The gig economy is booming right now, which means that an increasing number of working professionals are doing independent or contract work. In fact, more than one-third (36%) of American workers participate in the gig economy now — and it is estimated that by 2023, that more than half (52%) of the U.S. workforce will either be gig economy workers or will have worked independently at some point in their career. So let’s begin navigating the gig economy.
What is the “gig economy”?
The gig economy can be summarized as flexible jobs offered by businesses to freelancers and independent contractors as opposed to full-time employment. Gig work has many different functions, including writing, marketing, design, web development, food delivery, dog walking, coaching, engineering, and more. Many of these jobs are found using an app or online platform like UpWork, Uber, or DoorDash. And while it is not uncommon for gig workers to maintain an ongoing relationship with a company, there is no guaranteed long-term commitment, and it is relatively dependent on the industry and type of work.
Pros and cons of the gig economy.
There are pros and cons to this type of working relationship for both the gig worker and the hiring business, which are important to consider before making the switch.
- Flexibility and independence — Gig work allows you to be your own boss, choose your hours, decide the type of work you do, and sometimes make your own rates. It also eliminates the need to be in an office under direct supervision and allows you to work from home (or anywhere you choose).
- Variety — Instead of answering to one boss or managing the same designated tasks every day, gig work allows you to take on an assortment of assignments that interest you, challenge you, and help you continue to expand your knowledge and skills.
- Smaller business expense — For the businesses hiring gig workers, freelancers and contractors are often a more inexpensive option to hiring an employee as they don’t need to budget for a full-time salary, provide benefits, or commit to a long-term contract. It also allows them more flexibility in finding the right talent and may expedite the hiring process.
- Inconsistency — With gig work comes inconsistent income. You are not guaranteed a paycheck for the same amount on a regular basis, and it is up to you to find the work that will keep your income and cash flow stable. This is often dependent on the amount of work available which fluctuates frequently.
- Lack of benefits — While some businesses may offer benefits packages to their contract employees, most do not and are not required to do so. This means you are responsible for covering health care, retirement funding, and any other resources provided by an employee benefits package.
- Taxes and expenses — As a gig worker, you are entirely responsible for paying self-employment taxes and making quarterly tax estimates if you are an independent contractor. You are also responsible for all business expenses including tools and equipment, workspace, computers, vehicles, etc.
Managing finances as a gig worker.
Before successfully navigating the gig economy independently, it’s important to assess your financial situation. It can sometimes take a bit of time to become established in independent work and income may trickle in slowly. You should establish a back up plan, even if making money right away doesn’t concern you, in case you don’t find enough work to cover bills and expenses. Many freelancers and independent contractors start doing gig work on the side while they still hold traditional full-time jobs.
It’s also important to set up a business bank account, track your income and expenses, and set aside money for emergencies and unexpected scenarios to ensure you feel stable in your financial situation as you navigate gig work.
There are also several loan options for self-employed workers to help pad funding, including:
- Online lenders, who tend to work very willingly with self-employed professionals, dependent on their credit scores
- Credit cards, which are often easier to qualify for than personal loans because it is a line of credit instead of a lump sum
- Payday loans for borrowers in emergency situations (though they can come with very high APRs)
- Co-signed loans, which can help you secure a better loan rate if you have difficulty qualifying for a personal loan
Is it right for you?
Deciding to step into the world of the gig economy can be both exciting and nerve-wracking, and many people find themselves overwhelmed with managing the financial side of self-employment and freelancing. Fortunately, with the right tools and advice, navigating the gig economy is not complicated. If you need help with managing your money as a gig worker, reach out to our expert team at 800-526-9127 or check out more of our tips online.