The gig economy has become a hot topic over the last decade, with more and more people looking to supplement their traditional incomes by taking on short-term, freelance engagements. Gigging jobs can range from driving for a ride-sharing service to providing medical advice online, and many tout the flexible working hours and higher potential for pay as attractive perks.
However, this type of work also presents unique financial challenges, especially when it comes to budgeting. Knowing where and how to set aside money when your income is inconsistent and dependent upon the number of gigs you can get can be overwhelming. There are, however, certain methods or strategies that giggers can use to help them stay on top of their finances.
What is the Gig Economy?
The gig economy refers to a network of people working independently, usually on a short-term basis, and often specializing in a particular type of service or product. Such people can earn income from a variety of sources, including online platforms, such as Freelancer, TaskRabbit, Uber, and other Internet-based gig companies.
The gig economy has grown by leaps and bounds in recent years, with the number of gig workers now estimated at around 57 million people in the United States alone. The increase in the number of people working in the gig economy can be attributed to a number of factors, including a desire for more flexible working hours, freedom to pursue new business opportunities, better access to digital tools, and greater financial potential.
The Financial Challenges of the Gig Economy
The gig economy comes with a host of financial challenges that traditional employment does not. For one, since freelance work is usually paid on a piece-by-piece or job-by-job basis, gig workers often have to wait between engagements to receive payment. In addition, gigs can often be unpredictable, which means that the amount of income they can earn in any given week or month cannot be predicted.
Furthermore, gig workers have to pay for their own expenses in terms of obtaining the necessary tools and materials to do their jobs. This includes expenses such as purchasing a laptop or phone, buying software, or investing in necessary training.
Finally, some gigs don't provide health insurance and other benefits, leaving gigging workers without the protection they'd get from a traditional job. This leaves them open to incurring unintended medical costs.
As a result of all of these issues, it is easy to see how budgeting for gig workers can be a complex and time-consuming task.
Strategies for Creating a Budget
Creating and adhering to a budget is one of the most essential financial strategies to stay on top of your financial situation. While there are many different methods to create a budget, the simplest and most effective is the 50/30/20 budget. This type of budget is based on a person’s pre-tax income and breaks it down into three categories: 50% for needs, 30% for wants, and 20% for savings.
For gig workers, budgeting can be even more challenging because of the fluctuations in income. In order to make budgeting more manageable, many gig workers choose to budget based on their estimated monthly income. This allows them to plan ahead and set aside money for bills, savings, and other expenses.
In addition, gig workers should also adjust their budgets throughout the month to account for any unexpected expenses. It can also be helpful to break down monthly expenses into smaller weekly expenses to help keep track of spending. For example, instead of setting aside money for a big ticket item like mortgage payment in one month-long chunk, break it down into 4 weekly payments.
One of the most important things to do when budgeting as a gig worker is to set aside money for taxes. It can be tempting to not set money aside every month for taxes since income is inconsistent. However, not setting aside money for taxes can cause problems down the line in the form of fines, fees, and penalties.
Gig workers should also try to save some of their income to prepare for the stressful times when work might slow down or even stop. Making sure to have a few weeks or even a few months worth of rent, food, and other expenses saved up can help to ease any financial worries in these times.
Gigging can be a great way to supplement your income, as well as provide a flexible working schedule. In order to maximize the potential of the gig economy, though, gig workers need to know how to budget their money in order to take full advantage of their financial situation. While budgeting for gig workers can be challenging, following the 50/30/20 budget rule, along with saving for taxes and creating a savings reserve, can help to ensure that your financial situation remains in control.