Adding a Side Hustle in 2024? Here’s How to Best Use New Income
Written by
Nicole Spector
Edited by
Elizabeth Constantineau
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Inflation may be easing up to a degree, but times are still tough for millions of Americans, many of whom are barely getting by, and living paycheck-to-paycheck.
Americans are all but officially living in a new normal where a side hustle isn’t so much of a choice as it is a must for those who can’t comfortably get by on one job alone. According to a 2023 GOBankingRates survey, 38% of working Americans report having at least one side hustle.
So, if you’re thinking about adding a side hustle to your life this year, you’re certainly not alone. But you should have a thorough plan around how to best use the new income stream. Why? Because it’s all too easy to get a little spend-happy with new money.
Here’s how to best (and most responsibly) use the income from your new side hustle.
Pay Down High-Interest Debt
One of the biggest hurdles blocking Americans from a financially healthy life is high-interest debt from credit card usage and personal loans. Tackle these debts from all angles with your new side hustle money.
“This type of high-interest debt can drain someone’s finances as it’s hard to get ahead of monthly interest payments,” said Tom Blake, a side hustle expert and the founder at This Online World. “Therefore, using side hustle income to pay off more of this debt rapidly can potentially save thousands of dollars in interest payments in the long run. Even accelerating your journey to becoming debt-free by a few months or year can make a massive difference.”
Build Up Your Emergency Fund
Millions of Americans don’t have enough cash to cover a $1,000 emergency, with many turning to high-interest credit cards to handle these expenses, and thus only digging themselves deeper down into a money pit.
If you’re in the clear as far as debt goes but behind on building up an emergency fund, put your financial focus there.
“Typically, this means setting about six months of expenses aside for a rainy day,” Blake said. “You can park your emergency fund in a high-yield savings account so it generates meaningful interest. And having an emergency fund is one of the best tactics to avoid debt in the first place since you can comfortably cover emergencies when they arise.”
Re-invest In Your Side Hustle
If you love your side hustle, you may be inclined to develop it into something bigger. You can aim to do this by re-investing in it.
“If you’re looking to grow your side hustle into something bigger, reinvesting some of those earnings back into the business could be beneficial,” said Scott Lieberman, founder of TouchdownMoney. “That could mean upgrading your equipment, marketing or taking courses to improve your skills.”
Pay Your Taxes
Whether it’s tax season or not (which it almost is this year, by the way!), you need to be on top of paying your taxes, particularly those that inherently come with a side hustle.
“Any time you have side income in the form of a 1099 or payments from clients, you need to plan on paying your state and federal taxes,” said Jay Zigmont, PhD, MBA, CFP, founder at Childfree Wealth. “You are responsible for making regular estimated payments and paying self-employment taxes, so be sure to plan on an appropriate percentage of your income going there.”
Consult with a Tax Professional
If you have any questions or points of confusion about how to go about filing or paying your taxes with a new income stream, hit up a tax professional ASAP. Set aside some money from your side hustle to do this.
“Many side hustlers find out too late their great earnings have catapulted them into a different tax bracket, or that they should have been filing quarterly, and now they face a tax penalty,” Lieberman said. “Set aside a portion of your side hustle earnings for, potentially, a consultation with a tax professional to optimize your tax strategy.”
Treat Yourself (Within Reason)
It’s perfectly okay to use some of your side hustle income to treat yourself and enjoy what you’ve earned. This can boost your morale and help keep you motivated to keep on going.
“For many, side hustling is a way to boost discretionary income,” Blake said. “This is money you can put towards a trip you’ve always been dreaming of, or money you can use to cover something special for you and a loved one. Life isn’t just about working and investing – using your side hustle income for meaningful purchases and experiences can also be enriching.”
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