Financial planning is essential for anyone, but it takes on an even greater significance when you’re part of the gig economy. Freelancing or working on a per-project basis typically means dealing with inconsistent income and busy periods followed by quieter months. Additionally, you’re responsible for your own taxes, health insurance, and retirement savings, all of which are expenses that traditional employees often don’t have to worry about.
Without a plan in place, it can be all too easy to overspend during high-earning months and struggle to cover expenses during leaner periods. A lack of foresight and sufficient preparation can also leave you vulnerable to financial emergencies and limit your ability to take advantage of growth opportunities. By proactively managing your finances, you can protect yourself against risks, optimize your earnings, and build a more secure future. You can start this process at any time. Here are some actionable strategies to help you plan your finances and safeguard your income as a gig economy worker:
Create a Budget That Reflects Your Variable Income
Being a part of the gig economy typically means dealing with fluctuating income. It’s a must, then, to build a budget that accommodates this variability. Kickstart this process by adopting a long-term perspective and calculating your average monthly income based on your earnings over the past year. After this, identify predictable or fixed expenses such as rent, utilities, and loan payments and prioritize them in your budget. Then, allocate funds for expenses with variable amounts like groceries and entertainment.
During high-earning months, set aside a portion of your income for savings or future expenses. Maya offers practical options for saving for future needs in the form of Maya Time Deposit Plus and Maya Savings. Maya Time Deposit Plus lets you choose to keep your money in the account for 3, 6, or 12 months. More than that, it has time deposit interest rates of up to 6% p.a. Meanwhile, Maya Savings has a base interest rate of 3.5% p.a, but you can boost this up to 15% p.a. by using Maya to complete your regular in-store and online transactions. Putting your extra funds in a time deposit or high-interest-rate savings account will make it possible for you to preserve and even grow its value.
Establish an Emergency Fund to Preserve Your Peace of Mind
An emergency fund acts as a financial safety net. By building one, you can have peace of mind that you’ll be able to cover unexpected expenses such as medical bills, car repairs, or periods of low income. Ideally, your emergency fund should comfortably sustain 3 to 6 months’ worth of your household’s expenses. The fund should also be kept in a separate, easily accessible account.
For example, instead of keeping your emergency savings in your e-wallet, how about putting it in a savings account with a high interest rate like Maya Savings. This way, your money can grow while it’s not in use and retain the ability to use it any time the need arises. Building an emergency fund takes time, so start small and contribute regularly—even setting aside a few hundred pesos a month can add up over time.
Set Aside Money for Taxes and Retain the Services of an Accountant
As a freelancer, you’re responsible for managing your own taxes. This includes tracking your income, calculating how much you owe, and paying quarterly tax installments. To avoid financial stress during tax season, set aside a percentage of every payment you receive for taxes. It’s also a good idea to retain the services of a reliable accountant who can help you navigate the complicated tax requirements for freelancers.
Plan for Your Future and Set Aside Funds for Retirement
Without an employer-sponsored retirement plan, it’s completely up to you to save for your future. Consider opening a retirement account, such as a Personal Equity and Retirement Account (PERA) or other investment vehicles. You can also make a habit of opening Maya Time Deposit Plus accounts every 6 months or annually to take advantage of high interest rates to grow your funds. A time deposit calculator will help you determine how much you need to save so you can attain your goal savings amount for retirement. Regularly contribute a portion of your income to these accounts, and use the power of compound interest to grow your savings over time.
Diversify Your Income Sources to Reduce the Risk to Your Finances
Relying on a single client or project can leave you financially vulnerable if the work dries up. Diversify your income by working with multiple clients. You can also offer a range of services or develop passive income streams such as online courses, digital products, or affiliate marketing to spread your eggs in different baskets. A diversified income not only reduces risk but also increases your earning potential.
Invest in Professional Development
Your skills are your greatest asset in the gig economy. It only makes sense, then, to allocate part of your budget to courses and certifications that enhance your expertise and increase your market value. Staying competitive in your field by leveling up your skills and knowledge can help you attract higher-paying clients and secure more consistent work.
Invest in Health and Insurance Coverage as an Additional Safety Net
Traditional employees often receive health insurance as a workplace benefit, but freelancers need to secure their own coverage. The good news is that there are plenty of insurance companies and financial services providers who can provide you with options for securing your health.
If you haven’t done so yet, now is as good a time as any to look into affordable health insurance plans that suit your needs. You can also consider other types of insurance, such as life, disability, and income protection insurance to keep losses at a minimum should these events take place. Having these policies on hand can be quite reassuring if you’re worried about financial hardships caused by illness, accidents, or other unexpected events.
Financial planning isn’t just about avoiding financial pitfalls; it’s about empowering yourself to achieve your goals. With a solid plan in place, you can enjoy greater peace of mind and focus on delivering quality work. By proactively managing your finances and utilizing the high-interest-rate savings accounts that Maya offers, you can protect your earnings and create a more secure future as a gig economy worker.
