We live in the age of the side hustle. It’s now commonplace to have a part-time job or to turn a hobby into a side business. Side hustles are a great way to make a little extra income each month.
But when you have money coming in from different sources, managing your budget can become trickier. Here’s a look at some ways to keep your finances in check when you’re putting in that extra work.
1. Keep Good Records
The most important thing to remember when you have multiple sources of income is to keep track of what’s coming in and from where. Whether you write it down by hand or track it digitally, having records of your income will help you see your totals.
Similarly, keep track of what’s going out (expenditures), too. From your bills to what you spend on discretionary purchases, it’s important to know where your money is going. Keep a log of when your bills are due. Put your numbers in side by side — what’s going in and what’s going out — to compare.
Having extra money coming in from a side hustle without keeping track of it can trick you into believing you can spend more than you should.
If you’re spending more than you have coming in, that’s a problem. But even if you’re not, the numbers may be closer together than you realize or feel comfortable with. Having the numbers in front of you will help you see your money habits and hold you accountable.
2. Plan for the Worst
If you have a side hustle that pays inconsistently, budgeting can be especially tricky. What you’re making from your side job one month may look totally different the next month. This can make it tough to plan how to manage this money from month to month.
In some instances, such as with a seasonal business, you may be able to forecast which months you’ll make more or which months will be lean. But with other side jobs, your income may be even less predictable. In this situation, it’s important to consider the worst-case scenario.
Figure out what your lowest-earning month was and budget as if that’s what you'll make every month. By planning for the worst, you’ll ensure that you won’t come up short. And moreover, you’ll be pleased in the months when you make more than you planned for.
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3. Know the Tax Implications
A lot of side hustles involve getting paid in cash or by check. You may hear of individuals who purposely do business in cash to avoid paying taxes on their income. However, legally, you're still required to pay taxes, even if you’re earning in cash.
If your employer doesn’t provide a W-2, you will need to request a 1099 form. You'll still need to report these wages on your tax forms, even if you're an independent contractor.
Because you aren't having taxes deducted from your income, you'll owe taxes come the spring. You might even need to pay estimated taxes once per quarter. Therefore, make sure that you're setting money aside from your earnings to pay at tax time. Research your tax bracket to adequately anticipate how much you will likely owe.
4. Take Advantage of the Leftovers
Most likely, you’re working a side hustle to supplement your regular income.
In some cases, this will mean you have money left over after your expenses are taken care of. Put this extra money to work for you!
You have a lot of options. If you have student loan or credit card debt, consider making extra payments to lower your balances. If you’re saving money for a house or other big purchase, put some away toward that. You could also consider bolstering your emergency fund. Or you could put a little extra into your retirement savings. Or you might want to save up for something special, like a vacation. There's no right or wrong way to use your extra money.
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5. Treat Yourself
If you’re working a side hustle in addition to a regular job, chances are that you’re working hard. You deserve to treat yourself every once in a while for how hard you work. If you have extra money left over after all your expenses are taken care of, allow yourself a treat.
Just be cautious when treating yourself. You want to avoid overindulging or going into debt. You also want to make sure that you don’t make a habit of overspending. When you’re working a lot, you might fall into the mentality that you’re able to splurge more frequently.
How to Side Hustle the Smart Way: The Bottom Line
Side hustles are a great way to supplement your income if you have the time. But having extra money coming in can certainly make things more difficult to manage.
If you’re not adequately taking care of your finances, your side hustle could end up working against you. And even though your time is likely limited when working more than one job, it’s important to make time to keep your finances in order. By paying close attention to your money, you’ll be able to fully reap the rewards of your hard work.