The gig economy is growing fast, but saving can be difficult when your income is uncertain. Having a good financial plan is the first step towards a better future.
Millions of people rely on alternate work or contingent work arrangements for their income. Often referred to as the “gig economy”, these jobs include freelance writers, graphic designers, tutors, delivery drivers, and plenty of other individual-based working positions.
Gig work employers have seen a major growth in the past couple years. These are reputable employers such as Uber/Lyft, Airbnb, Fiverr, Doordash, Care.com, and Freelancer. Nearly 30% of US workers rely on a side job, or an alternate income. In addition, with COVID’s dangerous impact on the job market, the numbers of gig workers are only going up.
There are many reasons to consider gig work as your main source of income, but the biggest factor that attracts people is the flexibility. Flexibility is one of the great benefits of being a gig worker; however, it comes with uncertainty. It can be difficult to create a budget when your income can vary greatly from week to week and month to month.
Here are five tips to consider:
1. Estimate and plan
Gig worker positions typically do not have a set paycheck every pay period. In order to budget for this, you will need to estimate how much you plan to make each month, and then track how much you actually make each month. If you make your budget based on your lowest predicted income, you’ll be able to stick to it. On the pay periods where you make more than expected, adding that money into your savings will allow you to build up a savings account that can help get you through the harder times.
2. Plan for business expenses
This is often overlooked since your regular full-time job would already be paying for your work supplies (computer, software, printer, etc.). But, anything you need or use for your gig position, you’ll most likely have to pay for with your own money. It could be helpful to create a list of the supplies that you will need for your position, and then create a plan on how you can budget for these items or purchase them over time.
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3. Get your money on time
Financial institutions, like First Bank, are going the extra mile to ensure we have the products and services our gig-economy workers need to be successful. This includes faster payment options. In fact, in July 2020, First Bank joined the Real Time Payment (RTP) network and clients with participating employers, vendors, and partners can now receive payments in real time (in seconds or minutes) any time, day or night, including weekends and holidays. “These payments used to arrive the next business day by ACH or the same business day by wire,” said Jon Moen, CTP, First Bank’s Senior Vice President and Director of Product. “The feedback has been very positive, especially by the bulk of our gig-economy workers, who are getting paid faster as a result.”
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4. Plan for retirement
Gig workers do not have retirement plans built into their compensation package, but that doesn’t mean you can’t save for retirement. Consider talking to a financial planner about individual retirement accounts that are available to self-employed workers. There are a number of different plans and options to help make saving for retirement easier for independent, self-employed, contract, and gig workers. To help you get started, consider allocating a small percentage of your income for retirement. No matter the amount, be consistent and prioritize your retirement and savings funds.
5. Be aware of your taxes
The income you make as a gig worker is taxable income. If the taxes are not withheld, then you will have to pay them yourself. Make sure you set enough money aside each time you get paid to go toward your tax payments. Depending on if you make above a certain amount, you will have to pay taxes. Often, an option is to pay these estimated taxes quarterly. This is where you estimate how much you’re going to make and then pay your income taxes in smaller, quarterly payments that are based on that estimate. It’s best to speak to a qualified tax professional about your unique tax situation.
It’s important to be prepared and save for what may come. Learn about our savings account options to discover which option best fits your needs.
Whether you plan to work independently long-term, consider it to be a temporary role, or plan to build it as your side hustle, there are many things to consider when managing your finances as a gig worker. Planning for the future doesn’t have to be difficult, and with First Bank, you could get ahead today. Check out how you can save and plan for the future with First Bank’s Savings Accounts.