If you're looking for a financial boost, a side hustle is a great place to start. Not only do you earn extra money, but you also diversify your income. Having a second source of income can be a lifeline if you lose your full-time job.

If you're among the roughly one-third of Americans with a side hustle, you need to ensure the money you earn is worth your time and energy. Follow these five steps to make more money with your side hustle.

A professional dog walker exercises seven dogs in a park.

Image source: Getty Images.

1. Set SMART goals

Whenever you invest your time or money, you'll boost your odds of success when you clearly define your goals. Try using the SMART goal approach of setting goals that are:

  • Specific
  • Measurable
  • Achievable
  • Realistic
  • Time-based

Suppose you want to earn extra money by walking dogs. "Earn extra money walking dogs" wouldn't be a SMART goal. A better example would be, "Earn $500 in the next month by walking dogs" or "Secure three new dog-walking gigs by the end of the year." As you set SMART goals, try to get as specific as possible about how to make them happen.

Once you've set your goals, check in on your progress at least once a month. When you're consistently hitting your goals, try setting even higher ones so you can keep growing your business. If you're not hitting your goals, try not to be frustrated. Take a step back and evaluate what you need to do differently in order to achieve them.

2. Outsource when it's appropriate

Your side hustle is an investment. Instead of investing your money, you're investing your time. The amount of time you have is limited. There's an opportunity cost when you choose to do one task over another. That's why outsourcing some responsibilities is a smart way to maximize your side hustle earnings. 

You can outsource some tasks directly related to your side hustle. Let's say you're a freelance web designer, but clerical tasks are eating into the time you're actually able to design. You could hire a virtual assistant to take care of administrative tasks so that you can focus on the work that actually brings in money, i.e., web designing.

But outsourcing personal tasks can also help you earn more at your side gig. For example, if you make $50 an hour freelancing but you can pay someone else $25 an hour to clean your house, the trade-off may be worth it. Or perhaps paying a bit more to have your groceries delivered makes sense because you can spend your extra time on work instead of standing in line.

3. Track your hourly earnings

Even if you don't charge by the hour, monitoring how much you're making per hour is extraordinarily helpful for side hustlers. Doing so will help you identify what work is paying off. Just as important, you can eliminate work that isn't worth it.

Freelancers often find that one particular client eats up a lot more of their time, even though they're charging them the same amount. If you see that happening, it's time to charge that client more. Or you may choose to simply get rid of that client so you can focus on easier work that's more lucrative on a per-hour basis.

If your side hustle is driving for a ride-hailing service or you deliver restaurant food or groceries, tracking your per-hour earnings can also be valuable. You may find that working certain hours or focusing your efforts on specific areas pays significantly better.

4. Give yourself raises

When you have a full-time job, you often have annual performance reviews with your boss where you discuss compensation. But that doesn't happen when you're a gig worker.

If you're a freelancer who negotiates rates with clients, reevaluating what you're charging at least once a year is a must. At a minimum, make sure you're increasing your rates enough to keep pace with inflation. But don't forget to advocate for yourself. If you feel like your work is consistently high quality, be sure to increase your rates enough to reflect the value you're adding.

5. Take advantage of tax deductions

One sweet thing about taking on a side hustle: You may be able to deduct work expenses that you can't deduct for your full-time job. 

A home office is a good example. If you're a W-2 employee who works remotely, you can't deduct costs related to your home office. But if you have a side gig and you use part of your home exclusively as your principal place of business, you can deduct your expenses -- including your mortgage or rent, insurance, and maintenance costs -- for that portion of the home. 

Suppose your home office is 200 square feet of your 1,000-square-foot home. You could deduct 20% of your housing expenses. (Check with IRS Publication 587 to be sure you're following all the rules.)

You may also be able to deduct expenses like computer equipment, meals, travel, and your cellphone if they're for business use. But it's essential to keep careful records so you can show that the expenses are business-related, rather than personal. If you're unclear about what's allowed, be sure to check with a CPA.

What should you do with your side hustle money?

Assuming you don't need your side hustle income to pay bills, focus on putting your side hustle money where you can get the biggest return. If you have high-interest debt, like credit cards, that's the best place to start. The average credit card APR for cardholders who carry a balance is above 16%, so every extra dollar you pay above the minimum essentially gives you a 16% return.

If you don't have high-interest debt and you have at least a three- to six-month emergency fund, consider putting your gig economy earnings into the stock market. If you earn $500 a month, you could max out your Roth IRA by contributing $6,000 in 2021 (though if you're over 50, you're allowed to contribute $7,000). If you invested $500 a month and earned 10% annual returns, you'd have just over $1 million after 30 years. Your total contribution? Just $180,000. If you're banking serious money from your side hustle, you may want to go a step further and open a retirement plan for self-employed people.

Regardless of your goal, a side hustle can pay off big for your financial future. If you approach your work strategically, you'll reap greater rewards.