Should You Spend Your Side Hustle Earnings or Save Them?

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It's extra income -- but does that give you the green light to blow it?

Key points

  • The money you earn from your side gig may not be money you need for your essential bills.
  • While you may feel you can spend that money on the things you want, first, make sure you don't have other pressing financial needs to tend to.

The great thing about getting a side hustle is being able to boost your income without necessarily inconveniencing yourself too much. These days, there's a host of flexible side gigs you can choose from that let you set your own hours and put in the time when it's convenient for you.

If you're sitting on a pile of cash you earned from your side hustle, you may be tempted to spend it all -- whether it's to take a vacation, buy new clothes, upgrade some electronics, or enjoy more social outings with your friends. To some degree, you should feel entitled to spend that money as you please if it's extra cash -- not cash you were counting on to pay your recurring bills. But before you blow through your side hustle earnings, ask yourself these three key questions.

1. Am I set with emergency savings?

You never know when you might lose your job or encounter a series of bills your paycheck can't handle. That's what emergency savings are for.

Ideally, you should have enough money in a savings account to cover three to six months of essential bills. If you've yet to hit the lower end of that range, then you may want to hold off on spending your side hustle earnings and put them into the bank instead.

2. Do I have unhealthy debt I'm still paying off?

It's one thing to owe money in the form of a car payment or mortgage. But if you're sitting on a credit card balance you've yet to pay off, then you may want to consider using your side hustle earnings to whittle it down rather than spending that money.

The longer you continue to carry a credit card balance, the more interest will accrue against it. That could end up trapping you in a cycle of debt and costing you more money, and so it's better to break out of that cycle as soon as you can.

3. Am I on track for retirement?

Retirement is a period of life it pays to save for over time. In fact, the sooner you begin putting money into a retirement plan, the more opportunity you'll have to invest that money and grow it into a larger sum. If you've yet to start funding an IRA or 401(k) plan, or you have money in one but not a large amount, then you may want to use your side hustle earnings to make a contribution to your retirement account and catch up.

Consider a compromise

If you're on track with your financial goals and don't have unhealthy debt hanging over your head, then you should feel free to spend your side hustle money as you please. After all, you've earned it. But if you're lacking emergency savings, you owe money on credit cards, and you're behind on building a retirement nest egg, then you shouldn't be too quick to blow that money on non-essentials or leisure.

That said, there's nothing wrong with considering a compromise. Say you have a $500 credit card balance but also really want to attend an upcoming concert. If you're sitting on $600 in side hustle earnings and tickets cost $150, go see that show, but put the rest of that money toward your existing balance.

If you don't let yourself enjoy any of your side gig earnings, you might struggle to motivate yourself to keep working at that job. You're probably better off splurging somewhat in that situation.

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