Over the last five years, the gig economy has taken hold of the U.S. workforce.
Freelancers – individuals who work either part- or full-time on their own schedule doing projects and tasks for others outside the traditional employer-employee relationship – are reported to make up nearly 35% of workers, bringing in a collective $1 trillion in 2016 alone.
For part-time freelancers, their work is often in addition to a full-time employed position, creating a side hustle that brings in a notable second income stream.
Working a freelance gig to earn extra money is helpful in reaching one’s financial goals. But it can be challenging to know exactly where to start and where that additional income should go.
Starting a Side Hustle
Working a second job on top of your first job can be rough, so it helps if you can choose something you are interested in.
In fact, if you have a passion that you can’t make a living at, whether that’s playing an instrument, painting or writing, it might actually make a perfect side hustle.
If you love animals, you can get paid to pet sit or walk their dog, and if you love gardening, you could pick up some landscaping work.
You don’t need a degree from a culinary institute to put yourself out there as a private chef working from people’s homes. You may be surprised at the ideas you come up with as you brainstorm.
There’s a saying that you have to spend money to make money. This isn’t always true, but in the case of a side hustle, you might need to pay someone to design a website for you or print up flyers or business cards.
If money is tight, you may need to look at ways to cut back on your monthly expenses to cover these costs. There might be some unusual ways to do this you haven’t considered.
For example, if you are struggling to pay the high cost of education debt, consider refinancing with a private lender. You can use the money you save each month and put it toward advertising or other incidental expenses your side hustle costs you.
Check Your Work Contract
Some employers will have clauses built in that do not let you work a side gig or that put a claim on any intellectual property that you create while they employ you, even if you are doing it off the clock.
Be sure that you fully understand your rights and obligations as an employee before proceeding. If you need to get some kind of permission from your employer before going forward, get it in writing.
Manage Your Time
If you aren’t careful, you can burn out working two jobs. Be sure to schedule some downtime for yourself.
Even if burning out isn’t a problem, your family or friends might get tired of never seeing you. If this means that you’re missing happy hour every Friday with the usual gang, you can probably take a rain check, but if you’re skipping your child’s soccer games or date night with your spouse, you may need to step back from the side gig or figure out a way to manage your time better.
The advantage of a side hustle is that unlike a regular second part-time job, you are in charge of when and how much you work, so be sure to use that advantage.
Making The Most of Your Side Hustle Income
Those with additional income from freelancing on the side should consider the following to make the most of their earnings.
Start with a Plan.
Whether you’re working your side hustle each and every day or simply picking up gigs every once in a while, it is imperative to have a plan for that income from the start.
Develop a simple financial plan on your own or with the help of a professional advisor. This allows you to gain a clear picture of what you want to accomplish in your financial life.
Is that an early retirement, being a homeowner, or speeding up the payoff of consumer debts? No matter how big or small the financial objectives, freelancers are far more likely to hit these goals when a sound, realistic plan is in place.
Focus on Debt Reduction.
If your freelancing income is in addition to traditional employment earnings and you have outstanding consumer debt, focus your energy there first.
Whether it is shorter-term debt that was used to cover a financial emergency, or credit card balances that keep accruing interest, developing a plan to reduce what you owe is a smart way to set yourself up for long-term financial success.
Most financial experts suggest starting with either the smallest debt balance or the one with the highest interest rate to kick start a debt repayment plan. Either way, paying off what’s owed to creditors ultimately frees up your extra income for other financial goals.
Read also: How This Mom of 2 Makes a Full-Time Income from Home
Don’t Forget Taxes.
Working a nine to five does not usually create complex tax headaches for employees; having a side hustle that generates additional income might.
Freelancers can do themselves a favor by planning ahead for taxes that may be owed on side hustle income. This process involves setting money aside in an account each time earnings come in. Specifically for the purpose of paying taxes at the end of the year.
The general rule of thumb is that between 20 and 30% should be siphoned off to prepare for a tax bill when additional income is earned throughout the year.
Build Your Wealth
A second income stream from freelancing can make all the difference in achieving your financial goals for both the short- and long-term.
Using your financial plan, determine which “bucket” you want or need to fill in order to reach specific money milestones. And then break down how much of your extra income you have available to put into each category.
Some may focus on establishing an emergency fund. While others may be in a place to save toward a down payment for a home or retirement. No matter the goal, be sure to set aside some of your side hustle income for these specific buckets to begin or continue building wealth for the future.