Having a side gig alongside a full-time job is undoubtedly challenging, especially if you have family responsibilities or other commitments. Nevertheless, regardless of your obligations or ambitions, it is essential to evaluate whether a side gig is worth pursuing before investing money in it.
Determining the value of a side gig is akin to predicting the weather — not an exact science, but with the right tools you can make an informed decision that could help you avoid a potential financial burden. Here are six effective ways to assess the viability of a side gig — before it starts draining your finances.
Determine Why You Want To Pursue It
Before investing substantial resources into your side hustle, take time to introspect and understand your motivations.
“Just like a lighthouse guiding a ship, your ‘why’ will guide your side gig,” said James Allen, CFP and founder of Billpin.com, a financial site that illuminates the path to financial literacy. “Are you doing it for the money, the experience, or the passion? Your ‘why’ will help you determine if the side gig aligns with your goals.”
Knowing your “why” will act as a guiding force, helping you stay committed and resilient through the challenges that come with starting a business. Aligning your side gig with your personal goals ensures that you’re investing in something that holds long-term value for you.
Assess Market Demand
Conduct thorough market research to gauge the demand for your product or service. “A side gig without a market is like a ship without a sea,” Allen said, “It’s going nowhere. Research your potential market, understand its needs and see if your side gig can meet those needs.”
A deep understanding of your potential customers will allow you to tailor your offerings to stand out from competitors, giving your side gig a competitive edge in the market. Analyzing your target audience’s pain points and needs will help you determine how your side gig can fulfill these gaps effectively.
Consider the Time Investment
Balancing a side gig with a 9-to-5 job and personal commitments requires careful time management. Calculate the hours you can realistically dedicate to your side gig without compromising your well-being or job performance. Your side gig should be a rewarding commitment that complements your lifestyle, offering you the opportunity to pursue your passions without overwhelming you with excessive time demands.
“Time is the currency of life,” Allen said. “Calculate the time you’ll need to invest in your side gig. If it’s more than you can afford, it might not be worth it.”
Evaluate Upfront Costs, Profit Margins and Taxes
A comprehensive evaluation of the financial aspects is crucial for the success of your side gig. Assess the initial investment required, including equipment, supplies, marketing expenses and any overhead costs. Understanding your profit margins will give you an idea of when you can expect to break even and start generating revenue. Additionally, staying tax compliant and planning for estimated payments will prevent financial surprises at year-end.
“I recommend that all small business owners read the book ‘Profit First,'” said Jay Zigmont, Ph.D., MBA, CFP and the founder of Childfree Wealth. “‘Profit First’ is a simple way to examine your expenses, taxes and overall profit. The bottom line is that you need to know every penny you are making and spending on the business.”
Moreover, in order to plan ahead financially, you’ll also want to prepare for the taxing situation for small businesses. “Most side-gigs will pay you on 1099,” Zigmont said. “That means you are responsible for paying federal and state income taxes. You need to plan on paying estimated regular payments to prevent having a large bill and penalties at the end of the year.”
Passion and Skill Are Key
A strong passion for what you do will drive you to overcome challenges and keep you motivated in the long run. Your expertise in a particular area will also enhance the quality of your offerings and set you apart from competitors, increasing the chances of sustainable success.
“Are you genuinely interested in the gig, and do you have the necessary skills to make it successful,” said Bryan Clayton, CEO of GreenPal, a platform that empowers lawn care professionals to turn their side gig into a viable business. “Remember, a side gig is not just about making quick money; it also requires commitment and hard work.”
Starting a side gig can be a daunting endeavor, but you don’t have to navigate it alone. Connecting with experienced mentors and business experts can provide invaluable guidance and support. They can share valuable insights, offer practical advice and help you avoid common pitfalls.
Building a network of mentors and seeking their input will bolster your confidence and increase your chances of making informed decisions that lead to a successful side gig. Be sure to tap into the expertise of those who have been down the same road and can offer pointers on the best way to approach your side gig.
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