Getting in on the Gig Economy

by Deborah Ziff Soriano |August 20, 2018

About a year and a half ago, Jonathan Perez left his job as a grooming manager at a large pet store chain.

The 30-year-old from Berwyn, IL, had grown tired of his employer's quota-based model; he wanted to give canine customers more time and attention.

Perez decided to take his talents on the road: He started doing pet grooming independently, dubbing his truck-based enterprise Woof-Tastic Mobile Grooming.

Just like that, Perez had exited the traditional employment model to join the ranks of the "gig economy": a vast, diverse cohort of self-employed strivers whose work often comes in the form of discrete tasks and short-term projects. They range from videographers, copywriters and ride-share drivers, to plumbers, electricians, dog walkers, food-delivery drivers and beyond. About a third of adults participated in the gig economy in 2017, according to the latest Survey of Household Economics and Decisionmaking report by the Federal Reserve.

"I work hard," Perez acknowledges. "I'm really tired. But at the end of the day, I still feel good, because I know it's my own business. The harder I work, the better I'm going to do."

Here are a few of the basics for freelancers:

Set a budget

Your income almost certainly will fluctuate as a gig worker. So it's especially important to budget, says Kristin Wong, a freelance writer and the author of Get Money: Live the Life You Want, Not Just the Life You Can Afford. Consider investing in software to keep track of your income. Harvest and Quickbooks Self-Employed are designed for freelancers. Or, if possible, get even more specific: Perez uses the pet business management software 123Pet, which allows him to track income, and performs other services such as scheduling appointments and sending out invoices.

"There's an enormous number of apps available to help make life simpler," McGovern says.

Maintain an emergency fund

On a particularly cold Chicago night last winter, the water tank on Perez' mobile grooming truck froze. The repairs — plus two days of lost business — cost him roughly $2,000. Luckily, he had maintained a cushion in his business account for just such an unexpected expense. Wong suggests having a business-related emergency fund in addition to a personal one.

How much you should have depends on your own situation, but she says a good rule of thumb is three to six months' worth of expenses. "There are so many more things that can go wrong when you work for yourself," she says. "Protect yourself. The more buffers you can put between yourself and financial ruin, the better."

Pay yourself a salary

Set a date once a month to transfer a pre-determined amount from your business account into a personal checking account. Take an average of your income from the past six months to determine your salary. That way, your flush months will help cover any deficit when your income is below average. "You may have to adjust your budget and your numbers as the months go by," Wong says, "so don't think of budgeting as a one-and-done task."

Woman going through paperwork

Remember, in the gig economy you are your own 'HR' department

A traditional employer withholds taxes and likely offers aforementioned benefits such as health insurance and a retirement account. As an independent worker, these are now your responsibility. Staying on top of these obligations can be key to following through on your financial ambition.

Estimate tax payments

As a freelancer, you will likely need to pay quarterly taxes to the IRS to cover both income and self-employment tax. In your first year of business, it may be difficult to estimate your tax payments accurately. After that, however, you can use your tax return to help guide how much you should be setting aside. When in doubt, check with an accountant.

Health insurance

It can be a big expense for a freelancer, but nonetheless crucial to maintain — an unexpected health issue could lead to debilitating medical bills. Wong recommends checking out health insurance plans through organizations and associations such as the Freelancers Union.

Plan for retirement

There are plenty of options for saving for retirement as a gig worker, including a Simple IRA, SEP-IRA, Individual 401(k) or Keough plan. Choosing between these is not a one-size-fits-all proposition, so do some homework to determine the best fit for your needs and goals. Whichever you choose, McGovern recommends having your savings automatically diverted from your personal account into a retirement account each month. "Part of the problem is people need to reserve the money themselves," she says. "As an independent, you have to think about it."

Keep saving money as you encounter success

Managing your finances may get a little more complicated as a freelancer, but your financial goals need not be a sacrifice to the gig economy. Wong says she was able to achieve her aim of saving for a down payment on a home on a freelance income. How?

Well, yes, having lots of clients and consistent work helped. But she was also careful not to inflate her lifestyle as her earnings increased. One popular approach is to abide by the 50/30/20 rule, which says 20% of your income should go to savings, while 50% goes to necessities and 30% goes to discretionary spending.

"I think it helps to save as much as you possibly can during your good months," she says. "I try to double down on that advice as a freelancer."

Deborah Ziff Soriano

has been a member of the gig economy since 2013 with gigs writing for U.S. News & World Report, the Chicago Tribune, Chicago Booth Magazine and AAA Magazine.

The content reflects the view of the author of the article and does not necessarily reflect the views of Citi or its employees, and we do not guarantee the accuracy or completeness of the information presented in the article.