5 Hidden Costs of Side Hustles
Side hustles are a great way to make ends meet when your full-time job isn’t cutting it.
A side hustle can refer to any extra income you make outside of your primary job, whether it be as a driver, freelance writer or selling your own creations. In fact, 39% of Americans have a side hustle.
But not every side hustle is a great success story. It’s important to go into your new venture with eyes wide open. Here are a few hidden costs of side hustles to take into consideration before you embark on your own.
Time
Every business venture takes time. Not only to establish, but also to operate. Make sure before you dip your toe into taking on a side hustle that you have the time you need to dedicate to it. You’ll have to fit your side hustle in between your full-time job and other responsibilities.
A 2022 survey from Zapier revealed that half the people with side hustles spend around 10 hours per week on them. That said, the more time you put into a side hustle the more money you make.
According to Website Builder Experts 2023 statistics on side hustles, dedicating 12 hours a week will net on average $1122 per month.
Time Magazine reports that one way to figure out how many hours you have to dedicate to extra employment is to keep track of your schedule for a few weeks to see where you consistently have extra time. The time you spend watching TV or scrolling through social media could become time spent working on your side hustle.
Start-Up Funds
A whopping 55% of people dream of turning their hobby into a side hustle. But turning your favorite pastime into a business takes start-up capital.
On average, you’ll spend $16,000 in the first year to launch your business. That said, most side hustles only bring in around $5700 per year.
So, if you’re starting your own business, you may not see a profit until year two. It’s important to assess your finances and decide whether or not the long game is right for you.
Taxes
The IRS requires you to file taxes if you make $400 or more — even on a side hustle. Know that filing taxes for a self-owned or freelance business is different from filing taxes for a full-time job.
If your side hustle is working freelance for an outside company, you’ll pay a self-employment tax and receive a 1099 form at the end of the year.
This means your employer isn’t responsible for withholding taxes from your paycheck, so you’ll need to pay these taxes quarterly or in one lump sum at the end of the year.
If you’re self-employed, you’re required to do something similar, although there may be different tax documents involved depending on the nature of your business and where you live.
In both cases, you’ll want to keep a good record of income, expenses and deductions so that you’re not scrambling come tax time.
Maintenance Costs
Depending on your side hustle, you may encounter maintenance costs that you’ll need to factor ahead of time, or risk being caught with a bill you can’t pay.
If you’re using your car to drive for an app you’ll have to pay for gas, repairs, inspections and regular cleanings. Plus, depending on where in the country you’re located, you may need to apply for a special license known as a TLC driver’s license, a TLC vehicle renewal and a yearly commercial motor vehicle tax. Altogether these fees can add up to around $1000 per year.
If you’ve decided to invest in a rental property as your side hustle, you’ll need to factor in money for things like repairs, landscaping and taxes. According to Homee.com, rental owners should set aside 50% of the rent each month for repairs, maintenance, taxes and insurance. And if you’re worried about spending this money, place it in a separate account.
Even people who’ve transformed hobbies into side hustles will need to factor in the cost to replace supplies. If you’re selling your wares via an e-commerce platform, you’ll have listing fees, transaction fees and shipping fees.
Burnout
Juggling multiple jobs along with everyday life responsibilities can be a recipe for burnout. If you’re feeling overwhelmed or lackluster about your side gig, it may be time to reassess.
An August 2022 article in Vox by Eliza Brooke, suggested reassessing why you started the business in the first place. If the initial reason still stands, reframe the problem.
If it doesn’t, it may be time to say goodbye your second gig.
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