Many people have a side hustle to generate extra cash flow. Whether a creative outlet or building block toward an entrepreneurial dream, landing a side hustle has never been easier in today’s “gig economy.” From ride sharing to pet-sitting to renting out a room, a crafty and driven individual can get up and running with a second gig in mere hours.
But a successful side hustle takes time, energy, and the right financial planning. Maximize your added income with these financial tips.
Allocate Your Income
The most exciting part of a side hustle is the possibility of generating significant income. The total amount of money you make is defined as revenue, and your income is what’s left after expenses. Think about it this way: revenue – expenses = income. If your expenses surpass your total revenue, therefore leaving you with no income to take home, you might want to explore other options.
With strategic allocation, a gig can become a valuable and highly lucrative source of income. Think about where your additional paychecks result in the biggest benefit. Allocating your money effectively can lead to your side hustle’s sustainable growth.
- Reinvest. If you run a business separate from your side hustle, reap numerous benefits by reinvesting your side income back into your primary business. This might include buying a new computer, updating your website, or even poising yourself for growth.
- Save. Many people use the money to augment their emergency fund, a retirement account, or a dream vacation.
- Pay off Debt. Having an additional income may allow you to pay down debt quicker and avoid costly interest payments.
Money from your side hustle is taxable, too. While self-employment has its benefits, the taxes can get complicated, especially when you have multiple sources of income. Be sure to consult with a Certified Public Accountant (CPA). It’s also prudent to prepare for your taxes ahead of time by keeping tabs on your self-employment or side gig-related expenses.
- Pay Your Dues. It’s wise to continually allocate some money from your additional income to pay the IRS when the time comes. Generally, freelancers should set aside around 20 to 30% of their side-hustle money for taxes.
- Keep Receipts. Some of your expenses are deductible, so you should keep track of business-related expenditures to ensure you’re saving the most money possible when taxes are due. This might be tricky if your side hustle includes tips such as bartending or babysitting, so be sure to record the source of your income anytime you make a deposit.
- Get Help if You Need It. If you’re feeling overwhelmed, a financial planner or CPA can help you organize your taxes and manage your finances moving forward.
Keep your Finances in Order
One of the primary challenges of managing a full-time job and your side hustle is staying organized. Balancing the responsibilities for both doesn’t only require excellent time management, but also sound financial management. By carefully recording income and expenses, you’ll know exactly how much extra income you have to spend or save.
- Don’t Procrastinate. Put your best financial foot forward right from the start. Maintaining a successful side hustle requires foresight and organizational skills. Apps like Google Sheets and Freshbooks can help with easy record keeping, invoicing, and allocation.
- Consider Opening a Second Account. Opening another checking account exclusively for your side hustle sets a clear boundary between your job and personal expenses. This visibility makes it easier to keep track of how much money is coming in, what’s going out, and how to file taxes when the time comes. Having an account specifically for your side hustle can provide a more accurate view of your total revenue, expenses and income.
- Know When to Ask for Help. There are many professionals – from financial planners to accountants – who can help you lay the groundwork so you can start off strong and not have to worry about whether or not you are following the rules and maximizing your side-hustle efforts.
- Your side hustle can result in opportunities to save, expand your skill set, and get creative. But, as with any job, it’s imperative to set aside the time to organize your taxes. With the right money mindset, plan, and dedication, your side hustle is more likely to flourish.