These days, people face a lot of challenges when navigating the job market. It’s harder than ever to get by on one income, or even two. Job turnover is incredibly high, much more so than in the era when you could expect to work for the same company for 50 years and get a gold watch when you retired. Meanwhile, social media saturates us with ideas for how to monetize everything—from our hobbies to our social networks to our cars and apartments. More and more young people are working side hustles in addition to a main job.
So what do you do if you want a side gig? How do you separate solid advice from hype?
Questions to Ask
Before you start a new side hustle, you need to ask yourself some questions. Do you just want a temporary income boost to meet a specific goal? Do you want to start building up a business so you can eventually quit your day job?
Also consider carefully what you actually enjoy doing. For example, if you’re an introvert you might find sales-oriented jobs to be utter misery. On the other hand, consider the risks of monetizing your hobbies. Are you going to rob yourself of the best means you have of relaxing at the end of a long workday?
Once you have a general idea of what your goals are and what you’re likely to enjoy doing, there are more factors to consider. What are the startup costs of your chosen venture? How long does it take to earn back those startup costs and begin turning a profit? What is the job’s growth potential? How flexible is the schedule?
Lastly, it’s important to consider any conflicts with your full-time job. Juggling schedules isn’t the only potential pitfall. If you choose a side hustle that’s too similar to your primary job, you could be accused of a conflict of interest. Also make sure to consult your employment contract to check whether there’s language giving your employer rights to your intellectual property or profits. It’s far better to learn these things early on, even if it means abandoning a promising business idea, than to become embroiled in a messy legal battle.
Gig Work Platforms
If you decide to get into freelance work as your side hustle, there are many sites that can help you drum up business. All of them have their pros and cons, however.
Upwork
Upwork is a very large international platform that’s well-known and reputable. However, the things that make it a good place to find work can also be a disadvantage. When you’re competing against potentially hundreds of other freelancers across the world, it can be hard to make yourself stand out from the crowd. Another risk of an oversaturated market is having to lower your prices to the point where you aren’t making enough to justify the time spent. Upwork also charges a fee that ranges from 5% to 20% of your income depending on how much you make, further cutting into what might be a narrow profit margin.
Fiverr
Fiverr is another large international platform that originally set the price of all tasks at $5, hence its name. It has since removed this price restriction and potential freelancers and clients can connect with each other for all kinds of jobs at all kinds of price points. Fiverr charges a 20% fee for all transactions and can take up to 2 weeks to send payment to freelancers, so it might not be the best choice if you need quick cash.
TaskRabbit
Unlike UpWork and Fiverr, TaskRabbit focuses on connecting gig workers to local clients. Because of this, it’s probably a better choice if you want to do jobs like cleaning houses or walking dogs rather than something like freelance writing. TaskRabbit takes 15% of any money you earn working through their site, less than some other sites but still significant.
Tax Implications of Your Side Hustle
Any time you increase your income, you have to consider the tax implications. For example, will this added cash flow bump you into a higher tax bracket? Make sure your profits are high enough to cover the amount you send to Uncle Sam and still give you enough left over to justify the time spent.
If you’ve only ever had a salaried job, freelancing and gig work can present a whole new world of other tax considerations. For example, you will probably have to pay quarterly taxes. Moreover, you’ll have to pay self-employment tax, which at 15.3% can really cut into your profit margins. If you’re unsure how much you will owe at the end of the year, it can be a good idea to increase your withholdings from your day job. That way, enough taxes are withheld that you are unlikely to owe a large sum next spring.
If you have a complicated tax situation—for example, combining income from a salaried day job with income from assorted freelance gigs—a CPA can be worth their weight in gold at tax preparation time. While their fees might seem expensive, they often know more than you do about how to minimize your tax obligations and avoid unnecessary fees.
Will That Side Hustle Help With Your Goals?
Side hustles can be a great way to jumpstart your financial future, whether you’re just trying to pay down some debt or trying to start a new business. But if you don’t know what you’re doing, you can invest a lot of time and effort into something that doesn’t pay off. Contact us to connect with an experienced financial advisor who can help you think through the best course of action.
