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How to Manage your Money in a Gig Economy

According to the Bureau of Labor Statistics, 16.5 million people rely on contingent or alternative work arrangements for their income. (1) Often referred to as the "gig economy," these non-traditional or contingent work arrangements include independent contractors, on-call/temp agency workers, and those who sign up for on-demand labor through smartphone apps.

Due to technological advancement and the new wave of providing services as a non-employee the workforce is changing, and so is how one should manage their money. If you are a contingent worker, you need to pay close attention to your finances in order to make up for any gaps in earnings that may occur between jobs. In addition, you'll have to plan ahead for health-care costs, taxes, and saving for retirement, since you will have to shoulder these expenses on your own.

The following are some tips for managing your money in a gig economy:

Prepare for slower periods between jobs

While establishing a cash reserve is an integral part of any financial strategy, it is especially important for contingent workers. You will want to set aside enough money to cover unexpected expenses and large bills that may come due during the slower months between jobs. A good strategy is to make it a habit to deposit a portion of your income in your cash reserve.

Maintain good credit

Even a robust cash reserve might not be able to weather a significant downturn in contingency work. That's why it is important for contingent workers to have access to credit to help them get through leaner times. Ensure that you maintain a good history by avoiding late payments on existing loans and paying off your credit card balances whenever possible.

Come up with a budget... and stick to it

Because your income flow fluctuates, you'll need to come up with a budget that is a bit different than someone with a regular income. Your first step should be to determine your monthly expenses. If it helps, you can break them down into two types of expenses: fixed and discretionary.

Fixed expenses are expenses that will not change from month to month, such as housing, transportation, and student loan payments. Discretionary expenses are expenses that are more of a "want" than a "need," such as dining out or going on a vacation. Once you come up with a number, you should determine how much income you need to keep up with all of your expenses.

For a contingent worker, it's especially important to stick to your budget and keep your discretionary expenses under control. If you are having trouble keeping on track with your budget, consider ways to cut back on spending or find additional sources of income to make up for any shortfalls.

Consider your health insurance options

Unfortunately, as a contingent worker you don't have access to an employer-sponsored health plan. However, you do have health insurance options. If you are a recent college graduate and still on your parents' health insurance plan, you usually can stay on until you turn 26. If you are no longer on your parents' plan, you may be eligible for a government-sponsored health plan, or you can purchase your own plan through the federal or state-based Health Insurance Marketplace.

(For more information, visit

Plan ahead for taxes

In a traditional work arrangement, employers typically withhold taxes from employees' paychecks. As a self-employed worker, you'll have to plan ahead for federal and possibly state taxes so you don't end up with a large bill during tax time. The IRS requires self-employed individuals to make quarterly estimated income tax payments, so make sure you set enough money aside each time you get paid to go toward your tax payments. Due to the fact that contingency income fluctuates from month to month, the IRS allows you to make unequal quarterly payments. In addition, you'll be responsible for paying a self-employment tax, so you need to account for that as well.

As a contingent worker, you may be eligible for a number of tax deductions (e.g., start-up expenses, mileage), so be sure to keep good records. If you have multiple gig jobs, consider using a log to keep track of your income and work expenses.

(For more information, visit the IRS website at

Don't forget about retirement

While being self-employed has benefits, it also comes with tough challenges. In particular, a lack of structured benefits, such as an employer-sponsored retirement plan, can lead contingency workers to end up sacrificing their retirement savings. Even though anyone with earned income can set up an IRA, the contribution limits are relatively low — $6,000 in 2019 ($7,000 if age 50 or older).

Fortunately, there are some options that may allow you to make larger retirement contributions. Consider contributing to a solo or individual 401(k) plan (up to $56,000 in 2019, not counting catch-up contributions for those age 50 and over) or a SEP IRA (25% of your net earnings, up to $56,000 in 2019).

1. U.S. Bureau of Labor Statistics, Contingent and Alternative Arrangements Summary, June 2018


Presented by Sara Romaine. The accompanying pages have been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. Securities offered through Commonwealth Financial Network, Member FINRA/SIPC.

This communication is strictly intended for individuals residing in the state(s) of CT, MA, NH and PA. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2019. Many investors seem to review their portfolios only when markets hit a rough patch. However, careful planning is essential in all economic climates. Whether the markets are up or down, periodically reviewing your portfolio with a financial professional can be an excellent way to keep your investments on track, and midway through the year is the perfect time for a checkup.


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