If you’re a gig worker, keeping track of finances can be especially challenging. Your budget may fluctuate significantly from one month to the next, and you’re responsible for all the overhead associated with getting your work done. Here we outline 7 ways gig workers can budget smart, avoid financial binds, and prepare for a bright financial future.
1. Know your average monthly income and expenses
Make a list of all of your monthly expenses, including personal living expenses such as housing, utilities, transportation, health insurance, groceries, and other bills, and work expenses such as software subscription fees and office supplies.
Note that some of your expenses may be paid annually, so be sure to divide those amounts by 12 in order to factor them into your monthly budget. If you are like most gig workers, taxes aren’t taken out of your pay before it reaches you, which means you should also include estimated taxes in your list of expenses.
After adding up expenses, add up how much you earn each month on average. Ideally the amount you earn should be greater than or equal to your average monthly expenses. If not, then you will need to pay special attention to the next tip.
2. Look for places to cut costs
Even if you earn more on average than you spend, it’s a good idea to find places to cut costs. After all, a penny saved is a penny earned. Cost-cutting strategies include:
- Switching from monthly to annual subscriptions: Many subscription services offer a discount if you pay annually instead of monthly.
- Shopping around for lower prices: This applies to everything from car insurance to cell phone service. Look at what you’re spending and ask yourself if you can get the same thing cheaper elsewhere.
- Reigning in excess spending: If you spend too much on eating out, entertainment, or shopping, consider setting a fixed budget for these activities moving forward.
3. Keep track of deductions
As a gig worker, many of the things you spend money on in the course of working are tax deductible. Keep track of these expenses throughout the year and save receipts to avoid headaches at tax time. Tax deductible expenses may include:
- Gas mileage
- Internet service
- Phone service
- Software subscriptions
- Office furniture
- Web hosting
4. Plan ahead to save for taxes
Unlike those who work a regular job, gig workers are typically responsible for paying their own taxes. The IRS has a form 1040-ES you can complete to estimate how much you will owe for the year. You should divide your total tax burden by four and plan on paying your estimated taxes in four installments.
The due dates for estimated payments are typically April 15, June 15, September 15, and January 15 of the following year. Be sure to visit your state’s Department of Revenue website as well to find out how much you may owe in state taxes and how to pay.
Stay on track with your financial goals with Bright.
5. Stay a month ahead on bills
Because your income may fluctuate wildly, it can ease financial stress if you stay at least a month ahead on all of your bills. This ensures you have the cushion you need to get through slow months.
6. Establish an emergency fund
Not only may your income fluctuate, but unforeseen expenses such as a large medical bill or a major home repair, like a broken water heater, can arise at any time. A good rule of thumb is to set aside three months worth of expenses in a savings account that you can tap into should an emergency arise. These funds may also come in handy if you have a string of dry months.
7. Don’t forget about retirement
Because of compound interest, the more you can save earlier in life, the more you will have when it comes time to stop working. Consider opening an individual retirement account (IRA) and setting aside 10 to 15 percent of your monthly income, if possible.
Budget smarter with Bright
Bright can help you ride the fluctuations that come with gig work. With a personalized Bright Plan, we’ll study your income and spending habits, build a personalized budget for smarter planning, and move funds and make card payments for you every month, finding the fastest, smartest way to get you debt-free and build more savings. Bright adjusts automatically as your finances shift, and keeps you on track through thick and thin.
Download the Bright app from the App Store or Google Play, connect your bank and your cards, set your goals, and let Bright get to work.
