8 Ways Gig Workers Can Build Financial Stability
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Being a gig worker means freedom. You can set your own hours and decide how much you want to work. You have clients more than bosses, so you feel in charge of your own destiny. But, that freedom usually comes at the cost of stability. Many people feel it’s worth it – tens of millions, to be exact. Velocity Global reports that 16 percent of Americans have made money as a gig worker at some point and that the number of global gig workers is expected to reach 78 million by the year 2023. Gig economy does not seem to be slowing down, and if you planned on joining it or are already a part of it, you probably face the same dilemma many gig workers do: how to gain financial stability. While the gig economy might never offer the same stability as a salaried job, there are steps you can take to get close to that sense of security.
Be Diverse
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The very first thing any gig worker should do is be diverse. Having multiple streams of income means you are not completely reliant on one job or one client. And that means you aren’t left sh*t out of luck if one client falls through. So see if you can parlay your skills into multiple avenues or at least have several clients. If one job falls through, you can potentially increase work in the others for the time being until you land something else.
Open A Retirement Account
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If you do not have a salaried job, then it’s entirely on you to open a retirement account. Speak to your financial advisor about opening a Roth IRA. The earnings in this are non-taxable – so long as you do not draw upon them until you are 60 years old. If possible, max out your contribution each year. Currently, individuals under the age of 50 can put up to $6,000 in their Roth IRA annually. To give you some idea of how beneficial this account is, consider this: an individual who puts in $5,000 per year starting at age 29 will have a balance of just under $800,000 by the age of 65. So when creating your budget (which we’ll get to), make room in there to put aside money for your Roth IRA.
Know Your Unemployment Rights
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The pandemic showed us that millions of Americans did not know their unemployment rights – especially gig workers. If you work for yourself, you are eligible for unemployment. However, you do need to provide documents proving your income as a gig worker. One example is a tax return. You can find more about how to collect on unemployment as a gig worker on the Employment Development Department’s website.
Know Your Target Income
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Often, gig workers go out into the economy and try to simply make as much money as they can. But it is important to understand your target income. Remember that when you are a gig worker, you will have dry spells and cannot count on a consistent paycheck. Your target income – and rates – should account for those dry spells. Some experts would say that as a gig worker, you should aim every day to make as much money as you’d need to cover your expenses if you didn’t work for the following two days. Additionally, you won’t have your health insurance covered. Today, the average monthly cost of an individual health insurance plans is $541, says Value Penguin. You might need to include that cost into your target income. However, HealthCare.gov can point you in the direction of affordable healthcare resources in your area and help you check your eligibility.
Create A Budget Tailored To The Gig Economy
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If you have been a gig worker for some time now, sit down and look at your income and spending each month for the previous year. See how much money came in and went out on average each month. Unless there have been major changes to your income, this is a great starting point from which to build a budget. Create a budget that allows you to cover your basic needs (housing, food, car, utilities, health insurance) leaves money for your taxes (which we’ll get to) and additionally allows you to put aside money each month – both for your Roth IRA contribution, and an emergency savings fund. It is recommended to have an emergency savings fund equal to between three and six months’ worth of expenses.
Know And Plan For Your Tax Obligation
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When you are a gig worker, nobody is paying your taxes for you. Your clients do not take those out of your paycheck and it is on you to calculate and pay your tax obligation on a quarterly basis. It is very important as a gig worker to have a tax professional create those quarterly estimates for you, so that you do not face underpayment or late penalty fees at the end of the year. A good rule of thumb is to set aside 30 percent of your income for taxes if you work for yourself.
Get Liability Insurance
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When you work for a major company, you often enjoy many types of insurance provided by that company. However, when you are in the gig economy, it is a good idea to purchase your own liability insurance. This will cover third-party bodily injuries and property damages that occur during a gig. Not having this insurance can be financially devastating in the event of an accident. Gig workers like dog walkers, drivers and independent contractors, should seriously consider purchasing liability insurance.
Open A Health Savings Account
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In addition to purchasing health insurance, you might consider opening a health savings account. This is a savings account specifically for medical expenses that earns interest. It is best for those with a high deductible or high co-pay insurance plans. In the event of a claim, you might struggle to pay your high deductible and your earnings, a health savings account can help reduce your costs. Unlike with a Roth IRA, you can withdraw on your health savings account at any time. Learn more about this type of account at HealthCare.gov.
