According to international predictions, 10 years from now, half of the workforce is likely to hold multiple jobs.
This trend is firmly entrenched in the new gig economy – a labour market where freelance, flexible, on-demand work prevails – and is just as relevant in the South African context.
A report by Deloitte revealed that 43% of the surveyed South African millennials are open to freelancing vs a global average of 31%.
Andre Wentzel, Solutions Manager for Recurring Savings at Sanlam, says that this new trend has big implications for managing individuals’ finances.
“When you’re balancing full-time traditional employment with multiple part-time jobs, there is a lot to consider. Working with a financial adviser to get your financials in order will provide the right platform to build wealth throughout 2018 and the rest of your life.”
Let’s consider an example: Jean is a full-time marketing manager/part-time yoga instructor/kids’ clothing knitter/freelance writer. This is the new norm – part of a tide of savvy job jugglers (also called slashies) who now need to manage multiple and irregular income streams and secure access to essentials like credit and a home loan, while saving for key events like retirement.
Wentzel shares some personal finance tips for individuals who are balancing full-time and part-time work:
GET ON TOP OF TAXES:
- Understand PAYE (Pay As You Earn). Unless you can present your different employers with a valid tax directive, they will have to deduct tax at a fixed rate of 25% from the income you earn from freelance work. Earnings from your full-time job will be taxed in terms of the tax tables and depend on your income tax bracket. Any such PAYE deducted by your employer(s) will be paid to SARS on your behalf. When submitting your tax return, additional tax may need to be paid or a refund may be due to you based on your assessed tax liability for the year.
- owever, if you’re regarded as a truly independent contractor or the individual/corporate you’re contracting to is not registered to for PAYE, no tax deductions will be made from your freelance earnings and you will be personally responsible to make the required provisional tax payments to SARS in respect thereof. Take this into account when negotiating payment for prospective freelance work.
- You will need to register as a provisional tax payer and each tax year you will have to make provisional tax payments based on your estimated income for each of the two tax periods ending 31 August and 28 February. It’s advisable to save a portion of your monthly income in an interest-earning vehicle so you’re not set back by your two big semi-annual tax payments.
UNDERSTAND YOUR MONTHLY CASH FLOW
It is vital to have a good handle on your monthly income, budget and expenditure.
If you have a fluctuating income, save more in months when you earn more to cover for the months when you have shortfalls. Build up an emergency fund that will keep you afloat for six to seven months should work become scarce.
Keep your business and personal finances separate. Monitor your expenditure and ensure you have a budget in place both privately and professionally.
MAINTAIN A GOOD CREDIT RECORD:
If you have a full-time job and do freelance work, it is easier to access credit or a home loan, because your full-time job provides a consistent monthly income. But if you’re a full-time freelancer it can be trickier and is therefore critical to maintain a good credit record.
Any missed payment can compromise your record and potentially deem you unsuitable for future credit providers. Ensure you make all your payments timeously and consider automating debit orders when possible.
SAVE FOR RETIREMENT:
Start saving as early as possible to capitalise on compound interest. In order to know if you’re saving enough, use a retirement calculator and work with an adviser to see where you’re at and what your goal should be. The general rule is that you’ll need at least 60% of your final pre-tax income after retiring.
If you have full-time employment then your employer may offer benefits in the form of a pension or provident fund. If you choose to leave your employer to pursue freelancing full-time, you may be tempted to withdraw a lump sum. Bear in mind the harsh tax implications (only the first R25 000 is tax-free), and it becomes harder to build up sufficient retirement savings if each time your employment changes you start saving from scratch.
Wentzel says: “As the nature of the workforce changes, people will increasingly have to take full responsibility for every aspect of their financial wellness. Freelancers and people with multiple incomes should consider having regular contact with a financial adviser to foster good financial behaviour and proper budgeting.”