How to Handle Budgeting as a Member of the Gig Economy

Learning how to handle your budget as a freelancer or member of the "gig economy" isn't easy.

Unlike the standard employee who can rest assured that they'll be getting the same basic income every month, you'll never know exactly how much you're going to earn from one moment to the next. Although you can predict how much you might end up with at the end of the month by looking at your previous spreadsheets and cash-flow, it's all guessing and estimations.

That's the trouble with working outside of a traditional 9-to-5 career. Although you get the freedom you need to pursue your interests and choose your clients, your expenses and income aren't always going to be predictable.

What's more, as a member of the gig economy, it's 100% up to you to manage your own finances. No-one's going to track your cash flow for you (unless you pay them to do so), and no-one's going to automatically contribute to pension and healthcare funds on your behalf.

So, how do you make sure that you stay on top of your cash as a freelancer?

The following tips will help.


Start by Building a Personal Budgeting System

Just because you know other freelancers who use a specific piece of software to handle their budget, doesn't mean that the same tool will work just as well for you. Part of the challenge of becoming a freelancer is that you need to do some experimentation and find out what you feel most comfortable using. You might have to try out a handful of spreadsheets or apps before you find the method that works best for you. Remember, there are apps like Mint that you can use to track your expenses on your smartphone if you don't like using spreadsheets or pieces of paper.

You'll need to figure out all your fixed monthly expenses to properly manage your budget - for both your personal and business costs. This is the starting number that you'll need to work towards each month. Once you know how much money you have going out each month, you also need to figure out how much you know you have coming in, perhaps from business grants, a business loan, or even just repeat clients for your service.

While business and personal finances often bleed together when you're living in the gig economy, it's important not to just let these two worlds overlap. Yes, you'll need to consider both your personal and business expenses when you're managing your budget but keep them separate too by opening separate personal and business bank accounts.


Focus on your Emergency Fund First

Most people have a number of things to dedicate their "spare" money towards when they're finished paying for essential things like bills and food. As a freelancer or gig worker, the first thing you're going to need to focus on is creating an emergency fund that you can fall back on if something goes wrong.

All employees, including those with a traditional salary, can benefit from an emergency savings account. After all, there's no guarantee that you won't lose your 9-to-5 job. However, as a freelancer, there's a good chance that you could make a lot more one month than you do the next. Knowing how to spread your money out and save cash back "just in case", will protect you in the long-term.

Work on saving a portion of your cash back every month from the money that you earn as a freelancer, until you have about 12 months' worth of payments for bills, food and other essentials hidden away. The average advice for a typical worker is 3-6 months' worth of income but remember that you have extra expenses to consider too, like the insurance for running your business, and any materials you need to keep your company running.

Here are some quick tips to help you get the most out of your emergency fund:

  • Think of your savings as a fixed expense within your budget and automatically transfer cash into a savings account each month. This makes it more likely that you'll actually save.
  • Think about your gig-economy income in different segments: The first segment is the money that goes towards your expenses, the second segment is for your emergency fund and taxes, and the third is the profit that you put back into your company.
  • Find a good savings account: If it's possible to get a savings account that pays you back with high-yield interest - take advantage!

Get Help When You Need It

Finally, remember that you don't necessarily have to handle everything on your own as a freelancer. Although you need to pay for the extra help that's available to you - that might be worth it if it means protecting your future and current wealth. For instance, if you don't have time to track your own expenses every day, think about investing in a bookkeeping software tool that will do the hard work for you.

If you're not sure how to handle things like taxes each year, then it's always a good idea to invest in an accountant that can help with this. Accountants reduce your risk of being audited by the IRS, and they improve your chances of finding tax breaks where you can save money on running your company in the long-term. Some accountants can even give you advice on how to change the structure of your company, so that running it is less expensive.

While it's difficult to justify the expense of hiring additional help when you're a freelancer, it's important to remember that the more time you spend struggling with your finances, the less time you have to focus on your business. An accountant or bookkeeper can be a very worth-while expense in the long-term. Sometimes, these professionals even end up paying for themselves in the money they save you on taxes and potential mistakes with your official document filings.

Don't overlook hiring extra help just because it means spending a bit of additional cash.

About the author

Smith Willas is a freelance writer, blogger, and digital media journalist. He has a management degree in Supply Chain & Operations Management and Marketing and boasts a wide-ranging background in digital media. You can follow him on Twitter.


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