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Your Money

Understand Your Finances

You're in the gig economy. Here's how to save

The gig economy—people who work as contractors and freelancers—has grown in recent years, due to shifting employment patterns and the growth of on-demand services, such as drivers and deliveries. A National Bureau of Economic Research study found the proportion of the US workforce in what's called "alternative work arrangements" grew from 10.7 percent in 2005 to 15.8 percent at the end of 2015.

Helping you save for tomorrow. Learn more

There are many great aspects to working in the gig economy. "You have the opportunity to control the type of work you, when you do it, where you do it, how much you do it," says Diane Mulcahy, author of "The Gig Economy: The Complete Guide to Getting Better Work, Taking More Time Off, and Financing the Life You Want." She also teaches an MBA class at Babson College about the gig economy.

But when you work in the gig economy, you're also working without corporate America's traditional safety net. There isn't a paycheck every two weeks. There's no company-administered 401(k) plan. And there are certainly no employer contributions to your retirement.

According to a study by the JPMorgan Chase Institute, the average earnings for people in different kinds of gig economies were between roughly $1,000 a month to $1,250, but depended largely on the city. The study found that there could be as much as a four-fold difference in monthly earnings across cities.

Here are five tips to help you save when you're in the gig economy:

1. Be your own CFO

"Number one, and I hate to say this, is discipline," says Jonathan Medows, a certified public accountant in New York City who specializes in working with freelancers and self-employed people.

"You have to know your ups and downs. You have to know your economic cycles, your peaks and valleys, to save money for the leaner times."

Keep the long term in view, too. "Part of that discipline is putting money aside for retirement, for emergency savings, and for life events like buying a house," he says. When you work alone, you're the only one who can do this planning for you.

2. Save wherever you can

"The way to really save money in the gig economy," says Medows, "is to live a lower lifestyle than what's coming in. Stop buying the fancy cars, maybe not living in the fanciest neighborhood. This is being disciplined."

3. Separate your savings

"Every paycheck, put something aside," says Medows. Open several savings accounts, separate from your regular checking account, and use them to hold money dedicated to different purposes.

"Taxes come first," he says. "Set aside a third of every check for taxes." Use other accounts to build an emergency fund and to save for retirement. You can set up automatic transfers to make sure these savings happen.

4. Remember that some things favor freelancers

Full-time employees can put up to $18,500 into a 401(k) in the current tax year, although many also get an employer contribution on top of that. The current maximum contribution for a Simplified Employee Pension (SEP IPA), a tax-favored retirement savings account often used by self-employed workers, is about $53,000.

There are different tax-favored retirement plans that can benefit different independent workers. However you do it, you should aim to save about 10 percent of what you earn for retirement, and work with a financial advisor.

5. Use the emergency funds for emergencies

Some people in the gig economy know that their work is seasonal. Others go from big project to big project, landing a big payday and then seeing nothing come in for a while till the next one. You might do regular work but spend a long time waiting for clients to pay.

"If you're disciplined, if you know your cycles, you can plan for the down times by putting money aside, so that when you're hit you can deal with it," Medows says.

Borrow money from your emergency fund when you need to, but remember to pay yourself back. "My son needed braces, so I had to borrow money from my reserve fund," he says. "Then I paid myself back $100 every week till I paid it back."

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