The Gig Economy

The American workplace is changing. In today’s world, more and more people are turning to less traditional work schedules, and even working remotely for their employers. Part of this shifting landscape is the rise of the gig economy. Right now, 36% of Americans participate in the gig economy either through a primary or secondary job - and those numbers are growing each year.

Why People Pursue a “Soloist” Lifestyle

The gig economy is comprised of freelancers, consultants, independent contractors, and temporary employees. These workers, often referred to as soloists, aren’t employed by one employer in a traditional way. Instead, they work for a limited time period for one employer, or part-time for multiple employers. Many people think of soloists as young professionals. However, there are benefits to working as a soloist at any point in your career, including:

  1. Flexible work schedule.
  2. Ability to set your own pay rate (which may be higher than what you would have earned working full-time somewhere).
  3. More independence.
  4. Variety - you’re able to experience different types of work environments and tasks, which can improve your work overall, and increase your human capital.
  5. Ability to leverage short-term contracts to boost savings (specifically before retirement).
  6. Continued work after retiring from a full-time job for those who want to work during retirement in some capacity, but also want more freedom than they had pre-retirement.

Know the Challenges

Although there are many benefits to the gig economy, there are also drawbacks. If you’re considering pursuing a soloist lifestyle, it’s important to know exactly what you’re getting into and to prepare accordingly.

Lack of Benefits

Most soloist jobs don’t come with traditional employee benefits. This means you’ll be on your own when it comes to:

  • Health care (including dental/vision insurance)
  • A retirement savings plan
  • Life and disability insurance

Depending on where you are in your career, this may pose a financial problem for you and your family. However, creating your own “benefits package” as a soloist isn’t impossible! With health care options like plans found through Healthcare.gov, or private health insurance plans, you can make sure that you and your family are protected against potential medical expenses.

You can also create a retirement savings plan for yourself by leveraging a Traditional or Roth IRA, Solo 401(k), or other personal retirement savings account. Finally, life and disability insurance plans are available through private sellers. Keep in mind that while it’s possible to piece together a “benefits” plan for yourself as a soloist, the price tag associated with enrolling in health insurance outside a traditional employer, or purchasing private life insurance, can often be notably higher than if you had pursued similar coverage as a full-time employee.

Managing Cash Flow

When it comes to being a full-time employee, managing cash flow is largely taken care of for you. Yes, you’ll still have to worry about your day-to-day expenses, and savings goals outside of the workplace, but your cash flow system is often determined by your employer. Here are just a few ways that your employer helps you create a cash flow system:

  1. You know when you’re getting paid.
  2. You know that taxes are being taken out of your pay, and being paid for you.
  3. You have the option to have pre-tax funds taken out of your paycheck for retirement savings, HSA/FSA accounts, etc.
  4. Your health insurance and/or life insurance deductibles are taken directly from your paycheck.

All of these things happen automatically. However, when you’re a soloist, that isn’t the case. Managing cash flow, saving, paying for insurance, and ensuring that there’s always enough money coming in to cover day-to-day expenses can be a lot to bite off if you’ve never done it before. It can even be overwhelming for a seasoned soloist!

Before you decide to commit to being a full-time soloist, think through all of the cash flow needs you and your family may have ahead of time. You don’t want to be several months in only to realize you’ve forgotten to set aside funds for taxes, or that there isn’t enough money coming in to cover your insurance premium.

Considering the Gig Economy?

Make sure you weigh the pros and cons of pursuing a career as a soloist before taking the leap. Traditional work environments often come with other benefits beyond the ease of access to health care coverage, retirement savings, and insurance. You have a built-in community that has shared goals, where working as a soloist may make you feel isolated or alone. A traditional work environment can also offer clear-cut career growth, pre-determined measures of success, and a dependable paycheck.

That being said, the gig economy has proven to be an incredible opportunity for many people. If you’re considering pursuing a career as a soloist, it can be helpful to get all of your financial ducks in a row. We’d love to help! Contact us today to learn more.

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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