5 Things That Could Cut Your Cash Flow When Starting a Side Hustle
Starting a side hustle isn’t easy but that hasn’t stopped many Americans from doing it. With consumer price increases across the board and a sustained 40-year-high inflation rate, more and more people are making money outside their regular 9-to-5s to reach their financial and life goals.
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Side hustles aren’t outliers anymore but are actually downright common. Nor are they the next big thing; they’re already booming. According to a 2021 Zapier survey conducted by The Harris Poll, more than a third of Americans (34%) have a side hustle. Of those, 67% started theirs within the last three years and 31% started in 2020.
There are certain things you should keep in mind while running your side hustle that could dip into your profits, however. Here’s what you should double-check before starting a new part-time gig:
Check on Job Conflicts
If you are a student looking to make some pocket money or an entrepreneur starting up a new business, you don’t have to worry about existing work etiquette or contractual agreements. However, a side hustle is a second job, and if it is one that veers into a similar territory or industry to that in which you already work, you might need to check with your current employer regarding any possible conflicts between your intended side hustle and your primary job.
Freelancers who balance various gigs in a specialized job niche come up against this type of situation often. But they can avoid any conflicts between jobs because they are free agents and are usually not tied to employment contracts. If your primary job requires you to sign a noncompete clause, you need to figure out if your side venture is viable or a violation.
Beware of Tax Adjustments
Chances are, if your side gig only brings in a few hundred dollars a year, you can just keep track of what you’re earning, file your tax return like you normally would and then pay whatever you owe in taxes on that extra money. If you are making a significant amount of cash from your hustle, your tax situation can get trickier.
You will have to investigate whether you need to pay estimated taxes, which are common among the self-employed who expect to owe $1,000 or more when their return is filed and are paid throughout the year in quarterly payments. To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions and credits for the year.
Remember that your side hustle isn’t a hobby, it’s a business and should be treated as such. Starting a separate account for expenses, setting aside a percentage of your earnings to pay income and self-employment taxes and keeping organized records aren’t suggestions, but necessities. If you have doubts, consult a tax specialist to help you sort through any financial red tape.
Earmark Your Money
Motivation for starting a side hustle often comes from the prospect of creating passive income. But having specific goals for the additional income you are making will help propel you to realizing your financial or savings targets and keep you focused on working at it. Diversifying your income is a wise move in this time of economic and employment instability too. In the event of an economic downturn or a sudden job loss, every extra dollar counts.
And you don’t need to be motivated by pure financial gain either. Many people who start side hustles are looking for something fun and different to do. Others are interested in developing skills, either for personal interest reasons or to set themselves up for future opportunities or better jobs in a different field. Satisfaction in doing something new might be your goal and the only motivator you need.
Budget Your Time
The idea of having a side hustle is easy, putting it into practice isn’t. Starting a supplementary job will take a lot of time outside the hours you are already working at your regular job. This is precious time that is normally consumed by family obligations or other commitments, pursuing interests and leisure activities.
It is crucial to think about how much time you can afford to spend and how to best prioritize your side hustle. Some people have more commitments outside of work than others and finding the time to pursue a separate line of work during the evenings and weekends can take a heavy mental toll. Creating a work/life balance is more difficult with a side hustle and trying to squeeze more work into an already busy life may leave you dissatisfied and exhausted.
Become a Self-Promoter
Your side hustle won’t grow in a vacuum, so be prepared to market yourself by traditional methods including word of mouth via friend and family, directly contacting people in your industry for advice and leads. You’ll also need to promote your new gig throughout the digital world from Facebook groups and Indeed connections to apps specific to your side hustle. Remember, you are starting from scratch, so networking is crucial to exchange ideas and obtain resources. Plus it will open the door for new opportunities, make you noticeable and help grow your business with much-needed support from like-minded colleagues.