3 Tips for Managing Money in the Gig Economy

3 Tips for Managing Money in the Gig Economy 3 Tips for Managing Money in the Gig Economy 3 Tips for Managing Money in the Gig EconomyIf youre not budgeting your money properly and building up your savings, you could end up struggling to make it from one paycheck to the next.As you’ve likely heard, participation in the gig economyâ€"short-term contracts, temp work, freelancing, and the likeâ€"is exploding. Recent studies estimate that 25 to 30 percent of all workers have done some form of independent work in the last month.There is no one type of gig workerâ€"they span all ages, genders, races, and levels of socioeconomic status. Some people rely on gig work because they cannot find full-time traditional employment that pays the bills. Other gig workers don’t want to find traditional, preferring the flexibility and control that gig work provides.Whatever your reasons for getting into gig work, the challenges it poses cannot be overlooked. Workloads are often unreliable and paychecks may be unsteady, which means proper money management is of the utmost importance.Due t o the work’s inherent unpredictability, gig workers can be vulnerable to risky loan products such as no credit check loans and bad credit loans. These short-term loans are often called payday loans because they are marketed as cash advances on paychecks for when money gets tight at the end of the monthâ€"a real concern for many gig workers.These loans may seem like a “band-aid” option for a gig worker trying to make ends meet while they chase down a paycheck or struggle to scrape together enough paying jobs. But between their sky-high interest rates and hidden fees, these loans can be more like a debt trap recipeâ€"and they are better avoided if at all possible.How do you avoid short-term, high-interest loans? We’re glad you asked. The trick is stellar money management, and we have a few financial tips specifically designed for gig workers.1. Define necessities.Everyone needs a budgetâ€"a way to track money in and money outâ€"but it is even more important for folks with fluc tuating monthly income, like gig workers. According to Jacob Dayan, CEO and co-founder of  Community Tax (@communitytaxllc) and  Finance Pal, “the first step to creating a budget based on a fluctuating income is to know what expenses you absolutely need to cover each month.” These are expenses related to things like housing, groceries, bills, and transportation.Marina Babaian, the founder and CEO of Mbridge Consulting Groupâ€"a woman-owned business and consulting firm that provides accounting, payroll, and business management services to start-ups, small, and medium-sized businessesâ€"agrees.She recommends eliminating all unnecessary expenses, including subscriptions (sorry Netflix!), to make sure you have a really good fix on what you actually need to spend. “A monthly or even weekly budget is needed to understand what your necessities are,” she says. Once those are mapped out, the trick is to spend accordingly.After your necessary expenses are covered, Dayan suggests worki ng “some savings into your budget as well, no matter how small.” He recommends a technique called the 50/30/20 rule: “50 percent of your income for necessities, 30 percent for discretionary spending, and 20 percent for savings.”It may seem unnecessary or difficult at first, but building a cushion will help in the future when an unexpected expense or lull in work crops up.2. Save for taxes.Don’t forget another key expense: taxes. “When you are self-employed,” explains Dayan, “you don’t have the ‘luxury’ of your taxes being automatically deducted from each paycheck.” You have to pay them all yourself, usually in quarterly installments. Additionally, without the help of an employer paying a portion of your taxes, you’ll be covering the whole burden yourself.This means you’ll likely owe the IRS and your state more taxes than you are used to. Dayan recommends setting aside a full “25 to 30 percent of your income so that when it comes time to pay your taxes, it’s already taken care of and you won’t have to worry about where the money is coming from.”Earlier this year, the IRS announced plans to “focus on self-employment tax compliance.” According to an audit they did, the agency found that noncompliance from gig workers contributed $69 billion to the annual tax gap, which is the difference between taxpayers owe and what they actually paid.Dayan suggests opening a separate bank account that is specifically for your taxes. That way, you won’t accidentally spend the money you need to pay your tax bill and end up owing the IRS even more money in fines. If you save too much, then you’ll have a bit left over to put in savings for that inevitable rainy day.3. Maintain or build good credit.“It is essential that while working in temp jobs your credit remains good,” says Babaian. “If times get tough, youre going to need good credit to give you some flexibility.” Good credit is essential to get the best terms on installment l oans, such as auto loans, mortgages, and personal loans.A 2017 poll by Upwork found that paycheck instability led 63 percent of full-time freelancers to dip into savings at least once per month (compared to only 20 percent of full-time non-freelancers). But what if you’re one of the 51 percent of workers who don’t have much in the way of savings?You may turn to something like a credit card if you can qualify for oneâ€"and that is all well and good if you can keep up with the payments. If not, credit card debt can start impacting your credit score, which will make it even harder in the future to find financial products that you qualify for. Credit card debt, by the way, is at a record highâ€"the average American holds a balance of more than $6,000.“If youre struggling to pay off your credit card balances,” says Babaian, even paying “one dollar over the minimum balance requirement will keep your credit rising.”Short-term solutions may be especially appealing to young peopl e who haven’t had time to establish good credit and may already have a sizable chunk of debt in the form of student loans. This is a big concern for a lot of gig workers, seeing as 47 percent of all millennials work in the gig economy, according to that same Upwork poll.At the end of the day, it’s important that gig workers manage their fluctuating income wisely. This means having a good fix on your necessities and creating a budget, making sure you stay on top of your taxes, and trying to maintain or improve your credit as best you can.To learn more about managing your money, check out  these other posts and articles from OppLoans:Save More Money with These 40 Expert TipsHow to Raise Your Credit Score by 100 PointsBuilding Your Financial Life: Budgeting for BeginnersEmergency Funds Are Important: Here’s How to Start Building OneDo you have a personal finance question youd like us to answer? Let us know! You can find us  on  Facebook  and  Twitter.  |InstagramContributorsJacob Dayan is the CEO and Co-Founder of  Community Tax, LLC (@communitytaxllc) and  Finance Pal, LLC. He began his career in Wall Street New York at Bear Stearns working in the Financial Analytics and Structured Transactions group. He continued to work in Wall Street until early 2009. When he then left New York and returned to Chicago to be with his family and pursue his lifelong dream  of self-employment. There he co-founded Community Tax, LLC followed by Finance Pal in late 2018.Marina Babaian is the founder of  Mbridge Consulting Group and its lead CPA. She has a diverse background working with highly regulated fintech companies, global start-ups, corporations, and dozens of public and private organizations. She began her career in the start-up sector and has risen to become a leading subject matter expert in that world. Being an alumnus of Woodbury University, she’s taken an unconventional approach to traditional accounting practices through innovation and creativity. Working with various industries and companies, Marina discovered what many companies lack and that is a proper infrastructure and fundamentals needed to help a company become scalable due to the high cost and low resources. She has bottled her success to a science and has formed the Mbridge Consulting Group to solve this problem.