I read an article recently about how popular the 'gig economy' is becoming in Colorado, but realized it didn't mention 3 big problems with the notion 'gig economy.' Many gig workers are not focused on created long-term wealth, and the 'gig economy may take great advantage of those workers.
First, the gig economy is growing in popularity due to the demand for a flexible schedule, the increasing ability technology has to provide consumers the 'just in time' service or product, and the increasing number of Americans wanting to get a piece of all these marketplaces that allow you to earn extra income. Uber/Lyft, and Airbnb are some of the most popular ones.
If you haven't signed up, here's some credits for you:
$40 Airbnb Credit
$25 Turo Credit
$5 Lyft Credit
Make sure to use those promos because if you're not a careful host/driver/gigger, you may realize some losses or not reach the original goals you set out when you went out to 'make some extra income.'
1. The word "gig" implies trading time for money.
According to sources like 5280 Magazine, it includes both airbnb hosts and uber / lyft drivers as 'gig workers'. However, there's a big different between those two. One is a real estate investor and the other is a private driver. The real estate investor makes passive income after giving a guest access to the property once. The investor is growing long-term wealth; on the other hand the private driver is being paid once per ride, once the ride is over, there is no additional income, yet the car is worth less over time due to wear and tear, higher mileage, and the driver's time.
At least the driver's may have accomplished their goal of a more flexible schedule. Needless to say, I recommend using your time to explore Airbnb, or Turo (airbnb for cars) if you want to get started in the gig economy. If you're scared about letting a stranger take your car out like a rental, read my blog post My Lexus was totalled on it's 2nd trip on Turo. I promise it's a good read.
2. Giggers likely do not track their time or expenses.
How many Uber drivers do you know who can tell you their estimated depreciation this month, taking into account the additional miles put on their card? How many can tell you their expected average monthly maintenance and repair costs for this year? My guess is maybe a few. Less than 25%.
I will admit, I'm an airbnb host (become an airbnb host here), and at the end of each year, I cannot tell you how much in utilities extra guests cost me, but at least airbnb makes it easy to know how much my guest paid in cleaning fees. However, sometimes I pay less and sometimes I pay more than the actual cleaning fee my guest pay. I might be losing a small amount of money there without knowing. Judge me.
3. It's about making money today, not long-term wealth.
Great, a new Uber driver has created a flexible work schedule, but now has additional expenses that will be realized later. (selling a higher mileage car instead of a lower mileage car). And after all of that there is nothing to show for it. Maybe if you pay your car off that's something to show for it, but your cars value depreciates when you put more miles on it and have more wear and tear both in the interior and mechanically.
Here's what ridester.com says, "The other costs are unseen, unfelt, and for all practical purposes, invisible to the driver. They may not have to pay for then for several years, so on a weekly and monthly basis, drivers may be completely unaffected by them. However, the invisible costs WILL catch up with them eventually, because they are in fact very tangible and real."
I encourage you to read that entire article if you are or are considering to be an Uber/Lyft driver.
However, the biggest reason is what has kept my investment strategy to invest in appreciating assets, and voice depreciating assets. Both have expenses to you better pick the one that makes you more money long term.
Again, trying a shot at an airbnb host will give you a better chance at actually making long-term wealth. Plus, you don't have to own a piece of real estate to try it. Just have an extra bedroom or even couch if you are that savage or if you live in New York lol.
For fellow entrepreneurs in Colorado, here my recommendation: Take your first risk by renting a 2 bedroom apartment instead of a one bedroom and see what you can do with it. It's much more of a commitment than being a private driver, but worth it if you have the time and risk tolerance to deal with it. Try being an airbnb host, and then start investing in real estate after that.
If you'd like to read more of my thoughts on assets and entrepreneurship, I encourage you to read one of the following:
Assets and Entrepreneurship: Automotive
Assets and Entrepreneurship: Real Estate
Assets and Entrepreneurship: Online Assets
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