- A side hustle can help you boost your income and express your creativity
- Start with your goals and work backwards from there
- When spending money on your side hustle, let reality, not dreams, drive your decisions
Some people start a side hustle for an extra source of income. Others indulge a passion, or hope to grow it into a full-time living. Whether you sell macrame on Etsy or deliver for DoorDash, a side hustle can be a great way to boost your income. Here’s how to start your side hustle the right way.
Begin at the End
It may seem counterintuitive, but the best way to build and manage your side hustle is to start with your goal(s) and work backwards. Understand why you’re doing it and what you hope to accomplish.
Is this fun and a little extra income on the side, or for your own personal growth and education? Is it a financial safety net? Is it your first step towards working for yourself? Are you building a cash cushion, paying down debts, covering your everyday expenses?
A small side hustle may wind up being more successful than you imagined. Conversely, you may run into insurmountable hurdles trying to get a business off the ground. But most of the time, defining your goals is the best way to start.
The Three Types of Side Hustles
Not all side hustles are created equal, and each has its benefits and drawbacks.
- Gig Work: Infrequent, one-time types of events. This is the life of many amateur musicians and other performers; a sideline while the day job provides most of the income. The payoff is a little extra cash, but often the real goal is to have fun and be creative.
- “Franchise” Hustles: This is when you join someone else’s network, such as Uber or Grubhub. The upside is that someone else sends you business, and you generally can work as much as you wish. You’re working for a known entity, so you don’t have to prove your credibility or explain who you are and what you’re doing. Franchise hustles are the most popular, because they’re the easiest to start and you’re earning income right away. They can be flexible and, within limits, you can choose when and how much you work. The catch is you may not generate tons of extra income.
- Entrepreneurial Side Hustle: This is true self-employment. The good news is, you’re on your own. The bad news is, you’re on your own. How much you work and earn is up to you, but there’s no safety net. Many full-time self-employment gigs have started this way. Our advice here is to generally build your entrepreneurial hustle gradually, learn as you grow, be OK with failure, and then launch to true independence when you’re prepared financially.
Be Realistic Out of the Gate
Don’t quit your day job, at least right away. Make sure you know what you want out of the gig or side hustle and start small. It’s okay to dream big but let reality, not dreams, drive your initial decisions.
Gigs and side hustles don’t always pay off right away. It may take you a fair amount of time to become known, build a reputation, and get customers. Understand how much time it will take to get your side hustle up and running. If possible, start small and grow into a bigger business. Don’t make big decisions right away, and learn from your mistakes while your side hustle is still small.
Funding Your Side Hustle
Never take on “hustle debt,” unless you can comfortably afford it and don’t expect your side hustle to pay back your initial debt for a long time, if ever. This goes double if your side hustle involves paying someone to get your business going, such as a real estate investment course with “practically guaranteed results.”
Watch your costs carefully. Don’t make the mistake of treating an expense as an investment, unless your research shows you have a good chance of building a profitable income stream. Make sure you know the amount of time and money it will take to get going and what impact that will have on your overall financial plan. Thinking of starting a podcast? Instead of starting with the $3,000 mic set-up, try the $100 mic, get up and running, and then progress from there.
Don’t Forget About Taxes
The factor many budding entrepreneurs forget is taxes. No matter what kind of hustle you start, the federal and (in most cases) state governments will want their cut. In most cases, paying quarterly estimated taxes is the best way to avoid potential tax penalties, but talk to your accountant. Needless to say, keep receipts and other records for every expense and every dollar of income. If the IRS has questions or chooses to audit you, you’ll be glad you have them.
Make it Part of Your Plan
No matter what your goals are for your side hustle, it’s smart to understand how it fits into your overall financial plan. Before spending money to get your side hustle going, evaluate how it will impact other areas of your financial plan. Will it take away from other goals? Will it mean dipping into your emergency fund? Will it affect your ability to deal with any unforeseen financial emergencies?
The goal is to minimize financial risk while maximizing personal reward. If you're interested in learning more about building a successful side hustle or how your current hustle integrates into your larger financial plan, speak to a CFPⓇ Professional at Facet Wealth. We're always available to talk about your goals and how to help you reach them. You can also check out our Lunch & Learn about side hustles.