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Feb 06, 2024
Individuals who chose to embark on a rideshare driver journey are becoming an increasingly important part of the workforce. Society is relying more and more on rideshare programs for doing things like making appointments, getting home safely after a wild night out, and for navigating a strange town.
In 2015 it was estimated that 14.6 million Americans were self-employed and that number is constantly increasing. The mantle of self-employment covers business owners, ride-share drivers, farmers, freelance writers, Etsy shop owners, and more.
Self-employment as a rideshare driver isn’t for the faint of heart. While many enjoy the freedom of being their own boss, most who consider themselves self-employed also admit that they face many challenges. For most, the biggest challenge is figuring out how to manage their money.
Why Money Management is so Difficult When You’re a Rideshare Driver
The biggest financial headache you’ll face as a member of the self-employed workforce is not knowing how much money you can expect to make from one week to the next. It doesn’t matter if you own a restaurant, are part of a rideshare program, work as a freelance consultant, or are an author, it’s difficult to calculate how much money you’ll generate each time you sit down and work. Not knowing how much money you can count on coming in from one day to the next makes putting a budget together difficult.
The second biggest financial challenge you’ll likely face during your self-employment as a rideshare driver is taxes, or more specifically, not being properly prepared when the government demands their share of your income.
The good news is that there are some self-employment money management tips that will help you weather the financial storm and keep your head above water while you enjoy all the perks of being your own boss.
Rideshare Driver Money Management Tip #1-Don’t Leap Into Self-Employment Without Creating a Savings
If you’re contemplating becoming a driver for Uber or Lyft, you want to do everything in your power to build up a decent amount of savings first. Carefully track your personal expenses for a month and determine how much money you need to have so you can survive approximately six months without any viable income.
The good news is that you don’t necessarily have to put off your self-employment as a rideshare driver dreams while you save money. While you’re building your savings, start putting your self-employment plans into action. This gives you a worry-free time period to build your brand, gauge what your expected income will be once you’re self-employed full time, and an opportunity to add even more money to your savings account.
Once you are ready to leave your day job and chase your self-employment and rideshare driver dreams, don’t tap into the money you’ve saved. It’s for emergencies only.
Ride-Share Driver Money Management Tip #2-Keep Setting Aside Money for the IRS
Don’t assume that just because you’re self-employed as a ride-share driver that the IRS won’t want their share of your income. They do and it’s a big share. The self-employed money management rule of thumb is that you should set aside 35% of everything you make for taxes. That doesn’t mean you’ll have to pay all 35% to the IRS, it’s likely that your accountant will find deductions that lower the amount, but if you set aside 35% you’ll be covered. Make sure you put the money you’re saving for taxes in a separate account so you don’t accidentally spend it.
Another IRS issue to keep in mind when you’re self-employed as a rideshare driver is that you’ll likely be expected to pay your taxes quarterly instead of all at once.
Ride-Share Driver Money Management Tip #3-Create a Budget and Stick to it
Sit down every six months or so and create a budget, both for yourself and your rideshare driver business. The budget needs to include any expected big one time expenses, your household expenses, and routine expenses such as watercraft insurance. Make sure you create enough room in the budget for emergency expenses. Stick to the budget no matter what. If, at the end of the period, you have additional money left over because you earned more, add it to your emergency or retirement fund.
Ride-Share Driver Money Management Tip #4-Keep Setting Aside Money for the IRS ‘
Keep a record of your expenses, particularly your rideshare driver business expenses. Not only does this record allow you to stick to the budget you’ve created for yourself and see how your business is doing, but it will also come in handy if you’re ever audited. In addition to keeping a written record, you should also keep all of your receipts handy.
These four money management tips for rideshare drivers are just the tip of the money management iceberg. Other self-employed money management practices you should embrace include:
Actively reducing your debt load
Maximizing tax-deductions
Keeping business and personal expenses separate
Investing in your retirement
Smart money management is just one of the things you need to think about before becoming a rideshare driver. You also need to know all of your legal rights, which is why it’s important to contact us for information about your relationship with the company you’re driving for, how to handle clients, and every other legal issue that crops up while you’re earning a living as a rideshare driver. We’re the legal team that knows everything there is to know about th legal rights of rideshare drivers.
Resources:
https://www.fool.com/the-ascent/banks/articles/4-financial-challenges-being-self-employed-how-overcome-them/
https://money.usnews.com/money/personal-finance/articles/2015/04/17/5-ways-to-avoid-raiding-your-emergency-fund
