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Gig workers need cushion for uneven cash flow

Gig workers need cushion for uneven cash flow
(Dreamstime)

While the gig economy job model provides flexibility for many workers, it can have negative consequences for their pay, benefits and job security, according to a 2017 survey from Prudential.

The survey found that gig only workers earned an average of $36,500 per year, versus $62,700 for traditional full-time employees. And for many gig only workers, income can be uneven month to month.

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If you're among the 16% of gig workers whose side hustles are their primary source of income, budgeting will be key to help smooth out the uneven cash flow.

To get a handle on your budget, track expenses for a month or two, including regular bills that need to get paid no matter what, and set aside surplus funds in the good months to make up for leaner periods, says Eric Feldman, a certified financial planner in Brielle, N.J.

Consider using a budgeting tool such as You Need a Budget (there's a fee), which aims to distribute all of your income between monthly expenses and longer-term goals. If you want a free option, try Mint. On top of that, set aside an emergency fund that will cover expenses for six months or more.

You will also need to cover benefits that are standard with many full-time jobs, such as health insurance and a 401(k) match. And if your home or car is part of your gig, expect a significant sum to go toward upkeep.

Rick Mendell, of Las Vegas, spends 60 to 70 hours per week driving for Uber. In the two years after he became a rideshare driver, he spent about $4,000 to $5,000 each year on repairs, replacements and touch-ups for his 2015 Chrysler.

He pays $200 per year for a business license and $25 per year for a county permit. More modest expenses include the phone chargers and cold water he keeps on hand for passengers, as well as the 100-year-old pennies he buys from eBay to give to couples as a "something old" token on the way to their wedding chapel.

"The amount of money I gross is fabulous, but the amount I net pays all the bills and leaves me enough to go out to dinner a couple of times a month and make sure my wife and I have money in our emergency fund," he says.

Open a small-business bank account or a separate personal bank account to distinguish business-related expenses. Business checking accounts often have maintenance fees, but credit unions may have low- or no-fee options.

Miriam Cross is an associate editor at Kiplinger's Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com.

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