When you’re earning income as part of the gig economy, paydays might ebb and flow. Without a steady or predictable income, planning for the future by building a financial safety net can positively impact your wellbeing.
As a gig worker, you have two unique benefits — flexibility and freedom – in how and when you work. However, you may not have access to employer-sponsored savings plans for retirement or negotiated health insurance options. Still, you can find ways to take control of your finances. Planning for the future, both predictable events and unexpected hardships, is one of the best ways to achieve long-term financial stability, which may be more in reach than you think.
Set Savings Goals and Tackle Debt
To start building a financial safety net, consider how much money you need to get by in a typical month, including any minimum payments on outstanding debt. This number is a good goal for establishing your emergency savings – money you can pull from if needed.
Save a Little at a Time
Once you reach that first goal, try for saving up two months of living expenses, then three, and so on. Even if you’re only saving small amounts each month, it can make a difference over time, and every bit you save now means more peace of mind and a bigger safety net if you need it later.
Pay Off Debt
Once you have some savings, consider how much you can pay toward outstanding debt. While debt can seem daunting, choosing small milestones on the way to paying it down can ease the burden and help you see your progress.
If you have multiple sources of debt, such as credits cards, a car payment, and student loans, choose at least one to make more than the minimum payment on if you can. A good strategy is to select the one with the highest interest rate or largest dollar amount owed. This will help you pay this debt down faster and then you can pay more toward the next account on your list. Paying off debt helps build your credit score.
Making on-time payments toward your debt also helps you build credit. A high credit score is another attainable goal that will serve you well in reaching long-term financial health.
Focus on the Future
Finally, with emergency money saved and some debt paid off, consider saving for known future expenses, such as a vacation, a wedding, or home improvements. Having even a little money saved for these events can help you avoid taking on more debt to pay for them.
With your goals in mind… how do you start saving?
Create a Personal Savings Plan
Now that you know how much to save and what you’re saving for, let’s talk about how you’ll get there. One popular strategy is to set up monthly automatic transfers from your income or checking account to savings or investment accounts (more on investment accounts later). But if your income fluctuates a lot, and you’re not sure how much you can save each month, mark your calendar to manually make the transfers instead.
In high-revenue months or job periods, you can consider depositing extra funds into savings accounts. If you already know certain months are typically higher earning, you can plan your savings goals to match. If not, keeping records of your income could help you predict higher-income periods when you might be able to save more. The funds saved during these times might just be what you need to establish that safety net and get you through more difficult periods in the future.
Put Your Long-Term Savings to Work
Now, where should you put your savings? It depends on your goals and timelines. Investment accounts are best for long-term goals like retirement or saving for college down the line. That’s because investments have the potential to earn more interest and grow more significantly than savings accounts — but it might take a while to see the difference. And with some investments, it can take a little longer to get your money out when you need it.
For your safety net and other short-term savings goals, consider opening a savings account with your financial institution or bank. Your money may not grow as quickly, but it’s easily accessible when you need it, and will grow more than if you kept your savings in cash.
Save “Windfall” Money
“Windfall” money is a lump sum of money that you receive all at once, often unexpectedly. It might be a tax refund, a bonus from a customer, a big tip or even an inheritance. If this type of money isn’t needed for your day-to-day expenses, consider placing some or all of it into savings or investment accounts. Because you weren’t expecting the extra cash, you can save without feeling like your typical cashflow is taking a hit.
Use Savings Tools
Take a look at rewards or savings tools you might already have. Many credit cards offer cash back as part of their customer benefits. Even if you only collect it once a year, consider putting that cash into savings for later.
Check with your bank about the savings tools they might offer, such as budgeting help, high-yield savings accounts, financial guidance, and credit building tools. Keep in mind some accounts may provide you higher interest or pay dividends, but could make your money harder to access immediately, so consider how soon you may need to use your savings.
Finally, check out your options for savings apps. These tools can help you set savings goals, develop better savings habits, or invest when you save, all from your smartphone. When saving is easy and convenient, you’re more likely to reach your goals faster.
Once you’ve set your goals, made a plan and identified the best tools, saving can seem more attainable.
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