Side hustle envy is real. You hear about people making more doing Uber and Door Dash than they do at their day jobs. You see artists, service providers, and gig workers adding hundreds or even thousands of dollars a month to their income while also working full-time jobs. You think, “I’m smarter than the average bear. I can do that, too!”
And you can! That is, if it’s not costing you more than you’re actually bringing in.
When you’re running a side gig, you’re usually doing so under your own name, on your own time, with your own equipment. That’s a lot of stuff to front just to earn a buck. And if you’re not careful, your so-called money maker can turn into a money waster. That’s disheartening, especially if you could that time doing something that actually brings in a profit.
How can you tell if your side hustle is costing you more money than it’s worth? I recommend doing the following:
Side Hustles Aren’t Free to Start
A survey from thehustle.co found that the average side hustler took on $35,500 in debt to start their venture. That number is highly skewed because of real estate, which can cost a lot. But even if you don’t need an office space or work area outside of your home, you’re still likely investing your own money into your hustle before you ever see your first payday from it.
Side hustles are essentially businesses and should be treated like it. This means you are on the hook for any expenses you incur. For example, if you are driving for Lyft or delivering for GrubHub, you are reimbursing yourself for gas, wear and tear on your car, your vehicle’s insurance, and related expenses. No employer is comping you for these things.
Or, if you’re a creative and are offering art or design services, you are paying for any software, tools, and technology on your own.
If you already have equipment or software even if you don’t have a side hustle, then these costs are negligible. But if you have to invest money in your business (like most businesses do) before you can star turning a profit, you need to carefully consider whether your earnings justify the expense.
Your Side Hustle Income is Taxable
Another common misconception is that side hustle income is not subject to tax. Surprise: you do have to pay taxes on your earnings!
All income is subject to tax. The difference is that when you are a gig worker, you are usually working as a contractor and not an employee of a company. This means that you are responsible for reporting your own income and paying taxes (usually quarterly) to avoid any fines or penalties.
What’s more, contractors have to pay both “sides” of the employment tax, or payroll tax. When you are an employee, you only pay for half of this tax. Your employer picks up the other half. But as a gig worker, you are usually your own employer, which means you have to pay both parts of this on top of your regular income tax.
So, if you think you can charge the same hourly rate as you earn at your day job and make the same amount of money, think again. You will actually be making less money because you are paying more in taxes. You will need to factor this into your pricing or earnings to see whether you are making enough money to justify your side hustle.
Time Isn’t Free, Either
Any type of work takes time, and your time is worth something to you. Even if you do not have a set hourly rate, it’s important to gauge how much you are making per hour with your side hustle so you can easily determine whether it’s worth it to continue or whether you could be making more money doing something else.
This means taking a close look at all of your earnings, expenses, and taxes to calculate a bottom-line total. Sure, it might look like you are charging $25 an hour for house cleaning, for example. But if you include the time spent driving between clients, the cost of gas, mileage, and car maintenance, cleaning equipment, you might only be making $15 an hour. That’s a huge difference!
It might still be worth it to you, but make sure you don’t start spending like you’re making $25 an hour.
The Bottom Line
Side hustles can be a great way to bridge the gap between paydays, get out of debt, start a savings strategy, or fund big purchases. But if your earnings don’t justify the investment you put into it, then you’re not going to be able to reach your goals, plain and simple.
Taking control of your finances can help you to build your business financial savvy as well. Take advantage of our free financial resource center to start boosting your financial IQ and take control!