Today, our standard workday isn’t so standard anymore and we’re talking more about “gigs” – alternative work arrangements that often depend on the latest technology and a desire to set one’s own schedule and pay. However, the question is whether everyone plans for the reality of the work or the impact self-employment in any form can have on his or her long-term finances.
Gig workers – a broad spectrum that includes temporary help agency workers, on-call employees, contract company workers, independent contractors and freelancers – were measured as a startling and growing economic force in a March study by Harvard and Princeton researchers (https://krueger.princeton.
Anyone thinking about going into business in place of or in addition to their day job should consider a planning period with the help of a qualified financial or tax expert. Major issues to cover include:
Consider qualified tax and financial advice. Switching to gig work – even if you find lucrative contract work in your field – can be an enormous shock to your finances. Cash flow can be irregular, disrupting budgets and long-term savings. It’s a good idea to get some qualified financial and tax advice so you understand the changes you might face and to keep major financial goals like retirement and college savings on track.
Setting up a business structure: While most gig economy participants settle on a sole proprietorship or some form of limited liability company (LLC) business structure, (https://www.sba.gov/starting-
Think carefully about your benefits… Unless you fit a particular group exempt (https://www.healthcare.gov/
Track your spending and planning carefully. If you don’t budget or track your expenses now, it’s time to start. Being in business entitles you to certain deductions for home office expenses, equipment and other costs related to your work. So whether you use a specific software program or a computer spreadsheet or paper and pen to track your expenses, do so regularly to avoid missing items that could eventually save you money. If you’re working with a tax professional or financial planner, coordinate this recordkeeping with the work they’re doing for you. Also keep a constant discussion going about saving for the future, including retirement.
Make sure you’re really right for this. With proper planning, the gig economy can be both enjoyable and challenging. You’ll not only learn whether you can support yourself, but also whether you’ll enjoy doing it long-term. Many of us dream of being our own boss, but reality can be very different, particularly when managing uneven earnings and cash flow common to many new companies. It’s not just about business; it’s about whether your lifestyle and personality traits (https://hbr.org/2010/02/
Bottom line: Plenty of people find themselves dealing either by choice or necessity with the brave new world of “gig” work. It’s important to approach it as a financial and lifestyle decision on par with starting a business.
By Nathaniel Sillin
Nathaniel Sillin directs Visa’s financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney