Here's How Your Side Hustle Can Make You a Millionaire

A lot of people hope to become millionaires -- or more than millionaires -- before they retire. A recent Schwab survey showed that Americans thought they'd need $1.8 million to retire comfortably, on average. Unfortunately, many Americans also worry they will fall short. It can be hard to sock away money in your retirement or brokerage accounts while also staying on top of today's bills.

Working a side hustle can help. If you invest that extra income, over time, your side hustle could become a powerful wealth-building engine. Here's how.

1. Prioritize investments

Perhaps you've taken on a side hustle to help cover your essentials or because you want to pay down debt. Those are great reasons. But if you can also put a little of that extra money toward your future, you might eventually be able to give up your side hustle and work less.

The idea is to get your money working for you. And the sooner you get started, the better. That's because compound interest -- essentially being able to earn interest on your interest -- is like a snowball rolling downhill and getting larger.

According to Self, the average side hustle brings in $688 a month. Let's say you invest $200 of that in the stock market and earn average annual returns of around 8%, which is in line with historical performance. Here's how your investments would compound.

Sadly, that won't be enough to make you a millionaire. But what if you're able to invest all that side hustle money, plus a little more, to make it $750 a month?

If you have 30 years before retirement, you could become a millionaire by investing the money you make from working an extra five to 10 hours a week. Not only that, but time would do a lot of the heavy lifting -- over $700,000 of your $1 million would come from your investments accumulating value.

2. Make the most of tax-advantaged accounts

We've seen how compound interest can make your investments work for you. But that's not the only way to maximize your side hustle cash. Another is to understand what tax breaks are available -- any money you save on taxes is cash you can use to build wealth.

Here are some common tax-advantaged accounts.

401(k)s

If your main employer has a 401(k) plan and will match some of your contributions, find out how you can participate. Not only are there tax breaks, but those matches can be a significant boost to your nest egg.

Individual retirement accounts (IRAs)

If you don't have access to a workplace retirement plan, look into IRAs. There are types of IRAs to suit different situations, and you can open more than one account. But there's a limit on how much you can contribute in total to your IRAs each year.

Traditional IRAs can lower the taxes you pay today. Let's say you're in the 24% tax bracket and contribute $6,000 to your IRA this year. That would mean you'd pay $1,440 less in taxes. Roth IRAs work differently; you put in post-tax money to a Roth IRA and make tax-free withdrawals in your old age.

Health savings accounts (HSAs)

HSAs have a triple tax benefit. You put in money on a pre-tax basis, which means you pay less tax now. On top of that, you don't need to pay money on any investment gains. Finally, you can withdraw money for qualified medical expenses tax-free too.

The catch? You need a high-deductible health plan to qualify.

3. Choose low-risk investments

The amazing thing about the data above is that it shows you can become a millionaire without taking big risks with your money. No investment is totally risk-free, and there will be years when the stock market loses as well as those when it gains.

All the same, you don't need to opt for high-risk investments -- such as cryptocurrency -- to build wealth. You can build a million-dollar portfolio with a slow-and-steady approach.

You don't need to be an expert in stocks, either. For example, you might put money in an ETF (exchange-traded fund) that tracks the S&P 500. This gives you a slice of the biggest 500 companies in the U.S. and historically has produced average annual returns of around 8%.

Think about ways to build a balanced portfolio with a mix of assets. That might also mean investing in bonds or real estate alongside the stock market so you're not overly reliant on any one thing.

Bottom line

If you can't find cash in your paycheck for wealth building, working extra hours with a side hustle could generate the money you need. To become a millionaire, a lot depends on how much you're able to invest and for how long. But investing your side hustle earnings could certainly put millionaire status within your grasp.