15 Apr Why a Side Hustle Won’t Solve All Your Money Problems
Hate to burst your bubble, but a side hustle won’t solve all your money problems.
Yes, it’s easy to sell your time, talent, rooms in your house, and stuff on the numerous gig platforms.
Yes, with wage stagnation, rising healthcare, and other costs, it makes sense for many to take on a side hustle.
And, yes, the idea of making extra cash and being your own boss is alluring.
But many side hustles come with a cost.
If you don’t plan accordingly, understand your true costs, and weigh the pros and cons–before you dive in–then you may be in for a world of hurt.
Before jumping on the side gig bandwagon, there are a number of considerations to take into account.
From costs associated with starting up and maintaining a side hustle to potential tax consequences, it’s important to know what you’re getting into before you start. Keep reading for 5 things to keep in mind when starting a side hustle.
#1 It Can Cost to Start a Side Hustle
One of the top reasons your side hustle won’t solve all your money problems boils down to this…
Not all side hustles are created equal.
The side hustle you pick could mean the difference between making extra cash or breaking even.
And, if you don’t consider the start-up and ongoing costs before you dive in, your new gig might cause you to lose money.
We’re not telling you this to discourage you–quite the opposite.
Knowing your expenses upfront will help you…
- Make better decisions about the side hustle you choose.
- Set realistic expectations.
- Budget properly.
There are many gig platforms that have application fees and commissions that can cut into your rate.
For example, TaskRabbit takes a 15% service fee on all jobs. If you factor in taxes and travel expenses, you might only net $60 on a job that pays $100.
If you don’t plan for these expenses before diving in, you’ll be left with less cash than planned.
Other side hustles, such as starting a blog or a tutoring service, can be expensive to start–depending on how much you invest in your online presence and marketing.
In fact, a study by The Hustle found that the first-year cost of an entrepreneurial side hustle was more than $16,000!
It’s important to note the costs associated with starting and maintaining a successful side hustle aren’t the issue. It’s the lack of planning and understanding upfront–before you dive in–that can be costly.
Side Hustles That Cost to Get Going and Maintain
- Airbnb hosting. While there is potential to make good money with home rentals, there are costs to consider. With Airbnb, your income may be more sporadic and less dependable. There are no guarantees your home or room will rent regularly. To be competitive, you will need to fully furnish your home and possibly redesign for your marketing photos to stand out. There is also a 3% fee for processing payments.
- Ridesharing. While free to get started, Uber and Lyft drivers have out-of-pocket expenses. Along with giving a cut of what they make to the rideshare company, drivers must pay for gas, additional car maintenance, and rideshare insurance.
- Blogging. To draw in readers, blogs need to be user-friendly, filled with valuable content, optimized for SEO, etc. While some website design platforms have free options to build your own blog, investing in things like a professional camera, a graphic designer, or paying for traffic can quickly add up to a lot of money.
Side Hustles That Don’t Cost Money
- Food or grocery delivery services. With delivery sites like Instacart and DoorDash, you can earn money without it costing you a cent. The benefits are that you work on your own time and it’s flexible for balancing your full-time job. You’ll earn at least a standard fee for each delivery plus tips. Bonus: you don’t have to worry about keeping your car super clean for passengers.
- Selling items online. A sure way to make cash fast is to sell your own items online. If you’d like to ramp it up, you can even do it professionally for others and collect a small commission for each sale. The only requirements are to take quality photos and write a good description.
- Dog walker. For dog lovers who also want to get some exercise, this is a no-cost side hustle. There are several dog-walking apps like Rover and Wag! that will help you start your business for free.
#2 Side Hustles May Impact Your Full-Time Job
If you’re like most side hustlers, your goal is to keep your side hustle separate from your day job.
But, if you’re not careful, the two can overlap, and potentially cost you your job.
And, let’s face it, your side hustle won’t solve all your money problems if you get fired from your main income source.
According to CreditLoan.com, one in five side hustlers admit to working on their part-time side hustle while at their primary job.
Even if you’re answering emails or texts here and there, having a side hustle will take attention away from your current job. It just will.
If you’re not careful, you will feel stretched thin from working additional hours. And your creative energy and productivity may fade, resulting in being passed over for a promotion.
When this happens, it lessens your earning power.
When considering a side gig, make sure that your full-time job won’t suffer. Take stock of your time availability, and be realistic.
Finally, ensure that your side hustle doesn’t violate any employment agreements or policies.
#3 Extra Money Is TOO Easy to Spend.
It happens to the best of us. We get extra cash in hand and feel the need to spend it.
What good is it to work an extra job only to spend all the extra income we’re bringing in?
This defeats the purpose of a side hustle.
Here’s the best piece of advice we could give you…
If you don’t have a plan on how to spend the extra money you make, you’ll have a hard time meeting your financial goals of saving or paying off debt.
Without careful planning and commitment, it will be extremely difficult to achieve your objectives.
Here are a few tips to help you achieve your financial goals…
- Budget carefully. Determine a purpose for your side hustle income. Paying off your student loans, wiping out credit card debt, building your emergency fund, or saving for retirement–whatever your reason–figure out how much money you need to meet each particular goal and the date you want it by. For each goal, divide the total amount needed by the number of months until your goal date, and that will give you the amount you need to save each month. Make sure to review it each month and track your progress.
- Keep accounts separate. Create a separate bank account for any extra income so it doesn’t comingle with your full-time earnings. This way, temptation to splurge is curbed. If the goal of your side hustle is to save money, open a high-yield account on SmartyPig or through your local credit union.
- Track everything. If you aren’t tracking all the extra money you’re bringing in and the money you’re spending on your side hustle, then you’ll never get a true sense of whether the effort you’re putting in is paying off. A spreadsheet or an online app like Mint can help keep your money in order.
#4 A Side Hustle Could Increase Your Tax Bracket
Failure to take into account tax implications is another way a side hustle won’t solve all your money problems.
In fact, if you don’t plan for taxes from your side gig, it can cause more money problems than you started with.
Experts recommend saving 25-30% of your freelancing or side hustle gig income for tax purposes.
You may find that you do not need that much, but it is always better to be safe than sorry in case you get a large tax bill next year.
If you earn enough from your side hustle to create a $1,000 tax liability, consider paying quarterly estimated taxes.
If you have a full-time job, another way to avoid a fat tax bill at the end of the year is to adjust your W-4 to withhold more money from your paychecks.
The downside of doing this is that your side hustle income may fluctuate from month to month and your tax payments are less likely to be accurate. Check out this IRS Tax Withholding Calculator to estimate how much extra would need to be withheld from your paycheck.
There is also the chance that your earnings may serve to bump you into a higher tax bracket, wiping out some of your financial gain.
Which is why we recommend you speak with a CPA or tax professional to see how your side hustle income may affect your tax liability next year.
#5 Side Hustles May Cause More Household Expenses
There certainly are plenty of advantages to bringing in extra money. However, there’s often a price to pay.
For example, taking on the added responsibility of a side hustle can mean less time with the family.
Depending on how many extra hours you work, your time away from the family could lead to additional childcare costs for daycare or babysitters. And any parent knows childcare is not cheap!
If you’re a work-from-home side hustler (online tutor, freelance graphic designer, or virtual assistant), you’ll be at home more.
This can translate into higher electricity bills and various other expenses for your home office.
If you aren’t careful and plan accordingly, a side hustle won’t solve all your money problems.
But, if you know your costs and are realistic about your expenses, you’ll be well on your way to meeting your financial goals.