6 Financial Tips for Gig Workers (Try These & Save!)
More and more workers are trading in full-time, 40-hour-a-week jobs as freelance gig workers where they can decide for themselves when and where to work and even how much they want to earn. While the freedom to be your own boss sounds great, it can come at a cost. That's because you're not just the boss but the CFO too.
Still, a little discipline and financial planning can turn any gig worker into a money management expert—and we're here to help you do just that. Use these six tips for managing finances as a gig worker or independent contractor.
1. Gig workers figure out your business expenses
Start by keeping a running list of all the tools of your trade and what they cost you. You can either do it yourself with accounting software like QuickBooks or hire an accountant. Here's a short list of what you should track:
- Cell phone bills. Keep it simple by using a dedicated work cell phone.
- Software subscriptions. Business-use portion of software subscription expenses like Zoom, Microsoft Office 365, Quickbooks, and website hosting fees.
- Electronics purchase. New laptop, desktop, monitor, or printer that you use partially or fully for your job in the gig economy.
- Car insurance. Car insurance if you use the car for business purposes but remember: Commuting does not qualify as a business expense.
- Business travel. Expenses that qualify include transportation, lodging, and meals.
Keeping track of your business expenses will allow you to see where your money is going and can help you create a budget to keep more of it. Learn how to create a financial plan and fortify your personal and professional success.
2. Be an organized bookkeeper
Being self-employed means you can write off business expenses, but you'll need to keep accurate records throughout the year. Even if your gig is seasonal, it's still important to keep an accurate accounting of the whole year's business expenses:
- Digitize all your receipts with a receipt scanner or even your cellphone.
- Use software to categorize and keep your expenses in one place.
- Have a dedicated business bank account and credit or debit card.
- Connect your bank account to your accounting software to automatically import transactions.
- Review and categorize your business expenses regularly.
Don't have a dedicated business account for your freelance gig? Open one at FirstCapital Bank of Texas. We offer several affordable business checking and savings accounts with convenient online and mobile banking access to help you manage your money.
3. Understand tax code and get tax help (quarterly)
For gig workers, tax time isn't once a year – it's always just around the corner. You are responsible for paying your own taxes, including social security and Medicare tax, which employers normally pay.
You can choose to pay partial or estimated taxes quarterly, or you can hold off and pay the entire bill at the end of the fiscal year. If you wait to pay your taxes, socking away between 30 to 40% of your total yearly earnings should cover your tax bill when it's time to pay. Remember: Consulting a tax adviser is always a good idea.
4. Protect yourself with insurance (especially general and professional liability coverage)
General liability insurance covers third-party bodily injuries and property damages, which are two of the biggest risks of working as a freelancer. This is beneficial for those who work as dog walkers, drivers, self-employed contractors and landscapers.
For those working as freelance writers, designers, or photographers, professional liability coverage will protect you if a client sues over the quality of your work. It may also signal to potential clients that you are trustworthy, responsible, and have coverage for any professional mistakes that you may make.
Depending on your industry, it’s vital to research the type of business insurance you’ll need before starting your freelance or gig work career. Without the security blanket of a corporate insurance benefits program, individuals in the gig economy are at a much higher financial risk.
5. Save for retirement
It's never too soon to start saving for retirement, especially when you don't have access to an employer-sponsored 401k plan. Gig workers should consult with their tax adviser to find out which of the following accounts will be their best option:
- Individual Retirement Accounts, or IRAs, can be opened by anyone with earned income. There are a few different options, including Roth and traditional. Each offers a tax benefit.
- Simplified Employee Pension IRA (SEP IRA) works well for self-employed or freelance workers. They're easy and inexpensive to set up and maintain, and there are no tax forms to file.
- Self-employed 401k, also known as a solo 401k, can be an option for maximizing retirement savings even if you're not making much money. If you are self-employed or own a business or partnership with no employees, you can open a self-employed 401(k). A spouse who works in the business can participate as well.
At FirstCapital Bank of Texas, we offer both traditional and Roth IRAs and SEP IRAs. Learn more about our IRA options and see how we can help you reach your goals now and in retirement.
6. Plan for next year
While some weeks seem to last forever, years tend to fly. Using these tips will help you plan for next year. As you prepare for the years ahead, look at what's working with your budget, where you're losing time and money and make the necessary adjustments so you can continue to grow your business and succeed.
Need help developing a plan for financial success in the gig economy? At FirstCapital Bank of Texas, our business banking team can help. With a full suite of business banking products, we make managing money as an independent contractor easier than ever. Contact us to see how we can help you achieve financial independence and stability, all while you enjoy the freedom of being your own boss.