In Malaysia, the rising number of gig workers face various challenges to investing for their future.
The rapid advancement of technology over the past decade have more than changed the way people live, work and spend their money. The employment landscape, too, has undergone an evolution, with hyper-connectivity and social media paving the way for the rise of the ‘gig economy’.
The gig economy is a labour market characterised by the prevalence of short-term contracts or freelance work done by individuals. Driven by the digital environment and popularity of apps that instantly communicate information and opportunities for work, the gig economy sees companies engaging contract workers for a temporary period rather than hiring them for permanent positions.
Simply put, the gig economy is a free market system in which companies – from small businesses to larger organisations – collaborate with independent contractors, project-based workers, part-time employees and freelancers.
This segment of the economy is gaining popularity among the younger generation, especially millennials and Gen Z, simply for the fact that it provides them with dynamic flexibility towards their time management and encourages specialisation to provide specific services in accordance to their interests or talents.
The gig economy has experienced a growth trend in recent years whereby about 25.3% of the Malaysian workforce in 2018 comprised freelancers, according to World Bank data.
“This number is growing, thanks to the rapidly available platforms which act as intermediaries between independent workers and consumers,” Wealth Vantage Advisory certified Islamic financial planner Nuraishah Hanani Abdul Ghani.
Not just about flexibility and freedom
While being a gig employee offers great flexibility and freedom in terms of working hours and the people that you work with, the downside is that gig employment does not promise a fixed salary, says Blueprint Planning licensed financial adviser Gunaseelan Kannan.
The other important implication is that the high instability of income will have a direct impact on their investment engagements, he adds.
“Gig employees should understand the investment risks, investment time horizon, and the terms and conditions on the withdrawal of investments. In general, high liquid investments should be adaptive to an individual who is active in the gig economy,” he explains.
According to Gunaseelan, the fact that gig employment does not provide Employees Provident Fund (EPF) contributions will also have severe implications on one’s retirement funds.
“Taking the initiative to make personal contributions to EPF is a good idea for gig workers as EPF currently allows investments of up to RM60,000 annually for this group of individuals.”
Moreover, gig workers are also at the mercy of market risks and fluctuating economic conditions, licensed financial adviser Gor Sheau Shuenn chimes in.
Gor further points out that the irregularity of income presents gig workers with a limited opportunity for investments as they are more likely to put their income aside for when they are in between projects.
“In addition to EPF, the lack of Socso contributions and possibly, retirement savings and medical insurance as well may leave gig employees in a tight spot during rainy days or when they retire,” he adds.
A right mindset is needed
As to how gig workers can overcome these problems, Gor reveals that having a personal cashflow budget is important. “You should be clear how much money you need to put aside for investment, how much money you can spend, and what you spend your money on each month.
“Next is an investment objective: will you be investing your money for retirement, for a property down payment, or for a college fund for your children?
“Knowing how much money is needed in the long term and breaking it down to monthly, quarterly or yearly saving targets is a good practice. Once your priorities are clear, you can then work towards that goal,” he advises.
Gor Sheau Shuenn
Wealth Vantage Advisory’s Nuraishah concurs. “Because gig workers do not receive a regular salary, millennials who are engaging in the gig economy might face problems with their instalments which can affect their credit rating if the matter goes unattended in the long run,” she adds.
Therefore, a detailed approach with the right mindset must be adopted to prevent the issue from ballooning up, which may eventually disrupt one’s financial stability.
“The very first step to achieve this is by determining and strategically splitting your finances into different categories, namely basic needs, expenses, forced savings and investment allocations.
“That way, you will always have extra money to carry forward into the next month in the event of low gig demands,” explains Nuraishah.
Diversify your income
With the immense freedom and flexibility of the gig economy comes the great responsibility of taking charge of your own financial future. And no doubt investment is probably a stressful topic for anyone involved in this segment of the economy.
Nuraishah says a good first step is to start building an emergency saving fund immediately.
“As a gig worker, millennials are more susceptible to financial hardship as compared to those who have to miss work due to an emergency.
“In contrast to salaried workers, they do not have health coverage or other forms of protection at work, and it is critical they have enough money saved up in case of an emergency, in addition to having excellent coverage of term life and health insurance,” she explains.
While it might seem like an obvious suggestion, Nuraishah suggests one of the keys to achieving financial success in the gig economy is for millennials to think like a business person and plan accordingly – and this means getting into the habit of keeping themselves accountable for their expenses.
“Diversifying their income, meanwhile, may come naturally as they delve further into the gig economy, and for freelancers, this move becomes essential to achieving financial success.
“As the nature of work in the gig economy is temporary, diversifying your income as much as possible is important to keep their financial and business plan on track.”
Despite the lack of a fixed salary, Nuraishah believes it is not impossible for gig workers to have the upper hand in terms of investment.
“In comparison to the regular working concept, millennials who have opted to join the gig economy are not restricted to the 9-6 routine which is rigid and repetitive with little to no opportunity of generating additional cashflow beyond what had already been agreed upon.
“Thanks to the dynamic concept practised in the gig economy, gig workers are their own managers, and they alone can decide where their money ought to go to. For this matter, it is very crucial that they have a clear financial goal, which needs to be practical and yet, feasible to achieve.