Author: Kailey Fralick | May 29, 2019
Ready to start earning more money?
Millions of Americans are turning to side hustles as a way to earn some extra cash, and in today's digital world, it's easier than ever to find new clients and opportunities. With the right strategy and some hard work, some of these side hustles can even turn into full-time businesses.
But side hustles can also cause burnout, debt, or even trouble with the law if you aren't careful. Here are 13 tips that everyone with a side hustle should know.
1. Choose the right side hustle
There are literally hundreds of ways you can bring in extra cash each month. You could drive for a ridesharing service, sell handmade goods online, rent out extra rooms or properties, create online courses, start a blog, walk dogs, nanny, clean houses, work as a virtual assistant -- the list goes on.
Think about your skills and interests and try to choose a side hustle that best aligns with these. If you have a niche skill or knowledge, capitalize on that. You also have to bear in mind the commitment that your side hustle will require. Some may require more time or a larger initial investment than others. Take all these factors into account when choosing the right side hustle for you.
2. Set a fair price
Some side hustles, like driving for a ridesharing service, may set a price for you. But in most cases, it'll be up to you to determine how much to charge for your services. You want to choose a price that's competitive enough to draw in new customers while still being substantial enough to be worth your time.
If you're not sure how much to charge for your services, scope out your competitors and see what they're charging for the same thing. Use that as your baseline, but keep in mind that you may have to keep your prices lower initially if you don't have much experience. As you build your customer base and establish yourself as an authority in the space, you can begin to charge more.
3. Commit to a schedule
If you want your side hustle business to grow and provide a substantial source of income, you have to treat it like an actual business and that means regularly scheduling time to work on it. You may decide to devote an hour a night or a day on the weekend to working, developing your brand, or catching up on paperwork.
Build this time into your schedule now and keep track of what you accomplish. This will help to hold you accountable and may give you some encouragement if you feel that you aren't making as much progress as you'd like.
4. Don't neglect your regular job
While your side hustle may one day be your primary business, many side hustlers have a 9-to-5 job that provides the bulk of their income right now. You may be tempted to focus most of your energy on growing your side hustle, but if you let your regular job performance suffer, you could lose your primary source of income.
5. Be mindful of new expenses
Side hustles can generate new income, but they can also bring new expenses that eat into your profits. If you're selling items online, you may need to purchase inventory. Rideshare drivers will have to factor in extra gas and wear and tear on their cars. If you're paying for any advertising for your business, you'll need to factor those costs into your budget as well.
There may also be hidden expenses you don't even realize. If you're working so much that you no longer have time to cook your meals at home, you may start eating out more. This can drive your food costs up significantly. Keep a list of all these business expenses and budget for them every month. If you find you're going into debt, it may be time to think about quitting that particular side hustle.
6. Market your services
If you want your side hustle to grow, you need to spread the word about it to attract new customers. You could start with your own social media outlets. Make business cards you can share with new customers. Take advantage of business networking websites or events in your area.
You could also look into paid marketing, like ads on search engines. This can help you attract business outside of your neighborhood or social circles. But whether or not this will make sense depends on your business and how serious you are about growing it.
7. Don't mix personal and business expenses
It may make sense for you to open a business credit card so you can keep your side hustle expenses separate from your personal expenses. This simplifies filing your taxes because you can quickly see how much you spent on business items. Plus, you can earn rewards to help cover your future business expenses.
Consider setting up a separate business checking account as well where you can keep your business funds. Not only does this help your business appear more legitimate in the eyes of the government, but it also looks more professional to your suppliers, if you have any, when you can write them a check in your business's name.
8. Keep track of deductible business expenses
One of the best things about being self-employed is that you can write off expenses that are primarily or solely business-related. This includes gas if you're ridesharing, inventory and office supply costs, business travel, and even part of your internet or phone bill.
But there are a couple of catches. First, you can only write off the proportion of those expenses that relate to how much you use them for business. So if you think you only use your cell phone 5% of the time for business, you can only write off 5% of the bill. Second, you need to keep all your receipts for your deductible expenses. You don't have to submit these with your taxes, but if you're audited, the government could disallow any deductions you don't have proof of.
9. Report all of your income to the government
If you earn $600 or more as an independent contractor, the company you worked for is legally required to send you a 1099 at the end of the year listing how much it paid you. But if you don't earn enough to receive a 1099, that doesn't mean you're off the hook. You're still required to report this income from the government and if you don't, you could be in trouble.
Leaving income off of your tax return is one of the best ways to trigger an audit. The government will force you to go back through all of your financial records and it could disallow deductions or force you to pay more in taxes. You're better off avoiding all of this by just giving them the right information the first time.
10. Start setting aside money for taxes
Perhaps the biggest downside of a side hustle is that all the money you make isn't yours. Because you're not getting a regular paycheck that the government can take a cut from, it falls to you to set aside Uncle Sam's share. Plus, you're responsible for the full 12.4% Social Security tax and the 2.9% Medicare tax, which are normally split 50/50 between employee and employer at a regular job. Together, that's 15.3% of your earnings, and then you owe income tax on top of that. The good news is, you can write off half of what you paid in Social Security and Medicare taxes on your tax return, and this will reduce the amount of income tax you owe.
You may want to open a separate savings account where you can stash your tax money so you don't accidentally spend it. If you choose to keep it in your existing savings account, just make sure you know how much of that money is supposed to go to taxes.
11. Pay your estimated taxes
Self-employed workers usually pay in estimated taxes quarterly. If your side hustle is generating substantial income, it may be smart to pay estimated taxes as well to avoid penalties. Your tax return from the previous year should indicate how much you have to pay in to the federal government and your state government each quarter. If your side hustle is new, fill out Form 1040-ES to figure out how much you should pay in estimated taxes each quarter.
Quarterly taxes for the 2019 tax year are due on April 15, June 17, Sept. 16, and Jan. 15, 2020. You can wait until the end of the year to pay all of your taxes, but if you owe more than $1,000 or 10% of your taxes, the government will tack on some extra fines.
12. Have long-term goals
If you want your side hustle to one day become your primary business, you need to have a plan for how you're going to get there. You may set revenue or customer acquisition goals or educational goals if you're trying to learn more about your industry. Keep a list of these goals and schedule time to actively work toward them. Tracking your progress may help you keep up your motivation when times get tough.
13. Schedule some downtime
Side hustles may not generate as much income as your regular job, but they can require just as much work, especially in the early stages. If you work yourself too hard, you could burn yourself out and then both of your jobs could suffer. Make sure you're still leaving plenty of time for relaxation and enjoyable activities. This can refresh you and may even improve your quality of work.
Keep up the good work
Starting a side hustle is an exciting opportunity to grow your wealth and become your own boss. But with that increased freedom comes increased responsibility. Sticking to the 13 tips listed here can help you steadily grow your business over time, and they could be the difference between success and failure.
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