4 Common Financial Mistakes Gig Workers Make and How to Avoid Them

Being a freelancer or gig worker has its benefits. Many people choose this type of work because they want more flexibility and control over their income. If you're considering becoming a gig worker, you should consider how your finances will change when you leave the traditional work world. 

Many freelancers make similar money mistakes. Below, I'll outline a few common financial mistakes that gig workers make and tell you how to avoid them. 

1. Ignoring the need to prepare financially for time off 

Some traditional jobs provide employees with personal time and sick day benefits. But you don't get that luxury when you work for yourself. A frequent money mistake gig workers make is disregarding the need to prepare for missed income when they're away from work. 

There will be days when you're unable to work, whether for personal reasons or because you're sick. You'll also likely want to take some time off for vacation. If you're not working, you won't be making money -- but your bills still need to be paid. 

You can prepare ahead of time so you're not concerned about your bank account balance while away from work. One way to do this is by regularly setting aside money throughout the year. It's best to keep the cash in a savings account so you earn interest. When it comes time to step away from work for sickness, vacation, or personal reasons, you'll have the money needed to pay yourself.

2. Skipping quarterly estimated tax payments 

Taxes look different for gig workers. Unlike W-2 workers, income taxes aren't withheld from your paychecks. That means you must set aside money throughout the year to cover your tax liability. But that's not all. According to the IRS, taxes must be paid as you earn money. For this reason, freelancers and gig workers are responsible for making quarterly estimated tax payments. 

Many gig workers forget to save money regularly to afford their tax payments or skip quarterly estimated tax payments. If you miss quarterly estimated tax payments or make late payments, it could cost you. You could be charged a penalty. But you can avoid extra fees by staying on top of your quarterly estimated tax payments. 

Here are two tips that may be helpful:

• Automate your savings: You can automate the savings process by setting up recurring transfers from your checking account to your savings account. This way, you don't forget to save enough money for tax payments. 
• Set payment due date reminders: Set reminders on your phone or mark your calendar so you know when the next quarterly estimated tax payment is due. Doing this in early January is recommended so you don't accidentally miss payments during the year. 

3. Forgetting business deductions 

You're eligible for a tax deduction for qualified business expenses as a gig worker or freelancer. Self-employment taxes can add up fast, so taking eligible tax deductions is an excellent way to reduce your tax liability. Many freelancers fail to take advantage of all available deductions, including business deductions. If you want to maximize your deductions and reduce your tax bill, you may want to consider hiring an accountant to help prepare and file your tax return. 

4. Failing to track all income 

Being well organized is essential when you run a business or have a side hustle. Many gig workers fail to track their income throughout the year. Forgetting to do this can make tax season more of a challenge. Remember, you're responsible for reporting all income you make.

Tracking your income as you earn it can save you time during the busy tax season. You can use small business accounting software or use a spreadsheet to track the money you make. When April rolls around, you'll be glad you took the time to prioritize good record-keeping. 

Don't neglect your finances

Staying on top of your financial affairs is especially important when you're a gig worker. If you neglect to stay on top of essential financial tasks or fail to stay organized, it could impact your wallet. Check out our free personal finance resources for additional money-related tips.