Is delivering for gig economy apps like Doordash, Uber Eats, Instacart and others a good way to pay down debt and complete the baby steps on the Dave Ramsey program? What about doing rideshare for Uber or Lyft? While it can be a great way to make some extra money, delivery gigs can have some costly traps as well.
I've delivered for several delivery platforms for nearly six years, much of that full-time. It has been a good experience for me. But if you're not careful, you could end up worse off for doing so.
I'll share my perspectives and experiences on why it's a great way to make extra money, and on the things you have to look out for. We'll look at the good, the bad and the ugly of gig work in delivery and rideshare, and how it fits into the Dave Ramsey plan for financial freedom.
In this article I'll talk about:
- Dave Ramsey and his baby steps
- Why delivery and rideshare can be great for the Dave Ramsey plan
- The dangers to look out for
- My advice for people thinking about delivery and rideshare to help with their baby steps
The Dave Ramsey Baby Steps
I'm not affiliated with Dave Ramsey in any way. Other than any commission I might get from Amazon if you purchase his Total Money Makeover book, I don't receive any commissions or pay from Ramsey Solutions. I've just been a fan of his for nearly 25 years (yes, I know that dates me just a little).
In case you're not familiar with Dave Ramsey, Dave has been on the radio for years offering common sense and practical advice for getting control of your money. I've personally been helped by his advice and from taking his Financial Peace University course. Some of his concepts and advice have inspired some of the information I provide on this site.
Dave teaches a 7-step process for getting control of your money that he calls Baby Steps. Those steps include:
- Save $1,000 for a starter emergency fund
- Pay off all debt using the debt snowball
- Save up a fully funded emergency fund (3-6 months expenses)
- Invest 15% of income in retirement
- Save for your children's college fund
- Pay off your home mortgage
- Build wealth and give
I know many disagree with some specifics of Dave's advice. However, when I was drowning financially, listening to Dave helped me get above water.
According to Dave, there are two ways to dig out of debt: Spend less, and make more. As he says it, when you are digging out of debt, sometimes you need a bigger shovel (more money).
That's where Doordash, Uber, Lyft, and Instacart come into the picture. In fact, Dave's site has a list of 27 side hustle ideas, and rideshare, meal delivery, and grocery delivery are the top three ideas.
Are delivery and rideshare the best ways to take on the baby steps? We'll talk about the pros and cons next.
Pros of doing Delivery and Rideshare for your baby steps
There are several reasons that gig economy work such as delivery and rideshare can be great ways to build your emergency fund, pay down debt, or add extra money for investments. I'll cover these briefly, but you can read more about why I think Doordash and other delivery work is a great way to make money.
Here are a few reasons:
1. It's easy to get started
With many of these delivery and rideshare companies, you can be out making money within days of signing up. I've delivered for some places the same day that I signed up. There's no interview process. Generally, if you can pass a background check and have a good driving record, you can be on the road making money very quickly.
2. Delivery and rideshare are extremely flexible
When you deliver for Doordash, Instacart, Uber Eats, Grubhub and others, or when you do rideshare for companies like Uber and Lyft, you do so as an independent contractor. These are on-demand services. That means that you can just turn on your app when you're available, accept delivery or ride offers, and make money. This allows you to earn extra money on your own schedule.
3. You get paid quickly
Most gigs will pay you the first part of the following week for your work. Some may pay you the next day. Doordash, Uber and others offer a debit card that can be funded immediately after you provide services.
4. There's little to no start-up cost
You generally need two things to get started: a car and a smartphone. You may not need a car, as you can delivery on foot or by bicycle in some areas. Most people have those things.
5. It's easy to walk away
If it doesn't work for you, or you're ready to move on to bigger things, it's really easy to walk away. You just quit logging into the apps. There's no need to provide a notice. You could pause for several weeks and log back in like nothing happened. You don't answer to a boss, and you don't really have any kind of commitment.
6. It can be a great way to prepare for other ways to make money
I call it a gateway drug to being an entrepreneur. Technically, you're running your own business when delivering or providing rides. You set your own schedule and determine the best methods and strategies to be profitable. You have opportunities to succeed and fail, and you can use those to prepare you for other ways to go into business for yourself. I've found that my time in the car gives me opportunities to listen to podcasts and audio books as training for other business opportunities.
The traps: Why delivery and rideshare could be a mistake
In some cases, delivering for Doordash or providing rides through Uber could be the worst thing you could do. Instead of helping you get out of debt or get ahead with your money, there's a risk of being worse off when all is said and done.
In my several years of providing business advice and information for independent contractors, I think there are a lot of people who are going backwards in the gig economy and don't even realize it. Here are some warnings you should think about. I have a more in depth article about the dangers of delivery and rideshare if you want to read more.
1. It's possible to lose money doing this
Remember that these are independent contractor positions. You will not be an employee of Doordash, Uber, Instacart, Lyft, Grubhub or any of the others. That means that not only is there no wage guarantee or protection, it's possible to lose money. That danger is even greater if you use your car for these gigs as the cost of driving for rideshare and delivery is greater than many realize.
2. You may be uninsured while working.
Most insurance companies will refuse coverage if an accident happens while transporting people or items for pay. In other words, your personal insurance is voided whenever you're delivering or providing rides. Some companies provide insurance, but there are often gaps. Most of the delivery companies do NOT insure you or your car.
We write more about whether Doordash provides insurance.
If you listen to Dave much at all, you know that driving around uninsured does not fit his plan. If you get into an accident, you may be paying for the damages out of pocket. That's why it's critically important you have the right insurance. The cost of upgrading your insurance may make delivery or rideshare less than worth doing.
3. You WILL wear your car out.
When you put a lot of miles on your car for delivery or rideshare, the wear and tear on your car is inevitable. Gas is only a small part of the cost of driving. There's a reason the IRS lets you write off 68.5 cents per mile (2023): It costs a lot mor than just the price of gas to drive.
I refer to a car as a credit card on wheels. Every mile creates a debt. Here's what I mean: you will pay for those miles later down the road, either in car repairs, replacin items that are worn out, or when those extra miles mean less money when you sell or trade it.
You can make some money with your car, and not pay much out of pocket immediately. But those costs will catch up to you. If you're trying to dig your way out of debt, the worst thing that could happen is to have your car crap out on you.
4. You can get into big tax trouble
I may sound like a broken record for each time I remind you that you'll be an independent contractor. However, it's that important that you understand the ramifications.
In this case, it means that you're on your own for taxes. There is no income tax withholding with Doordash, Instacart, Uber and others. YOU have to set that money aside and pay it yourself at tax time.
It gets worse: There's also this matter of self-employment tax. That's the independent contractor's version of social security and medicare taxes. Self-employment tax alone is 15.3% of EVERY DOLLAR you earn. You pay that regardless of your standard tax deduction. This is the one item that gets more gig workers in tax trouble than anything else.
5. There are no employee protections for delivery and rideshare contractors.
There is no minimum wage. You are not insured by these companies. You have no unemployment benefits, no health plan, no vacation pay, no paid time off. There's no such thing as FMLA, no sick pay, anything like that.
You're entirely on your own.
When you sign up with any of these gig economy companies, you agree that you're providing services as a business, and not as an employee. You are signing away any employee rights or protections.
Finally, these companies can just terminate your contract, and you have no recourse. They aren't required to keep working with you. Because you're not an employee, there's no due process. The opportunity can just go away
6. Gig companies often exaggerate earnings.
Say Joe goes out and delivers for Doordash for three hours and makes $36. After accounting for the cost of driving, he has $24 left over. Doordash might claim that Joe made $20 per hour.
How does this happen? When gig economy companies talk about what drivers make, they measure only what they call active time. In other words, they're measuring the rate of earnings only during the time they are actually providing a service.
Long waits in between orders aren't counted in their earnings claims. If Joe waited a total of an hour and twelve minutes between his orders, Doordash is only measuring the hour and forty eight minutes that Joe was active, not the entire three hours. While Joe was only left with $8 per hour after expenses, Doordash claims it was $20 per hour.
My advice for those thinking of rideshare or delivery for knocking out their baby steps
There are a lot of ways that Doordash, Uber, Lyft, Instacart and others can help you with your baby steps. There are also some real dangers, like those listed above.
Should the dangers scare you away? Maybe.
As I write this, I've been doing delivery for nearly six years. Much of that time was full-time. In my situation, it has worked really well. I have no regrets and wouldn't change a thing about it.
I think there are some very real things you can do to ensure your success if you do decide to go forward with delivery and/or rideshare:
1. Think of it as a business, not a job.
A lot of people will tell you that Doordash, Uber, Instacart, and others are exploiting workers by using independent contractors instead of hiring employees. In my opinion, those companies are cheating the system. They're trying to get employees for the much cheaper independent contractor price.
However, I think there's one way to avoid exploitation: Think of this as a business, not as a job.
Here's the reality: Any time you start a business, you forfeit the protections that go with employment. You have greater risk, but can have greater reward. The trade-off here is that these companies can not legally control your work. They can't manage you like an employee. That gives you a lot of freedom. Here are some quick thoughts as to what it means to treat this as a business:
- Think in terms of profit, not pay. Your earnings are NOT what you get from Doordash, Uber or any of the others. They're what's left over after expenses.
- Think of Uber, Instacart, Doordash and others as your customers, not your employers. It's a very different mindset, but also very freeing.
- Delivery and ride offers are bids for services, not assignments from the boss. That means you have the right to turn down the offers that don't make sense
- Think of everything you do as a business decision: Does it make business sense for your bottom line?
2. Take money out for your car, expenses, and taxes before you use any of it for your baby steps
Remember that many of your car costs come much later. If you prepare for that ahead of time, you'll stay out of trouble. Also remember that if you're making a profit, you WILL pay taxes on that profit. Set money aside as soon as you get paid for these two things.
Here's what I do:
- Each week I put 40 cents per mile driven into a car fund. That's what I determined my cost per mile is for my car. When I buy gas, get the oil changed, or do any work on my car, that comes out of that fund.
- Each week I estimate my profit (Money received times 68.5 cents per mile). I put a percentage of that aside for taxes. That money is immediately moved to a different bank account so I cannot touch it, and once a quarter I send that in to the IRS as prepayment for taxes.
I've had people object to these ideas. They say they don't have enough money left after doing those two things. Here's the thing about that: If you don't have enough money left after that, that's a good indication that you're not really making as much as you think. It can be a great way to determine whether this is the best way to make money for you.
3. Measure your earnings as profit per hour
I mentioned earlier the necessity of thinking in terms of profit. Think of what's left over after the cost of providing your services, NOT what you were paid by delivery companies.
The biggests lie in the gig economy is the advertisements that tell you what you an earn per hour. When gig companies say what drivers average per hour, they're talking about gross pay. Those numbers don't take the cost of doing business into account.
You have a certain amount of time in which you can make money with these companies. The best way to determine how effective that time is is to first determine your profit, and then calculate that profit per hour.
Here's my formula: Gross earnings minus 40¢ per mile, divided by the hours worked.
Your cost per mile may differ, but there's a good chance it'll be close to that. If your car is newer or more valuable, it's probably higher than that. Even electric vehicles will be close to that (or more) once you take into account wear and tear and loss of value from driving.
If I made $200 in eight hours, and drove 200 miles, that comes out to $120 profit (200 miles at 40 cents = $80.00 cost). $120 over eight hours is $15 per hour.
Profit per hour is the only real measurement you can use to reasonably compare with other options for making money.
4. Get lots of customers
My best advice is, do NOT only sign up with Doordash, or only work with Uber. Don't get into an employee mindset with these companies. Remember that according to THEIR terms, you're providing services as a business, not as an employee.
That makes each company your customer.
I'm currently contracted with eleven different delivery companies. I look at each offer for a delivery on an offer by offer basis, and take the offers that make the most sense for me.
This gives me a lot more options, so that if Doordash isn't paying well, I might pick up some catering offers or maybe I'll make more with Uber Eats.
5. Be real about what you're making, and ask yourself if it's enough
A significant number of gig workers, once they get real with what they're really earning, will find out they're making less than minimum wage.
Determine what your time is worth. Are there other opportunities or better ways to use your time?
Pay close attention to what it really costs to provide rideshare and delivery, and decide if it's the best use of your time when it comes to knocking out those baby steps.