If you're interested in making extra money outside of your full-time career, you're not alone. Whether by taking surveys online for cash, investing in an Airbnb for income or having a full-blown second job, 93 percent of Americans have some type of side hustle, according to a recent survey by Insuranks, a small-business insurance marketplace.
Motivations for starting a side hustle could vary, ranging from simply having extra time on your hands to wanting to focus more on a passion or hobby. Or, it could be to save for a specific goal, like retirement. According to a survey of high-net-worth and high-earning millennials by RBC Wealth Management, more than half (55 percent) of respondents said they plan to start a side business so they can retire before age 65 or build wealth to create passive income.
But when you already have a full-time job and other demands on your time, it's important to make careful decisions when it comes to anything that might impact your financial future. So before you start hustling, ask yourself the following:
1. What's your goal?
As mentioned above, there are many different reasons why you might be looking at starting a side hustle, and your goal will determine what kind of gig you want to take on. For example, the goal of making money to save for a specific need, such as a house, might require different considerations than if you're looking at establishing a creative portfolio or creating a steppingstone to a full-time business. Keeping your specific goal in mind can be a useful motivator if you experience any challenges or difficulties related to balancing your side gig with your full-time career.
2. What do you want to do?
Your personal interests will also play a big role in determining what sort of side hustle to pursue, and what kind of options might be available to you. If you enjoy driving, for example, you could make extra cash by signing up to be a delivery driver. If you have professional skills to offer, you might instead look into becoming a photographer, web developer or freelance writer. Or, if you love animals, you might want to walk dogs on the side. By focusing on an area you have interest in or are skilled at, you can make your side hustle more satisfying for you.
3. Do you have money to invest in starting a side business?
Depending on what kind of gig you want to start, you may need funds upfront, such as to buy property for short- or long-term rentals. If this is your situation, ask yourself whether you can build such an expense into your wealth plan without impacting your financial security. If you have an emergency fund, retirement savings and appropriate insurance, then you'll have the freedom to be more entrepreneurial with your next steps.
4. Do you have the energy for a side business?
A side business can require significant time, energy and resources, especially in the early phases. If you plan to actively earn a side income in addition to your 9-to-5, you'll need to juggle your time without risking your main source of income. Be mindful of working your side gig while at your day job.
5. What will you do with the extra income?
If you're using your side hustle to save for a goal, such as to buy a house, take a sabbatical, retire early or invest in another business, it's wise to keep this extra income in a separate account so that it's easier to track. A financial advisor can help you identify the right vehicle for saving and investing, depending on your objective.
6. Will you need a license, insurance or to establish a corporation?
Typically, when starting a side business, you'll be a sole proprietor, but you may need a license depending on your chosen industry. If you have more liability exposure or will need to hire employees, you should consult your financial and legal advisors to determine the best way to structure your business.
7. What are the tax implications of the extra income?
Earning additional income through your side hustle will add to your tax burden. But depending on how you're earning that extra money, you may need to set aside money for taxes, and in many cases will be able to deduct certain related expenses. Consult a tax advisor for individualized information. A side gig can require significant time and energy, but it can also be an excellent low-cost, low-risk way to grow your wealth more quickly. By considering your options and making careful decisions, your chosen side hustle can be useful financially and also satisfy a personal passion.