7 Banking Mistakes To Avoid If You Have a Side Gig
Written by
Martin Dasko
Edited by
Amber Barkley
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While many Americans are relying on side hustles to get by, it’s pivotal that you avoid certain banking mistakes if you want to maximize the benefits of your additional income stream — and avoid any unpleasant surprises.
These are the seven most common banking mistakes to avoid if you have a side gig, because they could hurt your finances.
Not Splitting Personal and Business Banking
“People with side jobs often make the mistake of not splitting their personal and business finances when they do their banking,” said Chad Harmer, a financial planner and founder of Harmer Wealth Management. “When you combine these accounts, it can be hard to keep track of your income and spending, which can make things more confusing and make filing your taxes harder.”
If you have a side gig, don’t use the same bank account for your personal finances as your business income. If you opened a separate business checking account, for example, you could better manage your money, keep your records organized and gain a clear picture of how the business is performing.
Harmer added, “Keeping these things separate also helps you look more professional, especially when you’re talking to clients or sellers.”
Not Using a Business Credit Card
“A common banking mistake people make with side hustles is using a debit card to pay for their expenses,” said Laura El, an artist and founder of Stellar Villa. “A smarter strategy is to compare business credit cards and find one that will help you maximize cash back or points, which can be redeemed for cash, statement credits or other products/services.”
You can use those rewards toward your business expenses to maximize your profits.
As you grow your side hustle, those expenses can add up, and a business credit card can also help you track those expenses. Just like having a separate bank account, a separate card is essential, as you don’t want to confuse your personal expenses with your business ones.
Not Choosing the Right Business Bank Account
“If you have a side gig, it’s important to find a business bank account that fits your business needs and minimizes fees,” said Erika Kullberg, an attorney, personal finance expert and founder of Erika.com.
For example, you probably don’t need a premium account when you’re just starting out. They offer more perks, but also charge higher fees — and you may not use all the perks right away. You can always scale up as your side hustle grows.
Do your research and pick the right business bank account for actual needs, instead of just sticking with what’s convenient or what you’ve always used for your personal finances.
Not Watching Banking Fees
Those with a side gig might forget to keep track of their banking fees, which can add up quickly when making various transactions. Many banks charge fees for transactions, wire transfers or not keeping a certain balance.
“You can save a lot of money over time by looking into and moving to banks that help small businesses or side hustlers by offering low or no fees and digital tools for billing or keeping track of expenses,” Harmer said.
The goal is to save money on your banking fees to help keep your side gig profitable so that it’s worth your time. Fees can add up fast, and you don’t want to be stuck with an expensive hobby instead of a profitable side hustle.
Not Planning for Taxes
Taxes are a common issue for those with a side gig — you could forget to pay them or plan accordingly, since your income is changing with a new stream.
Harmer explained, “People who do side jobs often don’t set aside enough money for taxes, especially if they’re new to working for themselves. Without having your employer withhold taxes, you need to figure out and set away a certain amount of your income for federal, state and self-employment taxes.”
Plan for taxes by setting up a separate savings account where you set aside funds to make things easier. You want to ensure you have funds ready when your quarterly payments are due. If you don’t take proactive measures with your tax planning, you could find yourself with an unexpected tax bill that you can’t afford, or you could also be hit with penalties that impact your overall finances.
Harmer added, “A lot of people who are self-employed think they can’t save for retirement, but plans like SEP IRAs, SIMPLE IRAs and Solo 401(k) [plans] can help them build wealth and lower their taxed income.”
Not Setting Up a Savings Buffer
Harmer pointed out that another crucial banking mistake that those with a side gig make is not setting up a savings buffer, which is helpful when one has a fluctuating income.
Kullberg added, “When income fluctuates, it’s easy for side gig workers to forget about recurring fees and end up with overdrafts if they don’t keep a high enough balance in the bank. Every business owner needs a clear idea of the timing of money coming in and going out of their bank account to pay bills.”
By creating a savings buffer, you can better handle any emergencies or shortfalls of income without relying on credit cards or high-interest loans to get by. You want your side gig to improve your finances, not to hurt them.
Not Monitoring Your Side Hustle Bank Account
Kullberg pointed out that if you don’t monitor your account, you can end up with unexpected charges or fees. “Regularly reviewing and reconciling your account ensures that you know your business inside and out and can take quick action if anything is heading in the wrong direction.”
Since your side gig is likely taking away from your limited free time, you want to ensure it’s worth it. This means that you should set aside time to monitor and review your side gig income and finances to understand what’s going on with your venture.
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