How will the changing nature of employment alter the income-planning equation?New research from BMO Wealth Management offers insight into the generational differences of earning, saving and planning.
CHICAGO, July 24, 2018 /PRNewswire/ – BMO Wealth Management (U.S.) today released a report about the challenges and opportunities faced by participants in the rapidly growing “gig economy,” comprised of temporary or contracted employment. The report entitled The Gig Economy: Achieving Financial Wellness with Confidence, is based on a survey of 1,021 self-employed Americans ages 18 and older. The report reveals that while gig workers of all ages enjoy some common benefits – and barriers to success – the generations also display some distinct outlooks.
Key survey findings show:
The three primary reasons to take on gig work, according to respondents, were to make extra money on the side (55 percent), balance career and family needs (48 percent), and have greater autonomy and control (48 percent).
Millennials were much more likely than boomers to gig to make extra money (58 percent vs. 49 percent, with gen-Xers falling in the middle), and more than half of gen-Xers and boomers (55 percent and 52 percent respectively) did it to achieve greater life balance, compared to just 40 percent of millennials.
Boomers face challenges in finding employment, with 34 percent reporting that gig work was the only way to make an income, while just 20 percent of millennials expressed the same.
Across generations, similar proportions of respondents pointed to a lack of benefits (medical, dental and disability) as one of the biggest downsides (cited by 69 percent of all respondents), along with not earning enough (43 percent), lack of profitability (41 percent), and accumulating debt (27 percent).
“The growth and popularity of the gig economy among employers and workers alike is resulting in a sea of change in how gig workers manage daily finances and retirement planning,” said Tania Slade, National Head of Wealth Planning, BMO Wealth Management (U.S.). “There are obviously tremendous advantages for gig workers of all ages, from flexibility, personal growth and providing supplemental income, but giving up a steady paycheck and employer-based retirement plans for less consistent income requires additional time and planning in order to achieve financial health.”
BMO offers the following tips for gig workers of all ages:
Make a business plan
A business plan documents what gig workers will do to make money, outlining their expertise, services, products, clientele, marketing plan, fees, location, hours, and expenses. Addressing these at the outset will help manage some of the challenges of gig work, and should be developed in tandem with a financial plan to help achieve important longer-term financial goals.
Have a spending plan (or budget)
A gig worker’s business and personal finances will become intertwined, but it’s best to try and keep them separate. They should consider an “essentials only” budget that focuses on minimizing expenses such as food, travel and entertainment to help manage fluctuating monthly income.
Self-employed workers must report all income to the appropriate tax authorities and submit income taxes and self-employment taxes that include both the employer and employee portion of Social Security and Medicare Taxes. It is advisable to work with a tax professional to help address income taxes and reporting requirements.
Have a financial plan
A flexible financial plan is a must in the gig economy, when income is often variable. A financial professional can help monitor and assess spending and saving on a regular basis to stay on budget and achieve short- and long-term financial goals.
Save for other goals
Payments to retirement accounts like solo 401(k)s, IRAs, SEP-IRAs and Roth IRAs can be automated to develop consistent savings habits and adjusted as monthly income fluctuates. Gig workers should plan to assess finances and adjust savings plans on a quarterly or semi-annual basis.
To view a copy of the full report, which includes additional survey findings and financial tips, please visit: here.
About BMO Wealth Management U.S.
BMO Wealth Management serves mass affluent, high net worth and ultra-high net worth individuals and families with a full suite of wealth management solutions including wealth planning, banking and borrowing, investment management, retirement planning, trust and estate services, philanthropy, insurance and risk management, tax planning and ultra-high net worth services. With over 140 offices across 16 states and international offices in Canada, Hong Kong, and Singapore, BMO Wealth Management provides guidance and planning advice combined with individualized service and local experience. As of April 30, 2018, BMO Wealth Management had assets under management of US$47 billion and assets under administration of US$79 billion. BMO Wealth Management is supported by the resources and stability of one of North America’s premier financial services organizations—BMO Financial Group. Visit bmowealthmanagement.com.
BMO Wealth Management is a brand name that refers to BMO Harris Bank N.A. and a number of its affiliates. BMO Harris Bank N.A. and its affiliates do not provide tax or legal advice to clients; these matters should be discussed with the appropriate tax or legal advisor.