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The Best Little Money Book

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Understanding the Gig Economy

Are you a member of the “gig economy”? If not now, you may eventually join it.

The “gig economy” refers to workers who are independent contractors or who hold temporary positions. Freelance writers are part of the gig economy, as are bands and a self-employed IT expert who works from home. But so is a four-month temporary job as an office administrator. These are short-term work assignments, some lasting just a day or an evening and others for months.

A study from Intuit, a software company, predicts that by 2020, 40 percent of US workers will be holding temporary jobs. This means that more than 9 million people will be joining the gig economy. Unfortunately, the gig economy doesn't treat everyone fairly. These workers may suffer from pay cuts even though they now do the same work they once did as a regular employee and they rarely get benefits, such as health insurance or a chance to participate in retirement plans.

At a recent conference for financial professionals held at the University of Maryland, one speaker addressed how credit is handled by someone with temporary positions or as an independent worker.

One of the biggest challenges these gig workers face is getting credit for themselves to buy autos or homes or to get a personal loan. The speaker recommended that people in the gig community separate business and personal credit so that:

  • It is easier at tax time
  • You can see if you are really making any money because you will be able to understand the relationship between income and expenses

The self-employed can use the following:

  • Crowdfunding.  This involves raising money from many people to help grow your business. New rules for this type of raising money this way went into effect on May 16, 2016. Be sure to look at these rules before you decided to raise money this way.
  • Invoice factoring. Most self-employed workers do not get paid immediately for their work. Payday may not come for months until the project is completed. To help with cash flow, gig workers can use invoice factoring. In this system, the factoring company buys your invoice and pays you most of the amount of the funds you would receive for your work. When the invoice is paid, they get their money back and take out their fee before sending you rest of the money. This is a good way for you to get money if you need immediate cash.
  • Microloans. These small loans provide working capital to start your business or purchase inventory and other needs for your independent business. One way to get this type of loan is through the Small Business Administration. These are small loans and they are short-term at low interest rates.
  • Business credit cards will give you a method for tracking your business expenses and a short-term loan. Be aware of high interest charges if you don’t pay off your balance monthly.

Below are some apps for people in the gig community. These are not recommendations (we’ve never used any of them), just starting points to help you get started.

  • Pay apps help you receive your income as you work. Here are two:
    • Activehours
    • Even
  • Savings apps help make saving automatic. Here are three to check out:
    • Digit
    • Dyme
    • Acorns