Financial Literacy for the Gig Economy: Budgeting, Taxes, and Retirement Planning for the Freelance Lifestyle

By Mohmed Abubacker Samsudeen aka TimeBillionaire, Finance Content Creator

The gig economy has been growing rapidly, thanks to the flexibility and independence it offers. However, with this freedom comes the responsibility of managing finances effectively, which can be the most challenging part of being a freelancer.

Agree?

As a result, it is essential for freelancers to have financial literacy , as it can help them make informed financial decisions.

So here are the top 3 guides to help gig economy workers become financially literate regarding budgeting , taxes , and retirement planning while on a tight budget.

Budgeting

In the gig economy, effective budgeting is the key. Hence the secret to maintaining the budget is to maintain that the incoming expenses should be more than the outgoing expenses.

Also, gig workers must proactively plan for taxes and set aside funds for quarterly tax payments. This avoids surprises and ensures they have enough money to cover their tax obligations.

Taxes

Freelancers often face challenges when it comes to taxation as they are required to pay both income tax and self-employment tax . Therefore, it is crucial for the gig economy to be aware of certain considerations when filing their Income Tax Return (ITR). These considerations include understanding which ITR form is best suited to their earnings profile, keeping meticulous records of their income and expenses, and being aware of the deductions they are entitled to.

If you are not aware of the deductions here is your mini cheat sheet to help you lower your taxes

Workspace expenses: Converting a corner of your home into a mini office can be a great hack to save on rent, and utility bills, and even deduct repair costs. So, if you're a freelancer, consider setting up a home office to save some money.

Operational costs: The expenses that you incur for internet, phone bills, and software subscriptions used for your business can be claimed as a tax deduction.

Travel expenses: Do you need to travel for business purposes? If so, your travel expenses may be tax deductible. This includes travel to client meetings or work sites that are directly related to your freelance work.

Vehicle Depreciation: Buying a car for your business purpose allows you to deduct 15% of its depreciation, reducing taxable income and saving money for your freelance business.

Equipment depreciation: Finally, let's talk about the gadgets that you use such as computers, phones, and cameras. Even though these gadgets may seem like expenses, they can actually be tax-deductible. In the world of taxes, the depreciation of your tools should not be seen as a loss, but rather as a financial strategy.

Retirement planning

Did you know that gig workers do not have access to retirement plans sponsored by employers? This makes them more vulnerable to experiencing income uncertainty, irregular cash flow, and a shortage of benefits like health insurance and paid leave.

So, how can gig workers overcome these challenges?

Setting a retirement goal is the first step: You need to estimate how much money you will need to retire comfortably based on your desired lifestyle, life expectancy, and inflation.

Create a budget: Track your income and expenses and create a realistic budget that allows you to save and invest a portion of your earnings.

Government Initiatives: India is developing welfare programs for gig workers, such as the Social Security Code of 2020, integrating various labour laws. Schemes like Pradhan Mantri Shram Yogi Maan-Dhan (PMSYM) and the Employees' State Insurance Scheme (ESIS) aim to provide retirement benefits and healthcare.

Secure your retirement: Contribute to your retirement account regularly and consistently, regardless of your income fluctuations.

Take advantage of tax breaks and incentives that are available for gig workers, such as deductions, credits, and subsidies.