Top 10 Financial Tips For Working In The Gig Economy In 2024

Follow these simple steps for financial peace of mind.

The gig economy offers less stable employment than a traditional job, as most gigs are short-term with uncertain chances of being extended.

This means that you need to take care of your finances in a more business-like fashion than you may have been used to.

A positive cash flow is your number one priority, so you must set aside a portion of your monthly earnings to cover taxes and other expenses.

Top 10 Financial Tips for Working in the Gig Economy in 2024

Before you decide to become your own boss or a gig worker, you must create a budget that covers both short-term and long-term expenses.

Then you need to plan for your estimated taxes, health care, retirement planning, and an emergency fund.

To help you plan, here’s our list of the top financial tips for gig economy workers in 2024:

10. Automate Your Taxes

Set aside a percentage of every paycheck to cover taxes if your gig employer provides a 1099 form at the end of the year.

Automate this process by creating separate bank accounts and scheduling regular transfers to avoid surprises on Tax Day.

Any income that you earn as a gig worker over $400 is taxable, and if taxes aren't withheld, you are responsible for paying them.

There is an added requirement that you must pay these quarterly estimated taxes with any other self-employment taxes if your income exceeds a certain threshold.

It's best to get accounting tips from a qualified tax professional to understand your tax obligations related to your gig worker income.

You must report your income even if you won't be taxed, as compliance is crucial, especially if self-employment taxes like Social Security and Medicare are due.

When filing quarterly, you’ll estimate your taxes to avoid penalties and keep track of any business expenses to lower your tax liability.

Part of your tax prep checklist includes a list of all your sources of income and details of all business expenses claimed.

It is best that you allocate a portion of your income each month exclusively for tax payments, preventing financial strain during tax deadlines.

Aim to save at least 20% of your gig income in a dedicated account specifically for taxes and avoid dipping into it at all costs.

If there’s a surplus at the end of the year, it can be used for other financial goals if you owe less than anticipated.

9. Don't Go Into Debt 

It goes without saying that you should try to avoid going into debt if possible, but life throws financial curveballs now and then.

The best way to avoid going into debt is to educate yourself about financial matters, especially if you plan on entering the gig economy.

Start by assessing your financial situation, using an affordability index and your credit rating to see if a gig job is a viable strategy.

This is particularly relevant when trying to get out of debt while having a full-time job and planning on supplementing your income with gig work.

Determine whether gig work is intended as your supplementary income source or a full-time job, as this impacts your overall financial strategy.

You should then develop a comprehensive budget that aligns with your income, incorporating gig earnings if they form a significant part of your overall earnings.

Then, prioritize essential expenses and allocate funds for debt repayment within your budget, ensuring you pay off high-interest debt first.

Once a debt is settled, use extra money to accelerate the payoff of the next highest-interest debts, such as credit card balances or vehicle loans.

You’ll need to be disciplined to avoid accumulating new debt, especially when gig work is your primary source of income.

Also, resist the temptation to rely on your credit cards or loans for non-essential expenses, as this just puts you further behind.

8. Take Out Health Insurance

You should first visit healthcare.gov to enroll in health insurance if you're a freelancer, consultant, independent contractor, or self-employed without employees.

Should you not have health insurance, Medicare, Medicaid, or the Children's Health Insurance Program (CHIP), then it’s best to find affordable coverage through the Marketplace.

It is best to obtain a high-deductible health insurance policy that covers catastrophic health events and then evaluate the deductibles.

You must take due consideration of the balance between affordability and adequate coverage so that it fits comfortably within your budget.

Depending on the type of work you plan on doing, assess your need for gig economy insurance to provide personal and professional protection.

There are certain activities, like ride-sharing, which may not be covered by your personal auto policy, requiring additional liability coverage.

A gig worker must investigate disability insurance options to safeguard against extended periods of inability to work due to sickness or injury.

Carefully read the policy documents, understand the limitations of Social Security coverage, and consider a private disability policy for comprehensive protection.

If you have a high-deductible health insurance policy, consider opening a Health Savings Account (HSA), which comes with added benefits.

You can contribute tax-deductible funds up to annual limits of $4,150 for individuals and $8,300 for families and use them tax-free for qualified medical expenses.

7. Save For Slow Months

It is essential that you start a savings account, even with irregular gig income, as it acts as a financial buffer between payments.

To simplify the process, automate savings so that a percentage of your gig economy income is automatically transferred from your checking account to a savings account.

This is in addition to your long-term retirement savings and emergency savings fund, which should only be touched in a genuine emergency.

The basic accounting principles dictate that when preparing your budget, you should include a provision for paid vacation leave, as most gig jobs don’t include them.

It is the nature of gig work that you’ll have fluctuating earnings over the year, so plan for it early on.

A gig worker needs to resist the temptation to increase spending during high-earning periods instead saving the extra money to compensate for lean months.

You can also diversify your gig work, engaging in a variety of different types of gig work to balance busy and slow seasons.

Plan your schedule to focus on different activities during peak and off-peak times, maximizing your overall income, especially on delivery and rideshare gigs.

6. Set Up A Retirement Account

Gig workers should recognize early on that gig work lacks employer-sponsored retirement plans but that they have various retirement account options open to them.

No matter a gig worker's age, they should proactively plan for their retirement with savings for long-term financial stability a priority in their budgets.

We’ve mentioned this before, but it's important that you implement automatic contributions to retirement accounts as part of the "pay yourself first" principle.

There are various retirement accounts suitable for independent contractors, such as a Traditional IRA, Roth IRA, SEP IRA, or an Individual 401(k).

Each account type has features and limitations, including contribution limits, tax implications, and withdrawal rules, that are best discussed with a qualified financial advisor.

Contributions to a traditional IRA may be tax-deductible, and earnings grow tax-deferred with penalty-free withdrawal options after age 59½, with withdrawals attracting ordinary income taxes.

This makes a lot of sense as gig worker tax deductions and credits can substantially reduce the amount of tax you pay.

A Roth IRA offers tax-free growth, and if you’re eligible based on your income, you can enjoy the absence of upfront tax deductions.

You can consider a SEP IRA for its higher annual contribution limits, up to 25% of self-employment earnings or $69,000, whichever is lower.

An individual 401(k) option involves more setup but also potentially higher contribution limits than a SEP IRA and the option to make Roth contributions.

5. Pay Off All Debt First (Ideally)

The gig economy offers inherently variable work, and gig workers often experience financial strain during some months while others yield surplus earnings.

Gig workers can plan for this by establishing a flexible budget for both lean and lucrative months, allowing for adjustments as needed.

They should resist the temptation to overspend during high-earning months but rather prioritize long-term financial stability over short-term gratification.

Instead of excessive spending, consider investing extra money in endeavors that yield long-term benefits or settling debt as quickly as possible.

Once you’ve paid off your debts, explore options such as expanding your client base, acquiring new skills, or increasing your emergency fund.

Reinvesting excess income into growing your business and potentially increasing future earning potential is prudent financial planning.

So, allocate funds toward marketing efforts, professional development, or improving operational efficiency to help expand your business and increase your earning potential.

4. Pay Yourself A Salary

Determine your fair and competitive rates based on your skills, expertise, and market standards, and clearly communicate these to your clients.

Once you’ve created a detailed budget outlining your monthly expenses, including necessities, discretionary spending, taxes, and business expenses, pay yourself a salary to cover them.

Use this budget to determine the minimum income required to cover your financial obligations, then set your rates accordingly.

This lets you set a monthly salary based on your calculated personal expenses, ensuring it covers necessities and discretionary spending.

You can then use any additional income beyond your set salary for business expenses and any extra savings to create a financial buffer.

One way of arranging your finances is to implement the three-bank account system: one for income, one for expenses, and one for savings buffer.

Transfer your monthly salary from the income bank account to the expenses account, ensuring that expenses are covered from this checking account.

During the months when your gig income exceeds your set monthly salary, transfer the extra funds into the savings buffer account.

This allows gig workers to accumulate savings more easily during high-earning months to offset lower-earning months and maintain financial consistency.

3. Build Your Emergency Fund

One of the best ways to reduce gig workers' financial stress is to set aside an emergency fund to cover unexpected emergencies.

You should choose an account that is difficult to access, such as a separate bank or investment account, to prevent impulsive withdrawals.

The importance of building an emergency fund as soon as possible for both financial stability and handling unpredictable work cycles cannot be overstated.

You should set aside a minimum of three months' living expenses, aiming for a fund that covers six months or more of essential living expenses.

Commit to not tapping into the emergency savings unless absolutely necessary, preserving it for genuine emergencies that fulfill a set of specific conditions.

Consider saving for an extended emergency fund that covers nine months to a year of living expenses, providing for extended periods of low income.

You must designate the emergency fund for genuine emergencies, such as accidents, illness, or prolonged absence from work for various reasons.

It is absolutely crucial that you resist using the emergency fund for non-essential expenses, ensuring its availability during critical times.

Gig workers should review and adjust the fund size based on changes in living expenses, income, or personal circumstances at least once a year.

2. Create A Budget

Constructing your monthly budget using your lowest predicted income as a baseline is the most prudent way to ensure you don’t run out of money.

This ensures that your monthly budget is sustainable during lean months, and any surplus income can be directed toward your savings goals.

Unlike traditional full-time jobs, a freelance gig worker is responsible for financing your work-related tools and supplies, such as laptops, in the gig economy.

It also helps to establish clear investment strategies to provide purpose and motivation for sticking to your financial goals, especially earnings targets.

When you connect these goals to your income and expense tracking, it makes the budgeting process more meaningful and goal-oriented.

Begin your budgeting process by listing essential expenses that must be covered monthly, such as:

• Mortgage or rent
• Car payments
• Utilities
• Groceries
• Loan payments

Ensure these necessities are accounted for before allocating funds to discretionary spending on non-essential items, such as eating out or gifts.

If your gig has busy and slow seasons, plan your budget to save more during peak earning months and less when earnings are lowest.

Identify the minimum expenses required for essentials like shelter, food, utilities, work-related costs, and debt repayment so that you have a baseline for financial planning.

A budget is only helpful if you track your earnings and expenses and adjust them when necessary to save money and align with your particular circumstances.

1. Calculate Your Expenses

As a gig worker without a long-term employment contract, you must estimate your monthly income by using past earnings and potential opportunities to guide you.

Each month, track and compare your actual income with your initial estimates, refining your predicted income over time and making adjustments.

The increasing cost of living may require that you take on additional work to meet essential expenses or cut costs to balance your budget.

Next, you need to treat your debt repayments and savings as essential expenses, incorporating them into your budget to improve your financial health.

Allocate funds for these debt and savings goals alongside your other essential expenses to ensure consistent progress toward your financial objectives.

Total your expenses over the entire year and divide by the number of months to calculate your average monthly expenses.

Utilizing your average monthly expenses as a baseline for your budget provides a stable framework despite gig economy fluctuations, making it easier to plan.

Regularly reassess and adjust your budget based on your evolving financial circumstances and goals to keep your budget realistic.

Summary

Aside from covering monthly expenses, most gig workers and independent contractors feel overwhelmed by their retirement savings requirements, especially during a slowdown in the economy.

This is followed by how they might pay taxes, unexpected medical expenses, or other costs arising from wear and tear, theft, or accidents.

Committing to saving a portion of one's earnings and keeping to a set budget can alleviate most of these gig economy worries.