If you’re an independent contractor or a freelancer, you’re likely to enjoy the benefits of the gig economy, such as having complete control over how you make money.
No more 9-5 cubicle jobs and working for somebody else! But with great freedom comes great responsibility – specifically when budgeting your business expenses.
Certain costs come with being your boss, from insurance coverage to tools of the trade – but don’t worry, we’ve got you covered! Read on to learn about the top business expenses that every gig economy worker needs to budget for (plus some tips on how to save a few bucks!
Business Expenses Gig Economy Workers Should Include in their Budget
Transitioning from a conventional 9-to-5 job to a career that enables you to set your hours and schedule can be enticing, but you must be aware of potential financial pitfalls.
Here are 11 expenses every gig worker should work into their budget once they decide to be their boss:
1. Taxes
One of the most significant business expenses that gig workers overlook is taxes. Often, it’s also where people tend to go wrong.
While workers know about the liabilities they have to pay on their income, they forget about self-employment taxes. In a traditional employment setup, the employer and employee each pay half of the Federal Insurance Contribution Act taxes. This money is used for Medicare and Social Security programs. However, self-employed workers have to pay the entire amount of this tax themselves. The self-employment tax usually starts at 15.3 percent of a person’s income.
To minimize or eliminate unwanted surprises come tax time, gig workers need to have the right amount of savings and see that they’re making quarterly payments. Freelancers can take advantage of online services like Painless1099 to guarantee they withhold the right amount from their income for tax purposes.
Regardless of how it’s done, gig economy workers should care not to disregard their tax obligations. The IRS is undoubtedly an organization they don’t want to mess with.
2. Marketing
Certain gig workers, such as Lyft drivers, don’t necessarily require to market themselves personally. Others don’t have the same luxury and need to get the word out about their services through marketing. This venture often requires purchasing ads, attending important industry events, and paying for professional services to gain access to networking opportunities.
Apart from budgeting for its costs, gig economy workers also need to allocate time for marketing-related tasks.
3. Health Insurance
The Affordable Care Act of 2010 mandates nearly every U.S. resident to have health insurance. Since they don’t have an employer to provide such benefits, gig workers need to seek alternative avenues for coverage. In certain states, getting health insurance as a group through a chamber of commerce is a viable option.
Otherwise, gig economy workers may be eligible for government subsidies if they acquire health insurance through the health insurance marketplace (federal exchange) or a state’s equivalent.
4. Business Services
Gig workers usually wear various hats on numerous occasions. However, only some have the time or necessary set of skills to manage taxes, invoices, marketing, and technology requirements, among other things. An expert graphic designer, for instance, may know zilch about accounting.
Freelance sites such as Fiverr and Upwork integrate business services within their platforms. Meanwhile, others provide free business tools such as customizable proposals, invoices, and expense monitoring. There will be certain situations when gig workers will need to employ outside help. Thus, they should be prepared by factoring costs for specific business services into their budget.
5. Emergency Savings
The truth is, gig economy work isn’t always stable, and payments aren’t always prompt. Anyone considering working for themselves as a freelancer should be able to navigate the peaks and valleys in their income stream by budgeting for plenty of emergency savings.
6. Other Insurance
Gig workers may need an additional insurance policy on top of health. Depending on their state, they might need workers’ compensation insurance, which can cost from $500 to $1,000 per year.
Others may need automotive coverage or other liability insurance, subject to their line of work. But the good news is that these insurance purchases are often deductible expenses.
7. Retirement Savings
Traditional employees may get an employer match for their 401(k), while self-employed individuals don’t enjoy the same benefit. This emphasizes the importance of budgeting for retirement funds for those in the gig economy.
Money saved in retirement plans such as a simplified employee pension IRA or a traditional IRA is tax deductible as a benefit. Additionally, retirement plans are among the best tax shelters available.
8. Equipment Maintenance
Workers in the gig economy may be focused on the expense of purchasing equipment required to launch their businesses. At the same time, they must also allocate funds for maintenance in their budget. For example, vehicles require oil changes, laptops require upgrades, and other equipment may break down at some point or become obsolete.
9. Travel Costs
It is invaluable for gig workers to know how much money they’ll need for gas, flights, parking, and other travel expenses.
They need to keep track of the costs associated with gigging, whether directly or indirectly, and make sure each is accounted for. They might even get reimbursed or take a tax deduction at the end of the year!
Initially, it may not be worth it, but these expenses can increase over time.
10. Utilities
Budgeting for utilities should be an essential part of the gig life.
This includes electricity, internet service, and possibly software subscriptions to do their job effectively. Plus, budgeting for utilities can help gig workers save money in the long run by avoiding late fees or unexpected charges.
Ultimately, no matter how unconventional the gig economy is, it still relies on reliable utilities like any other business.
11. Incidental Expenses
Finally, gig economy workers need to factor in the incidental expenses of the gig lifestyle.
These can include items for networking events, registration fees for industry organizations, office supplies, and even refreshments for client meetings.
Without careful planning, these costs can sneak up on gig economy workers if they are not careful, costing them time and energy as they scramble to make do with what is on hand.
How to Budget as a Gig Economy Worker
Understanding how to create a budget allows gig workers to plan how much money they’ll spend or save each month and track their spending patterns. Undoubtedly, budgeting can help gig economy employees save money in the long run.
Here’s how they can start budgeting:
- Create a budget by keeping track of recurring costs and monthly spending using a budget worksheet.
- Maintain focus by keeping track of costs and adjusting the budget accordingly as circumstances change.
- Assess the situation and the income that comes in and goes out in a particular month.
- Spending should have priorities, with needs taking precedence over wants.
Bottomline
For gig economy workers, the importance of ensuring they include all the necessary expenses in their budget can’t be further emphasized.
This will help them stay on track financially and avoid any surprises down the road. By following our tips on budgeting, gig employees will be well on their way to financial success.
Do you have any other tips for gig economy workers who are trying to budget? Let us know in the comments below.