- Let's talk about the gig economy. What's that? For whom?
- Gig economy gives you greater flexibility in so many ways.Let's see how it feels to be your own boss.
- There are plenty of advantages in the gig economy but you also need to have a supportive team to manage your finances and not only.
People are quitting their jobs in droves.
And it is not because they are retiring.
It is because they want to join the gig economy.
The gig economy as defined by Wikipedia is as follows: “The gig economy is a labor market that is distinguished by the prevalence of short-term contracts or freelance work rather than permanent jobs. As opposed to regular salaries, employees get paid in return for the "gigs" they perform.”
In essence, the gig economy is for those who want to trade in their boss and life a lifestyle based on their terms.
This can take many formats. Some use it as a full-time role while others use it as a side business to supplement their income. It can be a stay at home mum who does freelance design work while her kids are asleep. It can be a nomad living out of a caravan who transcribes audio into written content while traveling around Australia. It can be a management consultant who works full time on projects they are passionate about.
There can be some great benefits for those who want to trade the safety of a regular paycheck with the excitement and uncertainty of being self-employed. Let's look at some of the benefits and drawbacks of the gig economy and the impact it has on your finances.
In the modern world that we live in, most of us can’t or choose not to, work in the usual 9 to 5. Whether we have kids, making a lifestyle choice or prefer to go surfing in the morning, most of us would choose not to be boxed into a 9 to 5 lifestyle.
One of the great advantages of the gig economy is you choose your lifestyle. If you want to work on those designs between 10 pm and 2 am you can. If you want to take every second Friday off to spend with your family, you can. You are your boss you can choose the lifestyle you want to live.
Based on Results, Not Hours Worked
One of the catch cry’s of the union movement was “an equal days pay for an equal days work.”
I think that is complete rubbish. And most in the gig economy would agree with me.
There is nothing more demoralizing when you do more work and get better results and don’t get compensated for your efforts. Most in the gig economy get frustrated by earning the same amount of pay as those doing half of the work we were doing.
The joys about the gig economy are you are paid based not the hours worked but on your results. And those in the gig economy are generally very efficient with what they do. If you can do a $3,000 website in a day, which may take your salaried counterparts two to three days to do, then you are going to be financially well ahead.
And employers love it too. It provides them with the flexibility of choosing how much labor they require and certainty they will get a fixed result at a fixed price. They also don’t have to pay things like leave entitlements and payroll taxes as well, a considerable advantage to any business owner.
A good accountant is worth their weight in gold in the gig economy. Working as a contractor or in freelance work can open the doors to a significant amount of strategies to minimize your tax.
As an example, there are generally a lot more things you can claim as tax deductions if you are self-employed in comparison to an employee. These can range from small things like your mobile phone and home office to bigger things like the everyday running of your car.
You may be able to claim your mortgage repayments as tax deductible, although there are some significant drawbacks of doing this as well.
Also, an accountant can help you with the structure of your freelance work. If you are earning a “side income” it is probably best to earn this in your name. However, if you are a full-time freelancer, it may be beneficial for you to consider setting up a privately held company and/or a trust.
Regardless, working in the gig economy is likely to open up a range of strategies that will reduce the tax payable in your name, which in turn means more money in your pocket.
Be Aware Your Super (And Other Benefits)
Whatever you think of that ”big nasty boss” you had, one of the things they (usually) did is direct 9.5% of your salary into your super.
Unfortunately, those working in the gig economy rarely take the time to look after their super or any long-term investment plan, which often has a long-term detrimental impact on their financial situation.
I appreciate that in a gig economy you want to save every penny possible. However, I am sure you will also appreciate that if you don’t want to be controlled by a boss during your working years, you don’t want to be controlled by the government in retirement.
Therefore, you need to be doing the little things every day to ensure you have enough saved up for your retirement. Like treating yourself as an employer and contributing 10% of your earnings into super.
There are plenty of advantages to working in the gig economy, but you need a good team around you who can manage your finances so you can live the lifestyle you want to live. This includes reducing your taxes, getting your cash flow sorted, building your super and long-term investments and getting a Plan B in place.
Quitting your job and joining the gig economy has many risks and drawbacks, but with the right advice, it can have massive potential. Get out there and build wealth in the gig economy!
This information is general information only. You should consider the appropriateness of this information with regards to your objectives, financial situation and needs.