The Gig Economy, once a temporary stopgap, has had a permanent shift in the labour market. This is characterised by flexibility, autonomy, and financial volatility. For freelancers and side hustlers, the decentralised workforce, this more traditional financial playbook, which favours salaried employees, is archaic. A Gig Economy investment isn’t simply about building savings. Rather, it means managing income stability whilst maximising tax advantages. The result? Building a financial cushion for a future that is rarely certain.
The financial challenge of income volatility
For self-employed individuals income volatility is the biggest hurdle. Their Income and work fluctuate from one month to the next. This means they should place importance on finding budgeting and savings strategies.
The income smoothing buffer
It is important to build a dedicated buffer fund, one that will cover the leaner months. This is something you should keep separate from other emergency funds. Typically, you should make sure your fund will cover 3-6 months of essential costs. This is your “shock absorber”. It can see you through dry spells without panicking or taking on work that isn’t cost effective.
The three-account system
One practical strategy is to divide any payment received into separate bank accounts. The first should be a main account where you receive client payments (operating/receivables). The second; a tax fund where you will place a percentage of your revenue to cover your tax bills. The final one will be similar to a personal account and will be a mimic of the regular salaried pay cheque/savings account.
Strategic investment for long-term wealth
Freelancing can mean missing out on things like employer-matched retirements plans. This makes it important to adopt an aggressive personal investment strategy.
1. Retirement – choose tax-advantaged accounts
In the absence of employer assisted pension plans, consider those options that financial institutions create for the self-employed.
There are a range of plans, such as SIPPs, which allow for a range of contribution limits. These are designed for those who are self-employed, with a potentially fluctuating income. It is important to consider all of your options and look at what you can comfortably afford. Often, it is best to seek professional pension advice in this respect.
2. Building diversified investment portfolios
Once you have these fundamental safety nets in place, you should consider your remaining capital and place it in a range of investment options. This might include things like low-cost index funds. These will minimise your fees whilst helping you consider long-term wealth.
It can also be a good idea to look at alternative income skills which are a key investment within the Gig Economy. This could include creating and selling, online courses as a form of educational content. Such options allow you to share your niche skills with others.
Scaling yourself
The most important investment you can make as a freelancer is in your business. Everything you spend on technology and automation, skills and certification should be considered as a way of helping increase efficiency and revenue. Any legitimate business expenses should be noted on tax returns. This a way of helping to lower taxable income.
Investing in the Gig economy is all about being defensive, proactive, and aggressive when it comes to financial planning. It is important to master the immediate challenges of income and leverage tax-advantaged tools where possible. This can assist in stabilising your career. It can also help to build up diversified wealth that will meet both short and long-term needs.