It’s estimated that there are around 3.9 million South Africans working in the gig economy, which consists of short-term, contract or freelance jobs. While the gig economy helps people without permanent, salaried work to survive, it is not always their first choice.
One of the challenges of being a gig worker is not having a regular salary. Earnings are unpredictable, which makes it difficult to budget properly. Can gig workers budget at all, and if so, how can they go about it?
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Start with your expenses
Financial planner Sylvia Walker, the author of Smartwoman: How to Gain Financial Independence and Create Wealth, says it’s possible for all income earners to budget. Expenses, she explains, seldom vary from month to month, even if income changes.
“Having various sources of income makes the incoming side of your budget erratic, but the outgoing side is easy to determine,” she points out.
She says you should start by listing your expenses – the amount you realistically require to live from one month to the next. Calculate this independently of your income, then make sure you have the income you need each month, so you can cover the expenses.
Walker recommends keeping two separate bank accounts – one for your living expenses and one for any extra money you earn.
“Keep the extra money as a ‘slush fund’ that you can dip into during those months when your income may be less than your living expenses,” she says. “Alternatively, consider keeping your income in one bank account, then transferring what you need to a transactional account – in this way, you effectively pay yourself a salary.”
Lesley O’Reilly, a senior financial planner at Sanlam, says gig workers need to budget for the basics, such as bond repayments or rent, rates, investments, medical aid, electricity, and food. It’s possible to estimate what variables like food may cost, but make sure you’re not underestimating what you spend in any given month.
If possible, try to make provision for monthly expenses a month or two in advance, so you can have greater peace of mind during a difficult month. However, if you can’t manage this, try to add to your slush fund, or focus on paying off any debt you may have.
“Many people overspend on entertainment, so be careful you don’t do that,” O’Reilly cautions.
Should you take on debt?
Is it possible to work towards owning a car or home if you don’t earn a salary? Walker and O’Reilly agree that it is, provided you are willing to jump through a few hoops.
O’Reilly says your bank will require a letter from your tax consultant or accountant indicating your average monthly or annual income. This will help them to assess the amount you qualify for. In addition, if you run a small business – even a sole proprietorship – you can have annual financial statements drawn up.
“Your credit provider will require bank statements to match the expenses you declare on the application form, to the transactions in your bank account,” she advises. “They will base the outcome of their assessment on the disposable income you have left each month once your expenses have been paid.
“If you pay rent, they will take that amount into account to assess whether you can afford a bond payment, for example.”
Taking on debt is fine if you’re hoping to buy a home or a car that could improve your work prospects. However, you shouldn’t take on debt to make up income shortfalls, as it’s almost impossible to get out of this kind of debt, Walker cautions.
Managing credit responsibility
Having a good credit record will help you to qualify for vehicle or home finance, so it is not a bad idea to have a credit card or store account – but be sure to manage the account responsibly.
“Ensure you pay the monthly amount due on or before the due date. If you pay later, the major credit bureaus will list you as a slow payer, which may prevent you from qualifying for a bond, vehicle or credit card finance,” warns Walker.
O’Reilly says that people prone to uncontrolled spending should avoid applying for a credit card, since it can be difficult to manage these wisely.
If you have a bumper month and you are thinking of reducing your debt with a lump sum, consider the fact that credit providers are generally not in favour of this. Rather adhere to your monthly payment on or before the due date and keep the cash for emergencies, or for a month when income is less.
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