When Shaughn Richardson’s student and auto loans limited him to living paycheck-to-paycheck, he decided to take part in the gig economy to break the cycle.
Richardson, a middle school social studies teacher in Reno, Nevada, drove Lyft for almost a year to earn enough extra income first to pay off his loans and then to begin saving.
“It wasn’t something I just did on a whim,” Richardson said. “I decided that driving during school break would be a good way make some extra money that I needed.”
By driving Lyft, Richardson said he was able to get some breathing room from his financial pressures.
“It helped me to pay off my student loans, so that was income I didn’t have to spend,” he said. “I had purchased a new car at the time, and driving helped with the extra expenses also.”
While Richardson said he no longer lives in a paycheck-to-paycheck cycle, almost 80% of full-time American workers do. The situation can be worse for those who rely solely on the gig economy for their income and don’t have a regular paycheck.
“It’s even more important for gig economy workers to avoid working paycheck to paycheck because their income amount and frequency is less certain,” said Kristen Euretig, a Certified Financial Planner and Founder of Brooklyn Plans.
The stress of living paycheck to paycheck is not uncommon. A 2017 Federal Reserve report showed that if faced with a $400 emergency expense, four in 10 adults would either borrow money, sell something, or not be able to pay.
To start building savings, pay down debt and get out of the paycheck-to-paycheck cycle, Richardson employed three key strategies.
Before he began driving for Lyft, Richardson looked at his expenses, totaled his loan debt and estimated his monthly income needs.
“I sat down, and I looked at how much money I would need to make each month and broke it down into weeks,” he said.
Euretig recommends a similar strategy of starting with a budget.
“Look at your income over time and come up with a running average,” she said. “Try to live off that number every month, instead of spending more in months that you earn more.”
To keep himself from spending the money he earned with Lyft on something other than his goal, Richardson would wait until he had a set amount in the app to cash out and put it toward a loan payment.
“I waited so I would use it immediately for what I wanted to use it for and not spend it on anything else,” he said.
Carefully tracking and saving money you make from a gig is key to breaking the paycheck-to-paycheck cycle, Euretig said. She recommends saving money in percentages rather than dollar amounts.
“Because your income fluctuates, strive to save a percentage of whatever you,” she said. “Because your pay will go up and down, the amount you can reasonably save will too. If you set a percentage, then it will be proportional to what you bring in, and you’ll always save a piece of your income.”
After Richardson determined how much money he needed to make to reach his goals, he then began looking for opportunities in the gig economy that could help get him there. When Lyft arrived in the Reno market, Richardson studied the most profitable times to drive.
“I looked up the busiest times and when I could make the most money driving and focused on driving during those busy times and when I could get the most rides,” he said.
Often the busiest times were weekends, he said. While the timing made it so that he had to miss going out with friends and other social activities, Richardson said he kept his eye on his goal.
“It was an easy choice to sacrifice one night a weekend to drive,” he said. “It would be like, am I going to out with friends? Or, I can drive and make money and not spend any money.”
Now, Richardson is grateful for the flexibility that the gig economy provided and the opportunity to pay off his loans. He thinks what he did could be a good option for others in a similar situation
“I would make sure that it’s worth it,” Richardson said. “Figure out what works for you as far as putting in the time and how much money you can make.”