Whether you’re new to the (digital) gig economy, or have a couple of years under your belt, you know that the way your earnings are set up, has nothing in common with the good old 9-to-5 earning system with its secure but limited amount of cash coming in.
Good to excellent knowledge on money management is crucial to thrive in the gig economy. Besides saving you reocurring financial stress, it helps you avoid relying on sources outside of yourself and it helps you keep your head cool, because who needs anxiety attacks in their life anyway? Not sure where to start to get a grip on your situation?
Here are Sociale’s 5 best tips for money management in the gig economy, and we’re 100% sure there’s something in here you can start with right now.
1. Set aside tax money
Our first tip is a simple freebie, but often overlooked. We honestly think everyone in the gig economy should play by this rule to make their financial life easier.
As soon as you get paid, or once a month when doing your administration, set aside the money you expect to pay in taxes by transferring it into a separate savings account. By doing this you are avoiding a smack on your wallet when tax season comes around and you might be able to gain a little interest percentage over the money. Plus, if you’re hiring someone to help you out filing taxes you’d be their favorite client, keeping your administration clear throughout the year.
2. Build an emergency fund
Small emergencies as a broken coffee-maker (without a doubt Sociale’s no.1 essential household item), you might be able to resolve without much trouble.
Bigger emergencies, like a cross-country flight home for a family emergency, a surgery for your dog son or cat daughter, replacement of parts for your car, or a dentist appointment gone sideways, cost a lot more money and are often unexpected.
To avoid financial stress and a mental breakdown when something like this happens, you’ll feel much better by having an emergency fund or working on creating one for yourself.
Do this by making a plan to put a certain percentage of each payout aside in a savings account, or by transferring any income that’s above a certain amount determined by you. If you don’t have an emergency fund yet, we recommend starting one today.
Set a minimum goal for your fund that is realistic and that you’ll feel comfortable with having, and start taking the steps towards realizing it. This smallest step is still a step forward.
3. Multiple streams of income
The millionaires’ secret habit of having multiple streams of income has been out for a while now. And it’s no different for freelancers or for those working in the gig economy. Whereas a 9-to-5 would be the safe and low-risk bet on one horse, working in the gig economy asks you to take risks and bet on several. Variety in your offerings is key. Ask yourself if you can offer your services on more than one platform at once, or if you can add services at different price points in addition to what’s existing already. Can you offer your services by means of monthly subscription? Creating evergreen digital assets that can give you a passive stream of income is a big one too.
Experiment and talk with others in your niche to find out what you could add to your portfolio.
Next to multiple streams of income within your line of expertise and work, having multiple streams of income also means that you could consider investing your earned money in various ways and aim for financial security in the future by investing in real estate, stock or a new business.
4. Set a realistic personal budget
This advice is particularly aimed at those new to the gig economy and going through the transition. Nonetheless, even if you’re experienced it doesn’t hurt to review your personal budget now and then.
It’s clear that the (online) gig economy offers -literally- endless opportunities and we all know examples of influencers with a 6 or 7 figure revenue. Our advice: until you find yourself amongst them, adjust your personal budget accordingly: no need to struggle for showing out and pretending to live a certain lifestyle when it means it costs you money or puts you in debt and benefits your financial goals in no way.
Take some time to figure out how much money you need per month to cover your expenses and entertainment. Then ask yourself if you can sustain this in lower income months. If the answer is yes, you’re good to go. If the answer is no, see where you can cut out unnecessary costly activities and subscriptions until your income allows you to add them back into your budget.
A realistic personal budget depends on circumstances like your living situation, your lifestyle and location, but we’re sure you can cut out something where it hurts the least for you.
Especially when transitioning into the gig economy it can be helpful to revise some of your financial choices to reach your long term goals. Sometimes this means a couple of months without Netflix and Spotify premium, for others it can look like eating out once a week instead of daily and for others it might mean no parties or no car for a couple of months.
In the end, you are the only one to decide what sacrifices you are willing and able to make in order to change your lifestyle in the long run. And, you are the only one to decide what are the best ways to reward yourself when cashing out from a great gig.
5. Prioritize your financial goals
Let’s say you have a couple of financial goals at the moment. A combination of financial goals could look something like this: pay off (college) debts, grow a bigger emergency fund, put money into a retirement fund, and save up for a vacation in the Caribbean.
An employee with the same pay-check each month, can plan ahead on how much money will be added towards each financial goal and even predict when to reach these goals. They might make an exception in how they distribute their money into different funds in the month they take their annual family vacation, but that’s pretty much it when it comes to fluctuations.
Working in the gig economy demands for a whole new level of flexibility around your financial goals. In the great months you might be able to save towards each goal and in some other months you’d have to decide which fund is most valuable to you.
Take a moment to define each goal, and make some calculations in order to prioritize your financial goals wisely. To give you a simplified example: if the percentage of interest you pay over your debts out-balances the interest you gain from your savings, it might be the best option to prioritize paying off your debt over adding money into your savings account. Get the idea..? Don’t shy away from consulting a financial advisor if this sounds all too gibberish to you. In the end their knowledge can save you more than the cost of their consultation.
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