Managing Debt & Finances When You’re a 1099 Employee/Self-Employed/Gig-worker

Gig work has become pervasive throughout the US economy, and we aren’t only talking about the younger population! Over 6 million American over the age of 55 are currently part of the gig work economy and this number is growing at a vastly rapid pace.

Flexibility in work schedules also brings unpredictability in income. For much of the Gig workforce that “flexibility” is a great part of the allure of being a 1099 employee and is a fundamental feature of their personality. However, the lack of stability that comes with it can lead to drawbacks and unpredictability. For many of America’s self-employed, the lack of a consistent income creates a need for more “restraint” in regards to budgeting and money management. Now more than ever, the gig workforce is growing and a tremendous number of Americans actively supplement their income with side jobs. Due to this variability, it’s crucial that individuals whom get paid via 1099s must address “needs” more than a typical 9 to 5 employee would.

Gig Life

In reference to how they save, invest and plan for the future; Gig workers should have more of a “financial cushion” than your average 9-5 employee. It’s almost a part of the job, and for many Gig workers that’s exactly what they do, they take advantage of busy times and bunker down in not so busy times.

How Should Gig Workers Budget?

Gig workers should aim to keep a 3-6 months cushion of living expenses on hand. So, if an emergency does happen and work isn’t so busy they can at least cover necessities in the short term. Gig workers should also have a monthly budget established so that they know how much income they need to cover their “needs” and “wants”. For tools, you can use an excel spreadsheet or a budget calculator. It’s important this isn’t just a mental budget, since income can fluctuate so greatly for the gig economy. Moreover, since most gig workers are more closely accounting for business expenses they should be scrutinizing their budget much more than a typical W2 employee.

Investing for Retirement

Most 1099/self-employed and gig workers should consider allocating towards a Roth IRA, since they won’t typically have any employee benefit options and doing so can help lower taxable income by putting away for retirement. There are always tax incentivized retirement options that could help you reduce you tax liability at the end of the year and it can help speaking with a tax professional to see if there are other options that could help benefit your situation. Be able to retire sooner is a goal many would like to achieve but it isn’t always feasible.

Accounting for Taxes

It’s important to note that most 1099-C workers should also have a financial cushion established for taxes, if they tend to owe money at the end of each tax year. Some workers opt to pay their taxes quarterly because it helps by breaking their payment down into bite-sized chunks. Otherwise you can always pay it off at the end of the tax year as well, if you are well adjusted with your budgeting habits and on top of your deduction and annual tax liability.