As a gig economy worker, you need to prepare your own benefits package
Taxes can be a challenge for the self-employed
For investors, many gig economy platforms are publicly held companies
There’s a lot being said about the gig economy these days, and for good reason—it’s seemingly everywhere.
Here’s a did-you-know: Upwork’s seventh annual study of freelance work in America found that about 36% of America’s workforce performed some type of freelancing in the last 12 months. Freelancers contributed $1.2 trillion in annual earnings to the economy, according to the 2020 report, an increase of 22% over the 2019 report.
With the gig economy expanding at a rapid rate and with more participants than ever, you might want to take advantage of the opportunities available—as a participant, an investor, or both. Here’s what you need to know about how to thrive and invest in the gig economy.
How to Thrive As a Gig Worker
With the gig economy available to provide access to new opportunities and flexible work schedules—as well as concerns about making ends meet in more traditional jobs—some workers are hoping to get ahead. The good news is that it’s possible to thrive as a gig worker, even during uncertain times, if you take a few steps to set yourself up for success.
Create a benefits package that works for you
Remember when you are your own boss, that means you’re also the sponsor of your benefits package. If you’re taking on gig work on top of a regular job, you might be able to use your 9-to-5 benefits—medical, 401(k) plan, and so on—to manage uncertainties and prepare for the future. On the other hand, if you’re hoping to make it work in the gig economy without a traditional job, you need your own benefits package.
Some ways to create that package include:
- Use the Affordable Care Act exchange in your state to look for affordable health care plan choices.Open one of the tax-advantaged retirement accounts available to self-employed workers.Work ahead and set up a savings account so you have enough money set aside when you want to take a vacation.Consider a business organization that allows you to claim various benefits as an employee of your company.
Consider consulting with an accountant or tax professional to understand the implications of these benefits choices and how you can use them to your advantage.
Prepare for tax time
When you’re self-employed, you pay self-employed tax—essentially both sides of your payroll taxes—the employee half and the employer half. And often you receive 1099 income with nothing withheld up front. But the tax bill eventually comes, and often you’re required to make quarterly payments on your own. It’s a good idea to prepare for those tax bills by setting aside money ahead of time.
If you have a traditional job in addition to your gig work, consider increasing your paycheck withholding to cover the taxes on your self-employed income. For gig workers who don’t have a regular job, one rule is to set aside 30% of your gig income in a high-yield savings account as the money comes in. Then when it’s time to make payments, you have the money available.
Don’t forget about state taxes as well as federal taxes. Plan ahead so you’re less likely to end up with an unpleasant surprise.
Be ready for a rainy day
Because uncertainty is part of the gig economy, consider setting aside money when you have a good month. Build up an emergency fund. Some experts suggest trying to save up at least nine months’ worth of expenses in a post-pandemic world. That way, if you have a lean month (or several lean months), you can draw on your savings to cover costs.
Depending on your risk tolerance and situation, you could consider holding your emergency fund in a high-yield savings account or a taxable investment account.
How to Invest in the Gig Economy
Perhaps you’re not ready to head off into freelance work or sign up to drive for Uber (UBER) or Lyft (LYFT). That doesn’t mean you can’t benefit from growing gig economy trends. There are a number of companies capitalizing on the gig economy and what’s next.
In addition to ride-sharing stalwarts UBER and LYFT, another way to invest in the gig economy is to look for companies that could benefit from the infrastructure of remote work. For example, Zoom Video (ZM) has been a strong performer as more people work remotely and take meetings for gig economy needs. Additionally, website builders like Wix.com (WIX) can act as a portal for freelancers and others to create their homes on the web.
Fiverr (FVRR), an online marketplace for gigging, saw tremendous growth in recent months. Etsy (ETSY), which helps artists and craftspeople sell their products online, can be another way for investors to ride the gig economy. Shipt, the popular app that allows people to get paid to shop for others, is owned by Target (TGT), so you could invest in the gig economy using a major company.
Finally, many gig economy workers use mobile payments to transact business. Two top participants in that space are Square (SQ) and PayPal (PYPL), which also owns Venmo. And if you’re interested in initial public offerings (IPOs), keep an eye on 2021.
The gig economy has already changed the way many of us think about work. Moving forward, we’re likely to see even more changes. Perhaps it’s time to position yourself—and your portfolio—accordingly.
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