With layoffs and pay cuts an everyday fact in corporate America, a survey by the Freelancers Union and Elance-oDesk has found that more and more people are leaving the daily grind and choosing temporary employment as a full-time career.
“There’s no doubt someone can make a successful career out of being a temporary worker,” said Kasey Moran, CEO of TRAC Staffing, an employment service that specializes in all aspects of staffing. “People love the freedom temping offers. They can pick when they want to work, and some temps earn more per hour than someone in a similar full-time position. However, all industries – medical, industrial, IT, anything – will experience a slow period, and you have to be prepared for when this happens. Also, without a set salary, your income can vary month to month.”
And this time of the year – tax time – poses a unique challenge.
“We have a hard time filling jobs,” said Moran. “From about late January through early March – exactly when all those tax return checks come in – we struggle to fill some positions. A lot of people wait until that return is spent until they start accepting jobs again.”
The truly successfully temp takes advantage of tax time: when there are jobs waiting to be filled. Here are three financial secrets that all successful temps should consider.
You Don’t Actually Want a Tax Refund
This may seem to go against common sense, but it’s true. A tax refund isn’t the government giving you free money; it’s your money that’s being given back to you. A large tax return simply means you paid too much in taxes.
The fix could be as simple as updating the W-4 you have on file with your temp agency. Start by looking at the allowances you claim. In general, fewer allowances mean more money is taken out of your paycheck and sent to the IRS.
If you get a huge refund every year, you may want to claim another allowance or two. A big tax return can be nice, but wouldn’t extra money all year long be even better?
A Penny Saved …
Alright, you’ve got a big tax return – it’s time to buy a giant TV.
Whoa, the most successful temps are always thinking a couple of steps ahead. Sure, more and more companies are using temporary labor, but there are always going to be lean times. Remember, your job isn’t guaranteed. (Although, really, whose job is these days?)
“If you want to be prepared for lean periods, emergencies, or for that day when you retire,” said Joel Berg, a certified financial planner with Carter Financial Management, “I would recommend saving 70 to 80 percent of a tax return. Once upon a time a worker could count on social security and Medicare for when they retired, today you can’t. We don’t know exactly what those services will look like in the future, but chances are you’ll have to be older to claim them and they’ll offer less than they do now.”
Where You Save Your Money Matters – A Lot
If you have extra money you put it in a savings account at your bank, right?
“Not exactly,” said Berg. “A savings account may hold your money, but you’ll never earn much. It’s not an investment, and it is too easy to access.”
Opening an investment account isn’t just for suits living in McMansions. By opening a retirement account, or Roth IRA, you’re allowing your money to grow. And if you wait until you’re 59 ½ years old any money you earn is tax free (if the account has been open for five years or more).
“There are multiple low-cost investment options,” said Berg. “The most popular options these days seem to be ‘robo-advisors’ or traditional mutual fund companies.”
Robo advisors, like Betterment and Wealthfront, are automated investment services that use algorithms to create and monitor portfolios. These services tend to be inexpensive and easy to use. However, investment plans tend to be set with few options and, if you have questions or need help, customer service is minimal.
The other choice is going directly to a mutual fund company, such as Vanguard or American Funds. Now, these are still inexpensive options but chances are you’ll pay more than with a robo advisor. On the other hand, you’re going to get more personalized service and a wide variety of investment options.
“You have to do some homework with either option,” says Berg. “Roth IRAs have penalties if you remove your money before age 59 ½, so you need to be aware of that. And there may be other costs, like a yearly fee, upfront commissions, or administrative charges.”
Ultimately, it all comes down to being smart with your money. When you’re older you want to be able to help yourself instead of relying on your family.
“I see a lot of people in my line of business, and the ones who are most successful have a plan,” said Moran. “The jobs are out there this time of year. We want to fill them. Letting these opportunities pass by is the same as walking away from cash.”