The gig economy has exploded in recent years, and it’s changing the way we think about traditional “work.” For instance, many people are choosing to freelance full-time, work part-time while freelancing or even work full-time while pursuing side hustles.
While gig economy workers enjoy a lot more freedom than they might in the corporate world, it also comes at a cost. Self-employed individuals must handle their own taxes, savings, healthcare expenses, etc., which can be both an emotional and financial burden. To make your experience easier, Forbes Finance Council members share important financial tips for those who earn some or all of their income through independent contracting.
1. Understand The Value Of Your Time
While side gigs are great, sometimes they are complete time suckers. As important as side income can be, your time has value as well, and sometimes the time spent on a side gig isn’t used as effectively as it could be. Would you rather make $500 extra this month cutting lawns or $2,000 selling something online? Consider the best use of your time before committing to a side gig. – Drew Gurley, Redbird Advisors
2. Register As An LLC Or Corporation For Tax Benefits
Many freelancers start by just setting up a basic sole proprietorship for their business structure and miss out on many tax benefits and the asset protection that comes with a legal entity such as an LLC or corporation. Aside from those benefits, the image and professionalism portrayed by using an LLC or corporation should be the reason you avoid the use of a sole proprietorship. – David Gass, Anderson Business Advisors, LLC
3. Prepare Yourself To Pay Quarterly Estimated Taxes
First-time contractors can quickly forget they are now responsible for paying their own taxes and can be in for quite a shock come tax season. Find out what your estimated tax rate is, set calendar reminders for the end of each quarter and send out your payment to the IRS. Don’t wait until you file your taxes, because the government will penalize you for not paying quarterly. – Jeff Pitta, Senior Market Advisors
4. Set Aside Your Tax Payments In A High-Interest Savings Account
Remember that a piece of all that independent contract income belongs to Uncle Sam. Set up a high-interest savings account and determine your tax bracket. If your bracket is 30%, then divert 30% of every dollar of income into that savings account immediately when the check arrives. When quarterly tax time comes, you’ll have that money ready to go without any stress or panic. – Danielle Kunkle Roberts, Boomer Benefits
5. Keep Meticulous Financial Records
Track all your income (money in and money out). Use a business account and business debit/credit card. Save your receipts and write what the expense was for, then put them into a shoe box. Tracking your income in a spreadsheet will also help, and categorize what is spent and for what purpose. If you’re ever audited you’ll have pristine records and be able to validate anything in question. – David Ehrenberg, Early Growth Financial Services
6. Automate Your Payments
If you have an unpredictable income, you should base your budget and expenses around your lowest-income period versus a high-income period, and think of that amount as your “paycheck.” Consider automating payments where you can to avoid unnecessary late fees, and take advantage of apps that make it easier for you to save money so you have a cushion for larger or unexpected expenses. – Jason Brown, Tally App
7. Obtain Proper Insurance Coverage
The type of work you do can help determine what liability insurance needs you may have. Consulting work may require professional liability insurance. Selling merchandise may require product liability insurance. An LLC can shield some forms of liability, but not all. Speaking with an attorney and good insurance professional can go a long way toward protecting what you have worked so hard for. – Howard Hook, EKS Associates
8. Track Your Business Expenses
Most people I interact with who have side gigs grossly underestimate the expenses associated with their side gig. A side gig is still a business and should be treated as such. One of the most important aspects is to understand exactly how much you take home. I estimate a lot of people can make more money by just taking a part-time job than doing a side gig that they likely don’t enjoy. – Vlad Rusz, Vlad Corp. USA
9. Prioritize Retirement Savings
Nearly every dollar may be in use, but carve out some anyway to put into a SEP IRA. You can invest more powerfully and it will be there if you really need it. Tightening things up is also a great opportunity to rethink the expenses of running your own show to see if there is room to get creative. Discovering creative solutions for any expense needs and your time is one way to protect your success. – Faith Keith, Leverage Retirement
10. Increase Your Exposure By Marketing Yourself On Multiple Platforms
While you may have your full-time salaried job locked and loaded, with the rising cost of everything, it might make sense to take some of your talents over to the gig economy. Make sure you sign up with many gig sites and not just one. Making sure that you increase your exposure on many gig sites will ensure that you stay busy with work and earn a worthwhile side income. – Jared Weitz, United Capital Source Inc.
11. Carefully Scale Growth
Make sure you create as many opportunities as you can. Every business has its peaks and valleys, but with more opportunities, you’ll have higher peaks and fewer valleys. Use the internet to your advantage and reach more customers or clients. It’s important to scale your growth and only allow yourself what you can handle to maintain quality. Make sure you’re always provisioning for growth. – Andy Khawaja, Allied Wallet