The “gig economy” is where people typically find temporary, short-term jobs as an independent contractor, consultant or freelancer. A “gig” is a one-off job or project. Someone working in the gig economy, sometimes called a “gig worker”, will often move from one job or project to another. It can be a way to make extra cash but for some people, it is their main source of income.
As a gig worker, your income could fluctuate depending on the amount and type of work you find. The gig economy is frequently compared to more traditional ways of working, such as a job with a steady hourly wageHourly wage The fixed amount you earn per hour.+ read full definition or salary with health and dental benefits, and perhaps an employer-sponsored pensionPension A steady income you get after you retire. Some pensions pay you a fixed amount for life. Others save up money for you while you are working. You use that money to create income after you retire.+ read full definition plan.
If you’re a gig worker, you know that managing money priorities can be a challenge, especially when you’re also trying to save, investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition or reduce debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition. Here are some things to think about when it comes to finances in the gig economy:
3 money tips for gig workers
Budgeting can be tough, but it’s essential as a gig worker to plan for your income and expenses, especially if it varies significantly each month. In addition to budgeting for basic living expenses like food or rent, you’ll need to set money aside for taxes too. As an independent contractor or freelancer, you’ll be responsible for remitting taxes to the government. Use our Budget worksheet to create your budgetBudget A monthly or yearly estimated plan for spending and saving. You work it out based on your income and expenses.+ read full definition.
It can be difficult to estimate the amount of taxes you’ll actually owe at the end of the year. Consider setting aside 20-30% of your income for taxes. As an independent contractor or freelancer, you may be able to deduct certain business expenses. Remember to keep records of your expenses.
2. Build an emergency fund
An emergency fund can help you when you are unable to work, like when you’re sick, or when you have to deal with unexpected expenses, like car repairs. Keep your emergency savings in an accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition that you can easily access on short notice like a savings accountSavings account A bank account intended for depositing funds. Pays interest and lets you withdraw cash at any time.+ read full definition or cashable GIC.
A general rule for emergency savings is to have enough to pay today’s bills plus living expenses for 3 to 6 months.
3. Save and Invest
Whether you plan on working in the gig economy temporarily or permanently, you’ll still need to think about your financial goals like saving for an education or preparing for retirement. While irregular cash flowCash flow The sums of cash a business gets in and spends out during a set period of time.+ read full definition is a reality for many gig workers, the earlier you’re able to save and invest, the larger your money will grow due to the effects of compoundingCompounding A way to grow your money faster. Instead of spending the money you make investing, you reinvest it so it can grow.+ read full definition.
Tax-freeTax-free Money that you do not pay tax on.+ read full definition savings accounts (TFSATFSA See Tax-Free Savings Account.+ read full definition) and registered retirement savings plans (RRSPRRSP See Registered Retirement Savings Plan.+ read full definition) are two popular ways to save as these plans feature certain taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition-advantages.
If possible, allocate 10-20% each time you are paid towards savings and investments. You can make the process easier by setting up automatic transfers through your financial institution.