It’s the buzzword on many a lip: the gig economy is on the rise as more and more trade their tough, full-time jobs for flexibility, freedom and the ability to work on projects that excite them.
Once thought of as a shift in work behaviour unique to Millenials, statistics show that workers in the gig economy are all ages and come from various backgrounds as work-life balance becomes increasingly important to the average worker.
According to the Australian Bureau of Statistics, approximately 2.5 million Australians are currently employed on a casual basis, which can be said to encompass freelance and gig workers.
That means that roughly a quarter of the workforce are gig workers, a rise of approximately 13 per cent from the 1990s.
But while many agree that the gig economy has definite benefits for those seeking a more excellent balance between their professional and personal lives, the gig economy also comes with a few downsides. These would include a constantly fluctuating income, job insecurity, lack of retirement savings and the absence of any personal protection if something were to prevent you from working.
But these downsides don’t have to mean you’re left behind when it comes to achieving financial success. There are several ways you can embrace flexibility in your working life while still striving to achieve a brighter financial future.
The keys to success? Organisation and professional help and guidance.
And these tips for achieving financial success in the gig economy, straight from those financial professionals we mentioned before:
1 – Create A Safety Net That Is Accessible
As a worker in the gig economy, likely, you’ll never know exactly where your next paycheque is coming from or how much money it will contain. That’s why creating and maintaining a financial safety net that you can easily access in times of need becomes so essential to achieving financial success.
Having a reserve of cash on hand when work is slow or a payment you were relying on is delayed ensures that you won’t be forced to turn to a credit card or loan to supplement your income. Alternatively, if you’d like to make your cash work a little harder for you while maintaining access to it, you could put a portion of your reserve into short-term investments, such as a high-interest savings account.
But before you can begin creating a financial safety net, it’s essential to first make your cash flow as steady as possible so you can better understand your financial world.
While an unstable cash flow is often touted as a significant downside of the gig economy, there are ways to regulate your cash flow. These methods include negotiating with clients ahead of time a deposit, which will ensure you can rely on a minimum cash flow. Once you understand the minimum amount of money you can expect in any given month, it becomes easier to set aside a portion of it, even if it’s only tiny, for a rainy day.
2 – Don’t Forget About Your Retirement
For workers in the gig economy, thinking about and planning for retirement usually falls to the bottom of the priority list as life gets in the way. But while full-time workers can enjoy a certain amount of retirement security through their employer’s contributions to their superannuation fund, freelance and temp workers don’t have this option.
As a freelance worker, ensuring that you’re able to achieve your dream retirement depends entirely on you. While it might not seem important when you focus on finding your next gig, planning for when your work is done is vital to achieving financial success.
Superannuation is one of the most significant investments that many Australians will make in their lifetime. Being active in regularly making contributions to it will play an important part in whether you’ll enjoy the retirement you want. As a freelance worker, the responsibility of making these contributions falls entirely on you and, as such, should be factored into your overall financial strategy.
Or, if you’re feeling overwhelmed by the idea of planning for your retirement on top of everything else you may be juggling, seek the advice of a financial professional to make it easier.
Managing your financial world alone can feel liberating, but having a team you trust by your side can ensure that your financial world is taken care of without you having to be involved in every tiny detail.
3 – Build A Team You Trust
It’s no secret that your financial world can be complicated, depending on your financial circumstances and work type. Participating in the gig economy or being a freelance worker can make your financial world even more challenging.
Building a team of financial professionals, including a financial advisor, in particular, is essential to ensuring every aspect of your financial world is taken care of while simplifying your to-do list.
Your financial world covers many different aspects, including:
- Planning for retirement
- Cash flow and budgeting
- Tax and accounting
- Estate planning
Having a comprehensive financial plan and a dedicated financial advisor ensures that you’ll have a realistic path towards achieving your financial goals, no matter what life may throw at you.
But just like it’s essential to find the right dentist or doctor, it’s necessary to find a financial advisor that considers your entire financial world and goals before making any recommendations.
The right financial advisor should consider your unique financial circumstances and create financial strategies that reflect your particular needs and investment risk tolerance.
And that’s all in addition to providing you with financial guidance and support whenever and wherever you need it.
4 – Think Like A Business Owner
While it might seem like an obvious suggestion, one of the keys to achieving financial success in the gig economy is to think of yourself as a business and plan accordingly.
That means getting into the habit of keeping yourself accountable for your expenses and making decisions in a strategic way that will help you to grow in the future.
It also means taking the time to sit down and create a business plan that will help guide you on your journey to financial success alongside your financial plan. A business plan may cover:
- How you plan to obtain income
- Your areas of expertise
- Your service offerings
- Your fees and expenses
This plan will help you to have a more solid grasp over your current financial world and where you’d like to be in the future, as well as informing the path you take to get there.
5 – Invest For The Long Term
For workers in the gig economy with a reduced stable cash flow, the investment option suited to your financial circumstances is likely shares. But when it comes to investing in shares, many are worried by the often volatile fluctuations in the share market.
At My Wealth Solutions, we believe that a successful investment strategy is as diverse as possible and is undertaken for the long term, as this type of investment portfolio is most likely to weather the inevitable fluctuations in the stock market.
Luckily, this is also the type of investment strategy that is most suited to gig workers. A long-term investment strategy allows you to take steps to build and deliver wealth steadily over many years, rather than trying to grow your cash quickly by exposing yourself to unnecessary risk.
This is especially important for those of you supporting a family while balancing gig work, as your long-term investments will be able to help you meet your family’s future needs as your wealth grows.
6 – Assert What Your Time Is Worth
Freelancers and gig workers often have trouble defining a suitable price for their services and, as a result, may end up settling for a smaller amount of compensation than they should.
This is not only not fair but also may result in further challenges on your financial success journey.
If you haven’t already, set down clearly how long each task you may do for a client could take and the fair monetary compensation for that amount of time.
Then, incorporate this rate into your business plan to charge your clients a reasonable price while ensuring you’re earning a living wage. Once you have this rate set in place, you’re better prepared to achieve a more secure financial future.
7 – Diversify Your income
While this may come naturally, you delve into the gig economy; diversifying your income becomes essential to achieving financial success for freelance and casual workers.
As the nature of work in the gig economy is temporary, diversifying your income as much as possible is essential to ensure you’re able to keep your financial and business plan on track.
But diversifying your income isn’t just about taking on jobs from multiple companies; it’s also just as important to spread your income streams across multiple industries if possible.
This way, you’re better prepared financially if something were to happen outside of your control that could cause a particular sector to experience a rough patch. Plus, working across multiple industries will allow you a greater breadth of experience, which in turn may become a selling point for attracting future clients.
8 – Protect Yourself
For self-employed workers in the gig economy, injuring yourself or having something else happen that may prevent you from working can have a devastating effect on both you and your family.
While regular employees who are injured at work can claim on workers’ compensation protection and may have access to long-term disability coverage through their employer, gig workers have to take out their policies to protect themselves if the worst happens.
As someone self-employed, your protection policy’s wording becomes much more critical than those employed full-time. For example, some personal protection policies require you to completely stop work for some time before you’re able to access the benefits of this policy, which can be nearly impossible for those in the gig economy trying to keep their head above water.
This is where your financial advisor can help by helping you see through the fine print to find the right personal protection policy for you.
Your financial advisor can also help you design and implement a personal protection strategy that considers the characteristics and risks of your particular financial situation. This strategy should ensure that if something were to happen that prevented you from working, you and your loved ones would still have access to a regular income. With a personal protection plan in place, you can focus on your work with the comfort that comes from knowing that you’ll be taken care of financially no matter what challenge comes your way,
9 – Get Organised
As a gig worker, you’ll likely be receiving income from various companies and individuals, making your income stream more complicated than full-time workers. And when you’re juggling so many different aspects of your financial world at once, it’s easy for things that may be essential to your financial success to fall through the cracks.
That’s why the financial organisation is a key to success as it prevents all those minor financial tasks you may ignore from becoming one massive financial headache.
Tax time as a gig worker is just one example of where not organising your financial world can make managing it challenging. Luckily, once you have an economic team in place, you won’t have to tackle organising your financial world alone. Your financial advisor can help you keep track of your income and expenses, as well as keep you accountable for your record-keeping.
10 – Don’t Wait To Get Started
We know that life can get in the way of even the best financial intentions, mainly as your attention is divided across multiple projects. But good intentions can easily remain just that – unless you take action to start creating a path towards financial success.
That’s right; there’s never been a better time to put these ideas into action and ensure that you’re making the most of your hard work to build a brighter financial future.
Just like it can complicate other aspects of your life, the gig economy can make successfully managing your financial world challenging. But you don’t have to do it alone.
Your dedicated financial advisor is here to help provide clarity and guidance as they work together with you to provide a practical path from where you are now to where you want to go. Participating in the gig economy doesn’t have to mean being a step behind full-time workers; your financial advisor can help you achieve financial success with confidence.
Financial Planning Basics: Must-Have Personal Finance Tips
There’s a lot of noise out there regarding learning the financial basics and managing your finances. Sometimes it’s the simple, age-old advice that rings the truest. You don’t need to be a financial genius to manage your finances, nor do you need to shell out a lot of money for professional help.
If you know the basics of finance, you can do anything. Whether your goal is to save more money, prepare for the future, or pay down debt, we’ve got you covered. Here are some financial basics you can use as a foundation to build your financial plan.
Spend Less Than You Make
This piece of advice might be simple, but that doesn’t mean it’s easy to follow. Living within (or below) your means isn’t always straightforward when you’ve got expenses flying at you left, right, and centre.
The key is to track all of your expenses over a few months to see what you’re spending your money on (don’t forget to include credit card purchases!). Using a personal finance budgeting app can help you do this automatically in just a few clicks.
Spending less than you earn is also key to building your savings. This will not only serve as a relief during emergencies but also give you great peace of mind to know you’ve set money aside for life’s unexpected moments.
Pay Off Your Credit Cards Each Month
To avoid costly interest payments from accruing, you’ll want to pay off your credit cards each month. If you continue to carry over the balance, you could be paying more in interest than on the original purchase itself.
For example, according to ASIC’s Money Smart, “if you have $4,400 of credit card debt and only make the minimum repayments, it will take you 31 years to pay it off and cost you around $14,900 in interest.” That’s $10,500 more than the original debt!
If you’re not able to pay off your cards ultimately each month, still make an effort to pay over the minimum. Any payment is better than no payment, but aggressively paying down your debts when you can afford to will always pay off.
Build an Emergency Fund
What is an emergency fund? An emergency fund is a separate savings account that is put aside for unexpected expenses. You can think of it as a safety net for those last-minute expenses like when your car breaks down; you lose your job, and so on.
It’s impossible to know what the future will bring, so be prepared for anything is the best option. Without an emergency fund, you’re stuck draining your spending or taking on debt (i.e. using a credit card) to cover these costs.
That’s a slippery slope to financial troubles!
How do you build an emergency fund? To start, open a separate high-interest savings account. Next, set up automated payments to go through each month after you’ve been paid.
Some experts recommend having anywhere between 3 to 6 months of living expenses, but you don’t have to stop there. Consider depositing a smaller but consistent amount from your monthly savings into your emergency fund once you’ve reached your target goal.
Make a Monthly Budget
Your budget is the cornerstone of your finances. To make your budget, you’ll first need to review your income, expenses and debts. How do you allocate your spending each month? Do you have money left over after paying your fees and debts? If not, your budget needs some adjustments.
Once you have a budget in place, you’ve got a clear path to your financial goals. Instead of hoping you’ll be able to save in the future, you can start saving in the present. You can begin putting funds towards your financial goals like saving for retirement, your emergency fund and your holiday fund.
Pay Down Your Debt
Getting your debt under control should be one of your main priorities for managing your finances. All of that debt weighs you down and keeps you from contributing to your financial future.
One of the critical basics of finance is to learn how to pay down your debt effectively. If you’re paying off a credit card, make sure to pay more than the minimum amount to save money on costly interest payments. The same goes for your mortgage and any other debts you may have. Soon, you’ll achieve your goals of being debt-free!
Save for Retirement
Have you thought about how much money you’d need to retire? Or at what age? It may seem far away, but it’s never too soon to start planning for those golden years.
Australians are provided with 9.5% of superannuation with every payslip. However, you may want to think about putting away 10 or 11%, depending on how much you’ve saved to date. Keeping your retirement savings in your finance toolbelt will ensure you’re on the right track for your future goals.
Have a look at your superannuation fund and calculate what you’d have at retirement age (it’s 65 currently but will rise to 67 in 2023). This will give you a better idea of what you’re working with, so you can start making adjustments for your future self.
Get Properly Insured
Though it’s easy to overlook, making sure you’re adequately insured is an essential finance basic. Insurance is a must. If you’re not adequately insured, a job loss or house fire can send your life into a tailspin.
Besides building an emergency fund, make sure you protect your finances with life, income and mortgage or renters’ insurance. This can sometimes be the difference between a small bump in the road and financial ruin.
Be Consistent With Your Finances
Consistency is your friend when it comes to finances. Once you’ve set up some healthy personal finance habits, make sure to do your best to stick with them. It’s perfectly normal to get off track every once in a while, but sticking with your plan over the long term will make a world of difference when it comes to your financial health.