is more complex than someone with a traditional 9-to-5 job. Consulting a financial advisor can help you make informed decisions about your savings, taxes, and investments. They can guide you on the best strategies for maximizing your income and securing your financial future.
Bonus: Top 15 Side Hustles for Grad Students in 2024 – Perfect for Gig Workers Too!
If you're a gig worker looking to diversify your income or take advantage of flexible work opportunities, these side hustles are ideal for you. From freelance writing to tutoring and even virtual assistant gigs, here are the top side hustles grad students are leveraging to boost their earnings—many of which are perfect for gig workers like yourself.
Top 15 Side Hustles for Grad Students (and Gig Workers!)
Freelance Writing – Create content for websites, blogs, or digital publications. Set your own rates and work from anywhere.
Tutoring – Help students in subjects you're an expert in, while reinforcing your own knowledge.
Virtual Assistant – Offer administrative services remotely, like email management and scheduling.
Graphic Design – Use your creativity to design logos, social media posts, or marketing materials for businesses.
Social Media Management – Manage and grow social media accounts for companies or influencers.
Transcription – Convert audio recordings into written documents, perfect for those with great typing skills.
Proofreading – Review content for grammar and punctuation errors. Great for those with an eye for detail.
Photography – Offer services for events, portraits, or even sell your work online.
Dog Walking – Get outside, stay active, and earn money walking dogs for busy owners.
House Cleaning – Clean homes in your area and set flexible hours that fit your schedule.
Personal Training – Help people achieve their fitness goals by offering personalized workout plans.
Event Planning – Coordinate events like weddings or corporate parties, using your organizational skills to earn.
Ride Sharing – Use your car to drive for services like Uber or Lyft during your free time.
Data Entry – Input data into spreadsheets or databases for companies, requiring minimal skill and setup.
Selling Arts and Crafts – Monetize your creativity by selling handmade items through platforms like Etsy.
These side hustles not only offer flexibility but can also help you build skills, gain experience, and increase your financial security—all while maintaining control over your schedule.
Bottom Line
Managing money as a gig worker takes planning, discipline, and foresight. By setting up an emergency fund, staying on top of taxes, saving for retirement, and getting the right insurance, you can build a solid financial foundation that will help you thrive, even during slow periods. Take these steps now to secure your financial future and ensure that your gig work is both flexible and sustainable.
Ready to take control of your finances as a gig worker? Start by building your emergency fund and automating your retirement savings today.
Reference
AARP Foundation. (n.d.). How to manage your earnings as a freelancer or gig worker. Retrieved from https://fintech.aarpfoundation.org/lessons/how-to-manage-your-earnings-as-a-freelancer-or-gig-worker/
Investopedia. (n.d.). Gig economy. Retrieved from https://www.investopedia.com/terms/g/gig-economy.asp
Internal Revenue Service. (n.d.). Gig economy tax center. Retrieved from https://www.irs.gov/businesses/gig-economy-tax-center
National Bureau of Economic Research. (2023, August). The evolving role of gig work during the COVID-19 pandemic. Retrieved from https://www.nber.org/digest/20238/evolving-role-gig-work-during-covid-19-pandemic
Upwork. (2023). Freelance forward 2023 research report. Retrieved from https://www.upwork.com/research/freelance-forward-2023-research-report