Gig Economy Experts: How To Budget When Your Paycheck Changes Every Week
Budgeting is relatively straightforward when you know exactly how much money will hit your bank account every payday. Gig workers don’t have that luxury.
For those without a traditional full-time job, one week might bring in $1,200 while the next delivers just $600, making it harder to know how much you can safely spend, save or put toward financial goals. However, the solution isn’t to abandon budgeting, but instead build one designed specifically for variable income.
Consider This: 4 Fast Ways To Make Cash When You're Not Earning a Steady Paycheck
Don't Wait: Start Growing Your Net Worth With Smarter Tracking
Here, gig economy and financial experts make some recommendations.
Build Your Budget Around Your Income Floor
Instead of budgeting around average monthly income, determine the lowest amount you can reasonably expect to earn. Eric Pemper, founder and managing member of CuraDebt, recommended looking at the past 12 months and identifying the lowest income level that appears repeatedly, since an average can be inflated by a handful of lucrative weeks.
If that income floor consistently falls short of necessities, then you may not have a budgeting problem.
“The problem may be your income-to-expense ratio,” said Raquel Curtis, who goes by "The Boujee Banker," a financial educator and founder of The Banks Institute. She said the solution may require you to either reduce your expenses, "gig-stack" or find employment while building the business.
Take Taxes Out Before You Treat Gig Income as Spendable
One of the biggest differences between a traditional paycheck and gig income is that taxes aren't automatically withheld. Anvar Akhtamov, a certified public accountant (CPA) and senior tax manager at Clarity Tax & CPAs, said, “Without an employer withholding on your behalf, you might see that deposit come in and forget that it’s not all yours.”
He recommended setting aside roughly 25% to 30% for taxes, though the appropriate percentage depends on your overall income, deductions and other factors. Some gig workers may opt to pay estimated quarterly payments if their income is high enough and consistent enough, while others may just want to keep that money handy for a possible tax bill.
Pay Yourself a Consistent Amount Each Week
Instead of allowing spending to rise and fall with every gig payment, Pemper recommended creating your own version of a steady paycheck by “paying yourself a consistent amount.”
“The best method is a floor-and-sweep budget,” he added. This is where you cover regular expenses using dependable income, then assign every extra dollar to taxes, savings, debt, and other goals. It's wise to create separate accounts, as well.
Use High-Earning Weeks To Prepare for Low-Earning Ones
A $1,500 week shouldn't necessarily trigger $1,500-week spending, Curtis said. She advised gig workers, “Don't make temporary income a permanent lifestyle.” And Pemper recommended directing extra income first toward taxes and an income buffer, followed by priorities such as high-interest debt and retirement.
A good initial goal is one month of essential expenses, eventually increasing that to three months or more. Workers with more fluctuating income may benefit from a bigger buffer.
Budget for the Benefits Your Gig Doesn't Provide
Variable pay isn't the only financial challenge gig workers face. Independent workers may also have to cover their own health insurance, retirement contributions and unpaid time off, meaning those costs need to become explicit budget categories rather than afterthoughts.
Akhtamov stressed that “many very good and rewarding gigs are available at a price point where you wouldn’t be able to afford paying out retirement and health benefits and coverage.”
Create a separate savings buckets for benefits an employer would normally provide, Pemper suggested, then set aside money from every payment for health insurance, retirement and unpaid time off.
Here's What a Weekly Gig Budget Could Look Like
Pemper laid out some actual numbers based around a weekly net gig where the profit fluctuates between $600 and $1,200. He suggested they could build their recurring budget around $600 rather than assuming they'll continue earning closer to the top of the range.
Pemper's sample allocation at $600:
Taxes: $150
Essentials: $300
Benefits: $60
Income buffer: $60
Flexible spending: $30
Total: $600
Any earnings above $600 can then be “swept” toward taxes, emergency savings, high-interest debt and retirement before discretionary spending.
For Curtis, the main thing she wants people to take away is that with gig work, a budget is required, however, “A budget is not punishment. It’s power and control over where your dollar goes.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: