Emily Starbuck Gerson
Managing personal finances can be a difficult task for anyone, but when earning some or all of your income through gigs, the irregular income makes it especially tricky.
If you’re a gig worker and are ready to shape up finances, here are six expert ways to improve financial health.
If you’re earning money from multiple jobs with varying pay amounts and schedules, and you fail to track your income, you won’t have a good sense of how much you can actually afford to spend.
When some or all of your work is based on gigs, “knowing your spending becomes that much more important so you’re not overspending one month, then expecting to make it up the next month and potentially not, and then going into the hole or running up credit card debt,” says Tanja Hester, author of popular financial blog Our Next Life and upcoming book “WORK OPTIONAL: Retire Early the Non-Penny-Pinching Way.” Not sure how much you’re earning? Use an app like Steady, or even Excel, to track income.
Also start tracking spending to help identify “leaks,” Hester says, meaning unnecessary expenses that don’t really add value and can be eliminated.
With a sense of how much money flows in and out each month, use these figures to set up a basic budget. This helps determine the spending limits you need to stick to.
Unpredictable income makes it harder to estimate monthly earnings and therefore creating a budget, says Bethy Hardeman, personal finance expert at Tally, becomes an automated debt management tool. In that case, “try to estimate your lowest paying period, and anchor to that instead of a high-paying period. Base budget and expenses off of that amount and use it as a ‘paycheck.’” In other words, operate as though earnings in a slow month are the norm. A budgeting tool like Mint or HelloWallet can help to stay on track.
Months where you earn more than usual become a savings tool. “When you have a higher-paying period, put a little extra cash aside into an emergency fund to dip into if a tough month happens,” Hardeman says. Having a savings buffer ensures not having to go into debt when unexpected things happen, like a car breakdown.
Hester recommends having as much as six to eight months of living expenses saved up if possible. “Having this buffer is super important, because maybe the app changes the algorithm or you can’t get work that month,” she says. “Or maybe a bout of the flu hits ,meaning a few weeks of rest. Having a few months of saved expenses also gives tremendous power, because if the job is hateful, you can walk away.”
Gig work comes with some tax benefits, including writing off business expenses not available with a full-time job. For example, Hester is now in early retirement, but when she had a full-time job, she taught yoga and spinning on the side for 10 years. “I deducted all my mileage, fitness clothing, new shoes, music, and whatever else I was spending for that,” she says. “I was able to deduct them for taxes, when I couldn’t deduct the equivalent things for my main job.”
The flip side is that if earnings from self-employed work mean a tax liability of $1,000 or more, quarterly estimated taxes are required. Hester says many gig workers don’t realize this, and it can be a rude awakening to assume taxes are being withheld and then get dinged with penalties for not being compliant. Work with an accountant to set the amount to put aside for taxes and pay the IRS each quarter.
High-interest debt, is important to get under control since it can hinder the ability to save or invest. Debt consolidation is one way to help get rid of debt faster. It’s best, though, for those who can secure a lower interest rate, are disciplined enough to make every payment on time and are willing to pay more than the minimum, Hardeman says.
One way to consolidate is a balance transfer to a 0% APR credit card. But it’s only ideal if you can pay off the balance by the end of the interest-free period, Hardeman says, which is usually 12 to 18 months.“For gig workers, this might not be feasible since income can greatly fluctuate,” she explains. After that time, the regular APR kicks in, which can be upwards of 20%.
Tally is another debt consolidation option; it consolidates your high-interest credit card debt with a line of credit that has an interest rate of 7.9% and 19.9%. One monthly payment to Tally, and they pay down your credit cards for you.
If every dollar is needed to stay afloat, that’s one thing. But if some side income is intended for the future, there’s an easy way to trick yourself into saving it, Hester says. Have earnings from one of the gigs automatically go into a separate savings account so it feels as though you’ve never even had it.
“That can be a hugely powerful way to save since you’re not having to use willpower or make a choice every month of ‘should I transfer money to savings?’ — it’s just there,” she says. “Then you don’t think about it, and a few months later it’s, “Oh wow, I actually saved a bunch!’”
If you follow these six expert tips, your finances should be in tip-top shape in no time.