More and more workers are turning to the gig economy for work as either full-time income or supplemental income. Maybe you need it to make ends meet, or maybe you want to work more on your own terms for a better work-life balance. But no matter why you’re considering gig work, there are several things you should know about making the transition. Getting your finances in order can make the process much easier.
Create a Safety Net
Working in the gig economy almost always means your income will fluctuate. Some months, you may get plenty of work and even have to turn down opportunities. But other months, the work can dry up before you have earned enough to pay your living expenses. So if you’re a gig worker, it’s a good idea to come up with a budget that reflects your current living expenses and a second budget that shows the absolute minimum you could live on. You should then set aside six months or more of living expenses.
You can use the funds from the account in months when you have not earned enough to cover that month’s expenses. However, it’s important to add to the account again on months when you have more income. Choose your account carefully. Because you could need the money at any time, don’t keep it somewhere that is difficult to access, like a certificate of deposit. Instead, consider a high-yield savings account. You will still earn interest on the funds, so it allows you to put your money to work. Keeping your hard-earned nest egg in a high-yield savings account can also help you build wealth.
Have a Strategy in Place
If you are planning on leaving your job for gig work, ensure you are financially prepared. You should have enough money in the bank, and your income should be enough to support you. If you want to change industries, work on skills, certifications, and your professional network. Take advantage of any benefits provided by your employer before leaving. Consider getting caught up on all your medical appointments and making sure you don’t have any underlying medical conditions, which could be costly to treat if you don’t have employer provided insurance.
Determine Retirement Savings
Just because you don’t work for an employer who offers a retirement plan does not mean you should avoid saving. There are plenty of safe ways to invest for retirement out there. These include 401(k) accounts and IRAs. The one you go with will depend on the amount you can afford to put aside. If your income is low starting out, you may want to go with a Roth IRA. But if you can put aside more than the annual limits, you could go for a 401(k) instead. No matter the plan you choose, it can be hard to save for retirement on a sporadic income. Decide if you want to put aside a little each month or wait to make one big contribution after you have paid your taxes and potentially received a tax refund. Consider the potential for compound interest on your contribution over the year as well.
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