5 Mistakes You’re Making With Your Side Gig Income

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Building up a side gig offers multiple benefits, including the excitement of bumping up your income and hopefully reducing some of your financial stress. But as you grow a side hustle, it’s common to make mistakes along the way.

Explore some of the mistakes to avoid as you grow your side gig.

Not Tracking Your Income Carefully

When you start a side hustle, it’s easy to get caught up in the excitement. After all, making extra money often comes with a rush of emotions. But instead of allowing your side hustle income to float through your finances, it’s critical to carefully track it.

You can handle this in multiple ways. For example, you might use a simple accounting spreadsheet to make sure you jot down all of your side hustle income. Or you might pay for accounting software to handle this somewhat tedious task for you.

Forgetting To Track Your Expenses

In addition to tracking your income, it’s equally important to keep track of your expenses. Without a clear understanding of both your business income and expenses, it’s impossible to truly know how much you’ve earned through your side hustle.

Most side hustles come with plenty of expenses. Don’t overlook any of these costs. Not only does it give you a more accurate assessment of your side hustle’s earning potential, but it also gives you a chance to write off qualified expenses on your tax return.

Not Saving for Your Tax Bill

Earning money outside of your main employer is awesome. But this extra income isn’t immune to tax bills. Like all other income you earn, you’ll need to pay income taxes on your earnings.

Many fledging side hustlers forget about their tax obligations at first. Unfortunately, this sets them up for a sometimes nasty surprise at tax time with a tax bill that they don’t have savings to pay for.

Instead of letting yourself get surprised, understand that you’ll owe taxes on the funds. Come up with an estimate on what percentage of your income you’ll need to pay and tuck that money into a separate savings account throughout the year. When tax season rolls around, you can tap this savings account to pay for your tax bill.

Pulling All of Your Profits Out Immediately

When you start to grow a small business, it’s tempting to pull all of the profits out to spend on your lifestyle. After all, that’s probably why you started a side hustle in the first place.

If possible, hold off on pulling out all of your earnings. When it makes sense for your situation, make it a point to reinvest some of your profits back into the business.

The reinvestments you make will look different based on the type of side hustle you’ve started. For example, as a freelance writer, I’ve reinvested in my business by paying to attend industry conferences. But if you have a product-based business, you might invest in improving your product.

Of course, taking out some of your profits is a good idea. But, if possible, reinvesting some of those products into the business can pay off over the long term.

Not Creating a Financial Goal

When your side hustle starts to take off, it’s tempting to spend the money on fun splurges. Although there’s nothing wrong with treating yourself to a well-earned reward, setting a financial goal can help you use your newfound income to transform your finances.

For example, you might start by saving up for a vacation. Or you might decide to pay off all of your debt. Another option is to supercharge your retirement investments to make life easier for your future self.

Setting a concrete goal can help you make sure your hard-earned funds get put to good use. Plus, the goal might motivate you to press on when your side hustle gets tough.

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