4 Financial Tips For Navigating The Gig Economy
Whether you have a small side hustle or freelancing makes up your entire income, navigating the financial side of the gig economy can be difficult. Here are some tips to make it a little easier.
Think Of It As A Business
When navigating the gig economy, you may want to consider the sum of all the income sources you have as a business. Part of running a business is setting goals. If you want to make sure you reach your financial goals, tracking income and expenses throughout the year is essential.
How you make a living is likely to be some balance between things that you enjoy doing and things that help you achieve income goals. If a gig you take on isn’t something you are passionate about and you’re putting in way more time, money, and effort than the payout you receive, that is important to understand. Then, you can make informed decisions about potential changes you’d like to make.
For example, I published a book about a year ago and I wanted to understand its impact on my personal business in a few ways:
Time associated with writing and marketing;
Expenses associated with hiring an editor, formatter, and illustrator;
Revenue associated with sales; and
Increasing my credibility, visibility, and strengthening my personal brand.
I could make more money per hour by focusing on other aspects of my business. However, the book’s boost to my overall brand, coupled with the joy I get from writing, caused me to want to continue that path.
The process tracking income, expenses, effort, and impact may have a different impact on the decisions people make in their individual businesses.
Avoid Lifestyle Creep
As your income increases, so can your expenses. This phenomenon is known as lifestyle creep, which cause you to feel like you’re living paycheck to paycheck no matter how much money you bring in. An easy way to avoid this, after you’ve tracked all your income and expenses, is to create a realistic budget and revisit it quarterly. This will instill good habits around money and cause you to consult that budget when assessing new financial decisions, such as purchasing a car, home, business, or even going on a shopping spree.
Set Aside Money For Taxes
Tax season is not the only time to be thinking about setting aside money for taxes. When you receive income from multiple sources as a freelancer, that income is often not taxed before it gets to you. This means that come tax season, you may be on the hook for your gig wages from the prior year.
There are a couple things you can do to lessen this burden.
Pay Quarterly Estimates
If you have an idea of what you’ll be taking in for the year, paying quarterly tax estimates will spread taxes over time and lessen the blow come April. The drawback of quarterly estimates is that if your income is variable, you may end up vastly under- or over-paying for the year.
Save A Percentage
You may be able to estimate your tax bracket based off what you have owed in past years or a tax advisor may be able to recommend a percentage of your wages you should be withholding. Regardless, even if you set aside a small percentage of your earnings in a separate account, you can earn some interest on your money and have an untouched bucket to pull from when tax time comes around. I don’t recommend maintaining this as a checking account because it may be too tempting to dip into month over month.
Reduce Your Taxes Altogether
If you save money in a pre-tax retirement account, you can reduce your tax burden altogether. Every dollar that is saved is a dollar-for-dollar reduction in your taxable income. Think: If you make $100,000 and save $10,000, then your taxable income is reduced to $90,000. Consider working with a qualified financial advisor to find the retirement vehicle that makes sense for your personal situation.
Invest According To Your Goals
If you’ve managed your business according to what you want out of life, avoided lifestyle creep, and kept up with your taxes, you may have some excess funds to invest. It’s important have a financial goal in mind because that goal will be your north star in your investing decisions.
Let’s say you are investing to pay next year’s taxes. That goal is inflexible because there is a definite deadline that you need to file your taxes by. It is also short term because you’d have one year before you need to remove your investments. In that case, you may consider investing in cash, money market funds, or other ultra conservative investments.
If you have a longer-term goal and a higher tolerance for risk, you may consider investing in higher-risk assets, like stock portfolios. Diversified stock portfolios tend to have much higher average returns than lower-risk investments.
Conclusion
No matter what your goals are for taking on multiple income sources, it’s important to balance your passions with financial strategies. Navigating the gig economy can be made easier by thinking of your cumulative income sources as a business, budgeting to avoid lifestyle creep, making moves to manage taxes, and investing according to your goals.
This article was originally published by me on Forbes.
This informational and educational article does not offer or constitute and should not be relied upon as tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.
Cicely Jones (CA Insurance LLC. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-6413060.1(02/24)(exp.02/26)
