3 Financial Habits That Help Gig Workers Thrive

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I’ve been a gig worker for more than a decade. Here are three things I wish someone told me when I started. 

Many people are joining the gig economy these days, and it’s easy to see why. There are more options than ever when it comes to using your skills and resources to become your own boss and enjoy the flexibility that comes with gig employment.

I’ve been a self-employed worker for 12 years, and for a few good reasons. If I want to travel, I can do so whenever I want. If I need a day off to take my kids to doctors’ appointments, I don’t have to worry about whether I have enough PTO left.

However, being a gig worker comes with its own set of financial challenges that don’t necessarily apply to employees. Here are three things that I didn’t know when I first became self-employed (I wasn’t a Certified Financial Planner back then) that all gig workers, freelancers, and other self-employed individuals can use to make their financial lives easier and set themselves up for the future.

1. Plan for taxes throughout the year

For many W-2 employees, tax planning is something that happens for a few days toward the beginning of each year when preparing to file your tax return. But when you’re self-employed, tax planning needs to be a year-round activity.

Specifically, most self-employed workers are required to make quarterly estimated tax payments to the IRS (and their state, if applicable). But setting aside a reasonable percentage of your income every time you get paid can certainly make these more manageable. A good idea is to speak with an experienced tax professional who can help you determine the right amount to set aside.

It’s also important to know that self-employed people are required to pay more Social Security and Medicare taxes than W-2 employees are. When you’re an employee, you pay half of these taxes and your employer pays the other half. But as a gig worker or freelancer, you are the employer and the employee, so you pay both sides of these taxes; this is collectively known as the self-employment tax. In 2023, the self-employment tax rate (in addition to federal income tax) is 15.3% on all income up to a maximum of $160,200 and 2.9% on any income above that threshold.

2. Save aggressively for retirement

Unless you also have a full-time W-2 job in addition to being a gig worker, you probably don’t have access to an employer-sponsored retirement plan. But even if you do, some good news for gig workers is that you’ll have access to special types of retirement plans.

For example, a SEP-IRA allows you to save as much as 25% of your net self-employment income, up to an annual cap of $66,000 in 2023. Contributions can be tax deductible. And starting with the 2023 tax year, there’s even a Roth version of the SEP-IRA if you’d prefer tax-free income in retirement to a current tax break.

Other self-employed retirement account options are the Solo 401(k) and the SIMPLE IRA, both of which have significantly higher contribution limits than traditional IRAs or Roth IRAs.

To be sure, it may not be practical or necessary to completely max out your retirement savings as a gig worker. But many financial planners (myself included) suggest a retirement savings rate of at least 10% of income to set yourself up for a comfortable retirement.

3. Use an HSA for medical expenses

If you’re providing your own health insurance as a self-employed worker (another tax-deductible expense), and you have an annual deductible of at least $1,500 for single coverage or $3,000 for family coverage, you can contribute to a health savings account, or HSA.

Not to be confused with a flexible spending account, or FSA, an HSA is an extremely powerful financial tool for eligible individuals. It offers a rare triple tax advantage. Contributions are tax-deductible, money in the account can be invested, and any withdrawals for qualified medical expenses are completely tax-free.

The best part is that unlike an FSA, money in your HSA doesn’t have to be used by the end of the year — it can be rolled over year after year. Plus, once you turn 65, you can withdraw money for any reason, essentially treating it as a supplementary retirement account. For 2023, if you have a qualified health plan, you can contribute as much as $3,850 if you have individual coverage, or up to $7,750 if you have family coverage, with an additional $1,000 if you’re 50 or older.

These three habits can dramatically increase your financial health

When you become a gig worker or freelancer, it can seem intimidating to suddenly be responsible for your own tax withholding, retirement savings strategy, and health insurance. But as someone who has been doing it for a long time, I can tell you it becomes much easier as you get used to it.

One final suggestion I’d make is to automate as much of these processes as possible — particularly your contributions to retirement accounts and HSAs — as it can help maximize your tax breaks with minimal effort from you.

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