The Gig Economy is Great, but It Won’t Make You Rich Without a Plan
I have had a regular side gig since 2014 working for a web content company. It brings some much-needed extra funds to me each week and is a constant source of extra piecework. This has been a great addition to our current home economy and our bigger goal of financial independence. But it’s never been enough to compete with my salaried main job and the benefits that it provides our family. If you’re considering gig work, here’s my take on the pros and cons, and some of the things you can do to help yourself while doing gig work:
What’s the Difference Between Gig and Other Work?
Gig work is any job that you can do as a contractor on your own terms. It can include things like driving, food or package delivery, and in my case, web content. Work is available either for a set price/rate to the quickest respondent or for bid. You are paid as a contractor and not an employee and must provide your own materials to do the job.
From a tax standpoint, that means that you must take your own taxes out of the money you earn, and your own payroll taxes to pay into Medicare and Social Security. If all you do is a gig job, you’ll probably owe money each year when you file your taxes, more if you’re not calculating and sending money quarterly.
But from a freedom standpoint, the company doesn’t tell you when to be somewhere, when to work, or to take any job you don’t like or don’t have time for. If you want to work only from 10 to midnight, you can. If you never want to work weekends, that’s also fine. You can also work a gig job based on when you’re not working another job, so it is a very flexible second job opportunity.
The Risks of Gig Work- and Why it Won’t Make You Rich Alone
The risks of gig work really come down to a few things. First, you need to own the basic materials to do the job. This may be a laptop and internet connection or a working car that is clean and reliable enough for passengers. If any of these items are not reliable or shared, it can be hard to have earning opportunities.
The bigger, more fundamental risk, and the reason that it’s not a vehicle to wealth alone, is that you are paid once, for the job, and then the contract is done. Often, when you look at the hourly rate that the flexibility offered (especially minus expenses like fuel), it’s less than minimum wage. Yes, there are people who can do it so fast that they beat the average, but the average is still very low. And if you stop working, you stop earning.
If gig work is all you do, you’ll also need to figure in things like benefits and retirement savings. You may not worry about this at 20, but if you want to buy a home or have children, this will definitely need to be a factor in your thinking eventually.
After many years in the gig world, it’s also very easy to get burned out by the low-pay, repetitive nature of the job. For me, I won’t be able to do it forever. So I’m making plans to leverage it into something else.
Can You Turn Gig Work on Autopilot?
While you can’t change the nature of gig work by itself, there are things you can do to use gig work to meet other goals, including real passive income. First, make sure you have what you need to make ends meet. If you can work a bit extra at first to have an emergency fund of $500–1000, even better. Don’t touch this money unless you have a real emergency. This will give you the freedom to start automating the difference. From there:
· Create an earnings goal: For me, I started by aiming for an extra $100 per week after my bills were paid. Then I work toward that goal. If I have time and opportunity, I beat it, but when I’m tired, I still try to make it to that point. Even if you can earn an extra $5 to $10 per week to start, it will add up over time.
· Create a spending plan: I distribute my extra money into three places, proportionally. 60 percent goes to an investment account. 20 percent goes to pay down debt. 10 percent gets added to my emergency fund, and the last 10 percent goes into a goals account where I can use it to spend money on things like Christmas presents or a new piece of furniture when there is enough.
· Look at similar passive opportunities: For me, I have started writing on other platforms that don’t offer cash up front, like Medium, in the hopes that I will get some longer term cash rather than a price up front. The more this happens, the less I have to write on a site that pays per item to meet my weekly goal. Having your own website with ad possibilities is another way to meet this goal.
· Use your gig time to meet other career goals: If you’re a driver, can you make use of your time in the car to listen to podcasts or audio learning tools to enrich your information about another goal? For me, web writing and editing for a large company has allowed me to better understand what makes good writing and what to avoid.
Making the Shift
So the way my plan works for our family is that there is always some gig money going to investment income, another source of passive income. There is always some money going to pay down debt.
Each time we pay down a debt, I consider the extra money per month that it frees up in our household budget- if the minimum payment on a credit card was $100, then I add $50 to automatic investment savings and use the rest to reduce our overall budget. It’s a great way to save more without feeling the pinch of doing so.
I also check on our passive earnings on a quarterly basis. This is any monthly earnings from pay per click web content plus the average earnings of our investments. This is what I use for our family exercise of re-evaluating our goals:
Understand Your Resources and What They’re Worth to You
I started my gig job when my kids were babies. I had a lot of time being present with them and could sneak in an article while they played and cooed on the play mat or napped in the other room. As they get older, real time with my kids has become a more valuable commodity, and I want to spend more time actively with them and less time grinding a few extra bucks out of every day.
This means either less money earned or less sleep.
So I re-evaluate that original gig earning goal. Do I want to spend less time working and earn less for a few months? Also, if I’m close to paying down a debt or need something sooner (like a new couch because the old one has been ruined by a loose sharpie and a three-year-old) then I can adjust my allocations from my gig work. For example, if a debt is close to zero but won’t get there with the 20 percent debt allocation, I can put 30 percent to a debt instead of 20 and it’s paid off by the end of the quarter.
If you reallocate, make sure a portion continues to pay your future self in the passive income bracket, though, so that if you’re ever, sick, tired, or just sick and tired of your gig, you have backup income to take a break.
What’s Your End Game?
Have a plan for when you’ll be done with your gig. For me, I will stop when my passive income meets a level that I don’t need it to secure financial independence without earned income. For you, it can be when you finish a goal that it’s supporting, like college, get a new job or pay off a debt that you took the gig to cover. Like a retirement date, this gives the gig a purpose and lets you know when it has fulfilled that purpose.
Remember that this goal is to give you permission to leave if and when you want. As someone who feels guilty for not contributing enough sometimes, I definitely need this step. You can always choose to stay on if you love it or return to it for a bit of extra holiday cash, but it’s a way to know that you can move on to other goals.
Gig work is something that will continue to be a big part of the economy. If you’re smart about it, it can be leveraged into something that will help you increase your assets and turn them into something that makes money while you sleep.