Financial planning in the gig economy?
Monday, 16 December 2019
Being your own boss and setting your own schedule as a gig worker can be lucrative. But doing it successfully requires planning and dedication, especially when it comes to finances.
As the gig economy has matured, a number of tech companies have sprouted up to make financial services available on demand, simplifying financial management for independent workers.
But even with new technologies available, working on your own requires you to stay on top of a number of financial issues that would have traditionally been managed by a full- time employer. If you want to pursue a career as a gig worker, you'll need to plan for each of the following situations to build a strong financial future.
If you don't have an employer, you don't have an employer-based retirement plan. Saving for the future is up to you. Consider opening an Individual Retirement Account (IRA) and contributing a portion, such as 15 percent, of your monthly income to it. Figure out how much you'll need to retire at the age you have in mind and work towards meeting that goal.
Without employer-based health insurance, you'll need to determine another way to cover healthcare costs. Look into your state's healthcare exchange or consider joining a professional association that offers discounted health insurance. Budget for the monthly payments and work to build funds for unexpected health costs.
Since your employer won't be deducting taxes from your paycheck, you'll be responsible for paying your own income taxes. Most people who are self-employed are required to make estimated tax payments each quarter. If necessary, talk to a tax professional to determine your tax bracket and pay the required percentage to the IRS on time. That way, you can avoid a large tax bill at the end of the year.
Perhaps most important, create a budget and stick to it. Be sure to include savings in your budget so you can set aside a percentage of each paycheck (e.g. 10%). This will help you build an emergency fund to keep your bills paid even when work slows down. Most self-employed people experience periods of “feast or famine," as work demands fluctuate. If you have savings available, you'll be prepared to weather the slower times.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
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