Future of work projections keep many managers awake at night, raising concerns over the way jobs and workplaces will evolve in coming years.
Gig workers face unique financial obstacles due to income volatility, lack of traditional benefits and infrequently negotiated wages. To be successful, gig workers must set goals, manage expenses carefully and save for retirement as well as develop an emergency fund.
Managing Your Expenses
Many individuals turn to gig work in search of flexibility and independence from traditional employment. With COVID-19’s rapid spread, gig work became even more widespread – offering flexibility combined with side hustles.
Gig workers face unique difficulties when it comes to financial planning. Without access to company-issued credit cards or expense management software, they may have trouble documenting income and expenses accurately.
Financial experts advise people facing these difficulties to create a budget to help manage spending and save for goals. Such budgets often use envelope systems (assigning cash to specific categories), zero-based budgeting, or apps that track spending and income; some even include creating savings/debt repayment plans as well as diversifying income sources to mitigate income volatility and help people stay on course with their financial goals while avoiding debt traps. Budgets play an essential role in keeping people on the path toward reaching their financial goals while staying away from costly debt traps
Creating a Financial Plan
Gig work may appear like an ideal way to boost income and achieve flexibility; however, those who depend on gig work as their primary source of income must navigate its unique financial challenges carefully in order to secure long-term health. Such strategies include creating an adaptable budget that takes irregular income into account, managing taxes accurately and prioritizing benefits such as health insurance and retirement savings accounts.
Gig workers can create a financial plan by tracking all their recurring expenses, such as rent or utilities. They should set aside money for income tax in a separate account, and ensure they have emergency funds of six to eight months’ expenses stored away in an emergency fund. Furthermore, they should contribute regularly to a retirement savings fund; focus on building their credit by paying bills on time and keeping credit utilization under control; this will allow them to qualify for loans and credit cards while avoiding higher interest rates.
Planning for Retirement
Gig workers typically lack access to company-sponsored retirement savings solutions and may struggle to save enough for long-term expenses. Without a stable monthly paycheck or formal pay stub, it may also be more challenging for them to demonstrate their income when applying for loans or renting apartments.
Campbell suggests that gig workers build emergency savings equivalent to four or six months’ of their expenses in case their income fluctuates, so that when bills come due in slower months they won’t have to tap their retirement accounts for payments.
Gig workers must also remain aware of their self-employment tax obligations, which include Social Security and Medicare taxes. To lessen their tax burden, an Individual Retirement Account (IRA) can help. Contributions made are tax deductible while withdrawals for qualified medical expenses qualify as tax free withdrawals from an IRA.
Planning for Health Care
The gig economy may conjure images of ride-share drivers and food delivery workers, but its diversity makes it an invaluable workforce resource. From expert services to administrative support and remote workers – this on-demand workforce offers great potential value to organizations who know how to take advantage of it.
Gig workers face unique financial difficulties due to the nature of their work, which typically involves short-term contracts and uncertain income streams. Since regular employees do have access to employer-sponsored health and disability coverage, gig workers should consider purchasing private disability coverage as a safeguard against medical or health-related unemployment situations.
Recordkeeping is of equal importance to gig workers. Financial institutions typically require proof of income before providing credit or services, so gig workers should ensure their earnings can be documented timely to avoid penalties for underpayment and ensure tax compliance. Maintaining cash reserves, prioritizing debt payments and building an emergency fund are also vital strategies in times of lean times.