Side Hustle Success: 5 Financial Tips for Freelancers and Gig Economy Workers

Admin • August 25, 2023

The freelance and gig economy certainly has many attractive benefits. Many people want or need to supplement their primary income, others crave flexibility and variety, and some don’t want to be tied to a single physical location or the same schedule every day. Approximately 16% of the American workforce is comprised of gig workers with nearly half of gig workers also holding full-time jobs.

The high earning potential and ability to be your own boss lure many people into the freelance and gig economy world. But it’s important to remember and be prepared for the challenges that come with this type of work such as lack of insurance, differences in tax reporting, and irregular income. 

 

5 Financial Tips for Freelancers and Gig Economy Workers

With sufficient financial knowledge and self-discipline, you can be successful as a freelancer and accomplish your goals. Understanding these five concepts can help you start on the right foot. 

  1. You should diversify your income options. 
  2. You need to know your worth. 
  3. Become a master of your tax responsibilities. 
  4. Learn how to manage your fluctuating income. 
  5. Insure yourself today and invest in your future. 

These tips, along with regular and comprehensive financial planning will help you navigate the amazing world of side hustles, freelancing, and the gig economy. 

 

1. You should diversify your income options.

Finding success as a freelancer, especially when you freelance full-time, often takes a variety of skills. For example, if you work online as a virtual assistant, it’s best to be familiar with all the major bookkeeping software and customer relationship management (CRM) programs, as well as have strong communication and social media skills. Ensuring you’re the “complete package” will make you more marketable and valuable. 

It’s also important to diversify your skills and talents because freelance work can often be volatile. If your work is suddenly no longer needed with one client or platform, you’ll need to quickly pivot and find a new opportunity. Having a variety of skills under your belt will help decrease the amount of time you’re out of work. 

Take some time to research the services that are most in need and commit to learning them through online workshops, reading articles, or watching tutorials. As you continue working in the gig economy, never stop learning, increasing your skills, and adapting to the ever-changing landscape. 

 

2. You need to know your worth. 

Pricing yourself correctly as a freelancer is an extremely important part of being financially successful. Price yourself too high and you may find your inbox empty. Price yourself too low and you sell yourself short. There are many strategies you can use to discover your worth and price yourself: 

  • Discover what other freelancers are charging for similar services (remember, your specific experience and positive references will be a major factor in your worth and prices as a freelancer). 
  • Think about the expenses you will incur in your freelance work (including taxes!). 
  • Determine if you’ll charge an hourly rate or a project rate.
  • Think about the worth you are providing your clients. Oftentimes, your work is providing clients with intangible value and those benefits should not be overlooked. 
  • Pricing your goods and services is not a one-time task, you’ll want to continually evaluate your prices as your skills, experience, and expenses increase. 

 

3. Become a master of your tax responsibilities.

Freelancers and gig economy workers have to pay special attention to their taxes. Instead of the traditional W2 tax form, you will receive a 1099-NEC form from every client you worked for throughout the year. 

As a freelancer, you are responsible for paying self-employment tax (15.3%) as well as your standard income tax. Typically, your employer would pay for half of your Social Security and Medicare taxes, but as a freelance worker, you’re responsible for the entire portion. 

If you expect to owe more than $1,000 in taxes in any given year, you must pay part of your tax bill quarterly. You can use IRS Form 1040-ES to estimate how much you should pay for each quarterly tax payment. Some states also require freelancers to pay quarterly state income taxes. 

Because freelancers typically incur expenses that typical W2 employees don’t (for example, if a W2 employee needs a phone to perform their job duties, one is typically issued and paid for by the employer), they can claim tax deductions . 

Typical freelancer tax deductions include home office supplies, business-related meals and travel, required equipment, phone, and Internet services, certifications, and more. These deductions can drastically help reduce your tax liability, just ensure they are legitimate and properly documented. 

Because self-employed taxes can be so nuanced, it can be wise to hire a tax professional. They will be able to advise you on your quarterly tax payments, business structures, and tax deductions. 

 

4. Learn how to manage your fluctuating income. 

Irregular income can be challenging to budget, but it’s not impossible! Follow these guidelines to start your freelance budget today: 

  • Start by looking at your monthly expenses and determine what you need to earn every month to cover your essentials. 
  • If you don’t have one already, make a plan to build up an emergency fund to cover you for slower income seasons. 
  • Average your monthly income and create spending allowances for non-essential expenses. Allow yourself to spend money on fun items and experiences within reason. 
  • Use higher-earner months to fund your bigger goals. After knowing what you need to earn to cover your essentials and even a few non-essential expenses, you can save and invest any extra income for non-monthly expenses like a vacation or down payment on a home. 
  • Keep detailed records of your business expenses—this will save you money and time during tax season.
  • Always overestimate your expenses and underestimate your income. 

And while we’re on the topic of getting income, invoice management is a skill you will want to master, regardless of the field you’re in. Here are some tips to get you started: 

  • Request a deposit before starting work on a project. 
  • Automate your invoicing and ask consistent clients to sign-up for automatic payments. 
  • Be clear about your payment terms and don’t be afraid to tack on late-payment fees. 
  • Keep records of all invoices. 

It’s solely your responsibility to make sure you get paid. By having automatic, professional systems in place, this process can become streamlined and easy to manage. 

 

5. Insure yourself today and invest in your future. 

Health insurance is often offered at a free or reduced rate from W2 employers, but as a freelancer, it’s up to you to secure your own health insurance plan. You can apply for coverage through Health Insurance Marketplace and thankfully, your premiums are tax-deductible ! You don’t want an unexpected medical expense to derail your financial freelancing progress. 

Retirement contributions through paycheck deductions are common with W2 contracts as well. As a freelancer, you’ll want to ensure you’re not putting off your retirement contributions. You can contribute to a: 

Before committing to a certain retirement plan, take time to understand the contribution limits, withdrawal rules, and tax implications so you can choose the best option for your financial situation. 

Navigate the Gig Economy with Five Pine Wealth Management

At Five Pine Wealth Management , we can help you navigate your various income sources while providing you with comprehensive retirement, investment, tax, and goal-planning advice. Whether you are a full-time freelancer or supplementing your primary income, you want to ensure you’re using your money in the most strategic way possible. 

To see how we can help you today, email us at info@fivepinewealth.com or give us a call at 877.333.1015. We can’t wait to hear from you! 

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