The gig economy is growing – which is actually a good thing since it contributes to the decline in the unemployment rate. It provides Americans with more options to earn a living we all know that having options to earn is always a good thing.
According to the data from the Bureau of Labor Statistics, the unemployment rate is less than 5%. That means there is less competition when it comes to job openings. People have a higher chance of securing a job that will help them earn money. With a steady flow of income, consumers have a higher chance of improving their financial position, and in effect, their standard of living.
But where does the gig economy come into play in all of these?
What is the gig economy
This type of career is known by other names – side-hustle, freelancing, second job, etc. Anything that is not a 9-5 job can be classified under this particular economy. According to a study, one out of three workers in the US is a freelancer. This figure is expected to rise to 40% by 2020. As more and more people join this economy, it will significantly change how we earn a living.
There are two types of career in the gig economy.
The full-time freelancers are those who quit their 9 to 5 jobs. These are the people who earn a living by the hour, day, or project/job. They are not tied to one employer. Instead, they take on many clients – sometimes more than one at a time. What is great about being a full-time freelancer, compared to a 9 to 5 job is the fact that you can increase your monthly income when there is a need.
The other type is a side hustler. These are the people who are both employed and working as a freelancer. Some of these hold a full-time, 9 to 5 job while earning a freelancing career on the side. Others are employed part-time and the rest of their free time is used to earn as a freelancer.
These are the two groups of people making up the gig economy. As time goes on, more and more people are starting to join it. This makes you wonder – what exactly is driving people to be a part of this economy?
What brought about the gig economy
There are a couple of reasons why this particular economy is gaining strength as time goes on. If you feel like this is something that can benefit you, it might be a good idea to take a look at this list. Some of these might be something that you can relate to – proving that becoming a freelancer might be able to help you improve your financial position.
The insufficient income
It is safe to assume that people are opting to get a side hustle because they feel like their income is not enough. While you can cut back on expenses, it is very limited. When you get another source of income, the possibilities are not as restricted. So if you want your low-income household to have a financial breakthrough, you might want to start earning more. If you cannot get a raise from your current employer, you can join the gig economy to increase your earning potential.
The need to save more
Another reason to get a side job is the need to save more. There are so many saving goals for you to focus on. First of all, you have your retirement fund. You want to start on that as soon as possible. And if you have plans to buy your own house, you want to start saving up for the down payment. A typical down payment should be 20% of the selling price. If you want to buy a house that is valued at $500,000, you need at least $100,000 as the down payment. Setting up a college plan for your kids is also another goal for you. All of these can be easily accommodated in your budget if you have more income coming in.
The eagerness to retire early
According to reports, more and more people are retiring early. The ideal retirement age is 65 years old. However, data reveals that half of Americans are retiring between the ages 61 – 65 years old. 18% are revealed to retire earlier. Some of these people retire by choice while others are forced into it because of health conditions or layoffs. Regardless of the reason for you to retire, one thing is for certain – you need a bigger retirement fund. You had a shorter time to save up for retirement and you will live longer without any work-related source of income. For most people, this may not be enough. This is why the gig economy has a population of retirees among them. They need something to supplement their retirement fund without them feeling too tired from the effort of earning.
The ability to have a flexible source of income
There are people who have chosen to join the gig economy, not because of financial needs, but because their finances are strong enough to allow them to do it. Having an irregular income can be risky but if your financial situation is secure, then you can afford to take the risk. There are those who have saved and invested enough money to give them a sizable income from the compound interest. The freelancing career that these people have opted for are usually just there to give them something to do. It is usually a career that is in line with a hobby or a skill that they are really good at.
How to benefit from the gig economy
The way people paint the gig economy makes a lot of Americans want to pursue it. However, the freedom to dictate your workload and career direction has its drawbacks. The irregular pay and lack of employer benefits are only a few of the things that you will miss when you become a freelancer. In order to really benefit from this, you have to make sure that you are responsible enough to manage your money wisely. Here are a couple of tips that will help you accomplish that.
Make sure you know how to budget your money
Some people find it hard to budget their money – and this is when their money comes in regularly. Imagine how difficult it is to budget your irregular pay? While it might be challenging, that does not mean it is impossible. You just have to be true about what you really need to spend on every month – maybe stick to the basic necessities and budget a couple of dollars for entertainment. Whatever amount you end up with should be considered as your monthly income target. If you earn more on a particular month – do not go crazy spending it all. Put the extra aside for the months when you cannot meet your income target.
Know your priorities
When you are creating your budget, you need to consider your priorities. If you have limited resources, you need to spend on what is most important. When you create the budget plan, place the most important ones on top. Ideally, you want to put your saving targets on top. Then shelter, food, and utilities come in next. There are expenses that you can live without like transportation. But if the transportation is important because it helps you earn money – then it should be a priority. Analyze how you want to live your life and what you need to thrive. Then you can identify what your priorities are.
Be prepared for the lean months
In the gig economy, there is what we call the lean months. These are the times when you do not earn as much as you should. Even the most hardworking person will have a hard time maintaining a certain level of income. While you can only hope to do your best, you should not let it stress yourself out. There are things that you cannot control and you should be okay with that. Otherwise, you will end up feeling really stressed. The good news is, you can always prepare for these lean months. This is why you are advised to stop yourself from spending the extra money that you earn after all the other expenses are paid off. You need to put this aside to sustain you during the lean months.
Have a backup plan
Finally, you will really benefit from the gig economy if you know how to set up a backup plan. As mentioned, your freedom means you have an irregular pay. Your backup plan is what you need to survive the lean months – especially if it goes longer than what you expected. There are many ways to set up this plan. You can build up enough emergency fund. Another thing that you can do is to have another source of income. It may not be the same amount as your main gig but it should be something that you can rely on in case your primary source of income is compromised.