How to make the gig economy work for you

You’re not imagining it: Everyone and their mother has suddenly become an expert gig employee. Nearly half of American workers surveyed have worked or are working in the gig economy, either full-time or on top of another job. Six in 10 freelancers work in the gig economy by choice, a share that’s been growing over the past decade, according to a survey by UpWork.

No matter what your job is in the gig economy — driving a car for a rideshare, walking dogs through an app, catering parties, or developing software for a huge tech firm — everyone who earns money independently faces some similar financial challenges. Managing money that arrives at unpredictable intervals and in irregular amounts is more difficult than receiving a biweekly payment from your employer.

Alisha Eisenstock, for example, works a variety of gigs in any given week, including one-on-one tutoring, recruiting participants for studies by a software research firm, and helping people book cruises via a travel site. While Eisenstock, a 43-year-old Arizona resident, enjoys the flexibility afforded to her by creating her own work and schedule, she says the money side of gig work can be burdensome. “The money ebbs and flows,” she says. “You have to always put some money aside because you don’t know what’s going to happen next. It’s extremely unpredictable.”

As freelance work becomes an increasingly important source of revenue for many Americans, there’s an opportunity to put that income to good use. Here are some tips to make the unpredictability feel easier, and to help turn a flexible and inconsistent source of income into a steady financial life.

Be strategic in high-earning months.

Depending on your industry, your income may fluctuate seasonally, or it might simply depend on how much you’re willing and able to work in any given month. One key to handling a fluctuating income is making smart choices in the times when revenue is up.

“Your income may be irregular, but your bills aren’t,” says Roger Whitney, a certified financial planner and host of the podcast The Retirement Answer Man Show. “It becomes a cash flow management issue.”

If your gig is a side-hustle… Think about why you’re side-hustling, and take advantage of times when you see more revenue. If you’re earning money to pay off debt, for example, perhaps direct the extra cash toward reducing the principal on your highest-interest account; if you’re saving for a vacation, you can choose to deposit it into an account earmarked for the trip.

If you’re a full-time freelancer… Prepare for the slow months ahead. Rather than spending all the money as it comes in, one strategy could be to set some aside to cover expenses in leaner months. For Eisenstock, that means socking away the extra cash that comes in each May, when tutoring work picks up as students prepare for finals, to help cover her bills in the summer when her tutoring work slows down.

Consider monitoring your expenses for a few months using a budgeting app, so that you have a clear picture of how much you need to earn (or replace) each month to maintain your lifestyle.

Save for retirement.

A third of Americans aren’t confident that they’re saving enough money for retirement, according to a Capital One survey of more than 1,000 respondents. If you’re concerned, the cash you’ve earned in the gig economy could be an opportunity to boost your savings.

If your gig is a side-hustle… You can use the extra money to cover day-to-day expenses, which leaves you extra money that can be used to increase your workplace 401(k) contributions or direct additional money into other savings accounts.

If you’re a full-time freelancer… You are in charge of funding your retirement yourself. While it can be difficult to automate contributions to a retirement account when you have a fluctuating income, even having a small amount deposited each month can make a difference in your long-term financial security — and you’ll be glad you started saving earlier rather than later. Take your time to research the right retirement savings plan for you; different retirement accounts have different tax implications, so it wouldn’t hurt to consult with a tax professional to help you weigh your options.

Don’t forget about taxes.

Whether you’re getting paid via a W-2 or a 1099, you’ll still need to pay a portion of your earnings to Uncle Sam. In the latter case, however, it’s up to you to make sure you have the cash to pay your taxes when they’re due, since there’s no employer withholding the money for you.

Sandra Nam Cioffi, 39, a freelance landscape architect in Edgemont, NY, says she thinks about taxes all year long. “I have a system where every time I get paid, I immediately roll over a percentage into a separate account, and I don’t touch it until tax season,” she says.

While working in the gig economy can mean a higher tax bill, it may also mean access to additional write-offs. You may want to keep track of any business-related expenses, which you can use to offset your income when it comes time to file your taxes.

If your gig is a side hustle… You could follow Cioffi’s lead and set aside a portion of every check you receive in case there’s a shortfall at tax time.

“A lot of people make the mistake of spending all of their money as it comes in, and then they don’t have cash to pay a huge tax bill at the end of the year,” Whitney says.

If you’re a full-time freelancer… Taxes can get pretty complicated when you’re receiving payment from multiple sources. Consider working with a tax professional to guide you through the process, so that you’re paying the right amount — and taking advantage of any additional write-offs for which you might qualify.

The gig economy is a great way to make some extra cash, but it can also be an opportunity to make sure that you’re on the path to long-term financial security. By taking the steps outlined above, you can make sure that you’re not only earning money in the gig economy, but you’re putting it to work for you.

This article is not intended to give medical, legal, or financial advice, and any questions the reader has should be directed to their own qualified professional.

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