5 financial tips for gig workers

The gig economy has been on the rise for years with no signs of slowing down: By 2028, it’s predicted that there may be more gig workers than traditionally employed workers in the US.¹ But what is a gig worker, and why might someone choose this style of work?

Gig workers are employed as consultants or contractors (such as 1099 workers) or may be employed part time at one or multiple companies. There are some compelling reasons to choose gig work — 20% choose it for the flexibility.² You can be your own boss, set your own hours and pay, enhance your work-life balance, and work on projects you love. But this flexibility can come at a cost: 41% of gig workers are worried about money and finances. And a full-time gig worker won’t have access to many of the benefits that a full-time employee has. In fact, only 39% of gig workers who receive any benefits are highly satisfied with what they’re offered.³

By taking some guidance to heart, you can enjoy the freedoms that gig work provides while also helping protect your financial stability. Here are a few ways to get started.

Find your own lane

Gig work can be competitive, and even more so when many new people are entering the gig economy. To stand out, focus on a specific skill or talent you have. For example, a graphic designer might market themself as a specialist in a particular program or technique, rather than searching for any design gig on an online marketplace.

Start with familiar faces

Many employers who let go of full-time employees in 2020 are likely to turn to gig workers to lower overhead — like they did during the 2008 recession, the dawn of the gig economy.⁴ This means that for a new gig worker, a great place to start looking for work is with past employers. Reach out to existing contacts with your new pitch.

Brush up on business

When you earn income through the gig economy, you become your own micro-business. We’re used to thinking about the different departments in larger companies, such as finance or human resources. But now, you need to get familiar with these ideas yourself.

For instance, you’ll want to become proficient at budgeting, managing cash flow, and possibly hiring workers to help you with big projects. As you develop your income in this new economy, it pays to be curious. You’ll be both skilled in your trade and a student of all there is to learn about running your own business.

And don’t forget about taxes: As a gig worker, according to the IRS you’ll have to pay an additional 15.3% self-employment tax, covering Social Security and Medicare since you don’t have an employer to automatically withhold this money from your paycheck.⁵ Also, you’ll have to file taxes quarterly and pay an estimated payment each time.

Protect yourself and your loved ones

Gig work can still be precarious compared to full-time jobs: Only 48% of gig workers have life insurance, and only 19% have disability insurance.⁶ It’s important to be protected, because while you hope emergencies won’t happen, the reality is that 1 in 5 working Americans has experienced a disability leave of absence during the past 10 years due to a condition, injury, or illness.⁷

If you’re new to gig work, layering in additional protection, such as disability insurance for income protection, can be helpful to consider. In addition, life insurance can help protect your family or loved ones financially if you pass away.

Build up your savings

While gig workers value the work-life balance it allows, this flexibility can make it hard to save for a rainy day. Gig workers’ savings have declined. According to our research, they only have a quarter of the funds they previously had in emergency savings.⁸

And this lack of savings can cause stress: 76% of gig workers are worried about having their retirement savings last as long as they need to and having sufficient emergency savings to pay for unexpected expenses.⁹ That’s why it’s important to save whenever you can, and a good first step is to create a budget and financial strategy for your new gig lifestyle. Outline your projected expenses, estimated income, and long-term financial goals, and specify what percentage of your income you’ll save and where you’ll put those savings.

Since gig workers don’t have the benefits of an employer-sponsored 401(k), it’s essential to begin your own retirement savings as soon as possible. This can be through a traditional IRA (individual retirement account) or a Roth IRA. Typically, workers can write off contributions to their traditional IRA in their yearly taxes.¹⁰ This is appealing to people who want to lower their immediate tax burden. With a Roth IRA, you won’t get the benefit of lower taxes today but when you retire, you won’t have to pay taxes on the money you withdraw after a certain age.

A financial professional can help guide decisions around how much to save and how to invest. If you choose to work with one, you’ll be in good company — 47% of gig workers use a financial professional or stockbroker.¹¹ If you’re not part of that group, consider reaching out to a financial professional today.

Gig work can be a path to doing what you love while making an income. So, it’s no wonder that 58% of gig workers are very or extremely happy at their job.¹² And by adding in protection where you can and seeking out help, you may be able to join the gig economy and protect your financial future at the same time.