Gig economy workers need their own financial plans
It is essential for workers in the "gig" economy to set up your financial life well so that you can continue doing what you enjoy.
From Grab drivers and tour guides to freelance designers and fintech entrepreneurs, more and more people are working in the gig economy.
While freelancing enables people to follow their passion and offers tremendous flexibility, the flipside is that income is rarely stable and benefits such as insurance that corporate employees have isn’t there.
If you are a “gig” worker doing freelance work, you will not usually have the benefits of employees in large companies, so it is essential to set up your financial life well so that you can continue doing what you enjoy.
Even though the government’s tripartite workgroup has proposed changes such as help with Medisave savings from the Central Provident Fund (CPF) and insurance to protect against loss of income as well as standards for contracts and support on pay disputes, gig workers still have to plan their finances on their own.
PROTECT AGAINST RISKS
Reviewing healthcare insurance needs is one of the first things freelancers should do. If you’re ill and not working, there is no paid medical leave and you have to pay for medical expenses yourself.
While many people can use polyclinics for everyday medical treatment, insurance to pay for more serious medical conditions is essential for you and your family.
Track, too, what happens with insurance which the government has proposed to protect self-employed persons against loss of income from prolonged medical leave, in case cheaper options become available.
Buying a term life insurance policy can be a relatively affordable way to make sure your family is protected in case something happens to you.
To help prepare for slow periods at work or unexpected emergencies, it is helpful to set up an emergency fund in a savings account or fixed deposit that has enough money to pay for at least six months of expenses.
Creating a budget showing your income and expenses can help you to estimate how much you really need in that emergency fund.
You can also use the budget to figure out how to reduce your monthly expenses — which is important when you are a freelancer with an income that can go up or down each month — by getting rid of subscriptions or other payments that are frills rather than necessities.
GETTING PAID IN GOOD TIME
Grab drivers and others who get paid immediately for their work do not have to worry as much about late payments, though there are good days and slower days.
Freelancers who run their own business, on the other hand, may need to deal with late payments from customers, especially from big companies with slow-moving payment processes.
It can be helpful to set up a process for sending out invoices regularly and collecting payments. Setting milestones in longer-term contracts so that you receive partial payments each month can be helpful as well.
When you’re running your own business, setting up a separate business account can help to give you a clear idea of how much income and business expenses you have.
Giving yourself a regular salary can help to manage your income better. And if you have enough revenue, setting aside part of it as retained income can allow you to expand your business or cope with unplanned expenses without affecting your personal income.
DON’T STOP SAVING
Looking ahead, you will still be responsible for funding big expenses in the future such as your children’s education and paying for retirement.
Even though money may be tight, especially when you start work as a freelancer, you should still continue putting money into investment accounts every month to pay for those bigger expenses.
Some people create separate accounts for different goals, such as one for children’s education and another one for retirement. It is also important to take a break occasionally, so create a savings account to pay for holidays too.
It might seem better to reduce CPF payments to a minimum in order to reduce expenses and save more. For the longer term, though, it is better to keep paying into CPF so that you accumulate enough to cover basic expenses in retirement.
If you have sufficient savings or investments, setting up sources of passive income can give you at least a minimum amount every month regardless of how your business fares.
Whether you invest in real estate investment trusts, buy bonds, own property or hold some other assets, receiving dividends or rent or interest can create a steady source of monthly income and bolster your finances.
And even though it is easy to forget to invest in yourself when you are busy running your own business, it is essential to keep your skills at the peak of your profession so that you maintain your expertise and keep your customers.
You can take courses or attend conferences, for example, to keep up to date on the latest developments in your field. Networking to get insights into changes and keep in touch with contacts can be helpful, too.
While freelancing offers work that is more satisfying and the freedom to manage your time the way you want, it comes with the responsibility to manage your own finances. Taking a few simple steps can make sure that you thrive as you strike out on your own and take full advantage of today’s gig economy.
