How To Manage Variable Income In The Gig-Executive Economy

Smart money management is essential when unpredictable compensation is your main source of income. Working in high-level freelance, consulting, or contract-based roles, specifically in the C-Suite, calls for discipline. Strict planning, budgeting, and financial literacy are methods for ensuring your lifestyle is uninterrupted between gigs as a fractional executive.

An article in a media outlet, Forbes, discusses the growing popularity of the gig-executive and explores the number of individuals who earn a living with this lifestyle. With a strict strategy for work, money for life between gigs, and a cushion for unplanned circumstances, variable income in the gig-executive economy is sustainable.

Working as a gig-executive has its rewards. Flexibility to work for several companies while building a portfolio is one of them. There is even the potential to grow passion projects simultaneously. Downsides of working as a gig-executive are the gaps in employment and the uncertainty of when the next position will become available. Planning for the points in time when income may come to a halt is important. One method of offsetting these risks is by creating a plan to earn supplemental income. Teaching, consultation work, and public speaking are common ways of earning money and making ends meet between gigs.

Media outlet, US News, featured a quote from certified budget coach, Kerrie Saephanh, “A common rule of thumb is the 50-30-20 rule. The idea is that you divide your net income into three categories: spending 50% on needs, 30% on wants, and 20% on savings. Keep in mind that this is a generic rule meant to be a starting point, and these percentages will change based on your cost of living, goals, and income level,” she adds.

Detailed planning is necessary to cover several of life’s circumstances. Emergencies, health scares, and unplanned repairs are just a few factors to consider when outlining a short-term and long-term budget. A good financial plan looks into the future and accounts for the unexpected.

Education centered around money is necessary for both short-term and long-term success regarding money management. Understanding strategies such as where to store your money, how to store your money, and for how long is very important. The process of gaining knowledge often comes with common questions. Educating yourself on best practices will help you maximize your dollar and minimize costly financial mistakes. A good place to start is visiting your local bank. Speaking with a banker is a quick and easy way to learn about banking products while getting one-on-one time with a real person. An alternative method of gaining financial literacy is reading books and magazines. A popular book is “Rich Dad Poor Dad” by Robert Kiyosaki and Sharon Lechter. A few financial publications include The Wall Street Journal and Kiplinger Magazine.

Non-traditional methods of employment call for non-traditional savings. It is important to keep retirement in mind when planning, budgeting, and gaining financial literacy. In an advice column by Horizon Credit Union, three methods of saving for retirement are highlighted: Solo 401(k)s, Self-Directed IRA and Roth IRAs, and SEP IRAs.

Solo 401(k). A Solo 401(k) is an option for people who are in business for themselves without employees other than maybe their spouse in their business entity. Individuals who go with a Solo 401(k) can contribute as both employee and employer, meaning even bigger savings toward eventual retirement.

Self-Directed IRA & Roths. Self-Directed IRAs and Roth IRAs are another choice for retirement for sole proprietors and freelancers. You can fund an IRA as long as you have some earned income for the year. But the annual contribution limits are similar to those of other available IRA options.

SEP IRA. Now, the Solo 401(k) provides many advantages over a SEP-IRA and is typically ideal for businesses with just a sole proprietor and spouse. But once you begin hiring full-time employees, you can no longer use a Solo 401(k). The Simplified Employee Pension (SEP-IRA) is the ideal option at the time when your business begins growing. It is easy to administer and cost-effective to set up.

The gig-executive economy is reshaping the future of employment. The next wave of professionals will enjoy more freedom, diverse portfolios, and colorful careers. Now more than ever is the time to sharpen skills in planning, budgeting, and financial literacy. Your future self will thank you and be happy that you considered retirement and planned for your future.

This article is intended solely for informational purposes and does not constitute tax, legal, or financial advice. The content provided here is not a substitute for professional advice from a qualified tax advisor, attorney, or financial planner. Readers are encouraged to consult with a licensed tax professional or legal advisor to obtain advice tailored to their specific circumstances and ensure compliance with applicable laws and regulations.