Financial wellness for freelancers and gig workers

The traditional 9-to-5 job structure is giving way to a more flexible and dynamic landscape, with freelancers and gig workers becoming increasingly prevalent. Freelancing has become a huge draw, especially for younger workers, with perks like flexibility and uncapped earning potential. Workers can make a nice sum of cash maximizing the opportunities these platforms provide, especially if those workers possess in-demand skills and show that they can work hard.

The paper, “Gig Economy Impact by Generation,” examines how and why three different generations of workers—Millennials (ages 18-35), Gen Xers (ages 36-55), and Baby Boomers (ages 56+)—exclusively take on freelance work. Prudential’s researchers found that workers in these generations use gig work, in many cases, very differently.

Millennial gig workers, for example, were found to proactively choose to do gig work, and view gig work as providing the flexibility and freedom to pursue their long-term aspirations. In contrast, Gen X gig workers and Boomers tended to start gig work due to circumstances beyond their control.

There are, however, certain trade-offs. To start, there’s the issue of job security. Even if gigs seem plentiful, there still are chances of lean periods for certain types of work. The tech game is also quite fickle. You don’t know how long these platforms will remain sustainable or when they may pivot from their current ways of doing things.

Here are some ways to build up your finances as a member of the gig economy workforce.

Retirement plan

Payouts from gigs may be good enough to earn you a decent living today, but you need to put away part of it for your future. So if you want to retire in your 60s, you should save enough to sustain yourself for about two more decades of living, especially if you are in a country with excellent healthcare.

Pensions have typically been the way to go about retirement planning: You contribute a portion of your income while working and you’re set to receive monthly payouts when you retire. But even if you have access to these plans, they seem to have fallen out of favor these days; and most freelancers and contractors lack easy access to them.

You can also shore up your assets and diversify your portfolio by putting money into mutual funds, stocks, insurance and even cryptocurrencies. If you have little to no idea how to start investing, you can try out robo-advisor apps like Wealthfront and Betterment, which will help you find easy ways to start investing.

Track your finances in one place

If you still feel overwhelmed by financial management for freelancers, many great apps allow you to track income, expenses and so much more. 

Apps are a great tool because they show you where you are at, visually. If you don’t want to use an app, you can also track your finances with pen and paper. What’s important is that you track them somewhere.

So many freelancers who don’t do any tracking, nearing the time their taxes are due, stress over finding all their papers, deductibles, and income statements. Proper tracking saves you from lots of stress and anxiety. 

Emergency fund

The first step towards financial wellness for freelancers and gig workers is establishing a fund that will get you through the months of low work. An emergency fund is essential to cushion against unforeseen expenses or periods of low income. Financial experts recommend setting aside three to six months' worth of living expenses in a separate savings account. This fund provides peace of mind and financial security during challenging times.

Managing cash flow

Unlike salaried employees who receive a consistent paycheck, freelancers often face irregular income streams. To navigate this uncertainty, it's crucial to develop strategies for managing cash flow efficiently.

One approach is to establish a payment schedule with clients to ensure a steady flow of income. Setting clear payment terms and following up promptly on overdue invoices can help improve cash flow and minimize disruptions to finances.

Additionally, diversifying income streams can provide stability in an unpredictable market. Freelancers can explore multiple avenues for generating revenue, such as taking on different types of projects, offering additional services, or pursuing passive income opportunities.

Planning for taxes 

Taxes can be a significant headache for freelancers and gig workers, who are responsible for managing their tax obligations. It's essential to set aside a portion of income throughout the year to cover taxes owed. Working with a tax professional can help navigate complex tax laws and maximize deductions to minimize the tax burden.

Investing in yourself

In the competitive landscape of freelancing and gig work, investing in skills and professional development is essential for staying relevant and competitive. Continuous learning not only enhances capabilities but also opens up new opportunities for higher-paying projects and clients.

Investing in relevant courses, workshops, and certifications can expand skill sets and increase earning potential. Networking within industry communities and attending conferences or events can also lead to valuable connections and opportunities for career advancement.

Prioritizing self-care

Maintaining financial wellness goes hand in hand with prioritizing overall wellbeing, including physical, mental, and emotional health. Freelancers and gig workers often face the pressure of managing their businesses single-handedly, which can lead to burnout and exhaustion if not properly managed.

Taking regular breaks, setting boundaries, and practising self-care is crucial for sustainable success in the freelance and gig economy. Building time for relaxation, hobbies, and social connections into schedules is essential for maintaining balance and preventing burnout.

Working long-term in the gig economy requires careful planning, adaptability, and resilience. By building an emergency fund, managing cash flow effectively, planning for taxes and retirement, investing in skills and professional development, and prioritizing self-care, individuals can achieve long-term financial stability. With careful financial management, you can enjoy the benefits of freelancing while ensuring a stable and successful financial future.