Creating a Budget for Your Side Hustle
Here's how you can go about managing money for your side hustle so that it's in step with your goals and values.
Photo by Greta Hoffman on Pexels
If you're a side hustler, you're in good company. According to a recent survey by Zapier, one in three Americans are members of the gig economy.
During these times of uncertainty, side hustling can be a particularly great way to earn extra money on your own, which can in turn help cover cash flow gaps, help knock out debt quicker, or help you save for a big-ticket item. Plus, a side hustle could provide a stepping-stone to building a side business with the potential to eventually blossom into a lucrative career.
Whether you're a full-time member of the gig economy or are doing it on the side, income you earn needs to be managed. Otherwise, you could easily lose track of where your income is going, and it might be spent unscrupulously.
Let's take a look at how you can create a spending plan:
Jot Down What You'll Need for Your Side Gig
First, you'll want to figure out exactly what supplies, materials, and equipment are needed for your side hustle. For example, let's say you're side hustling as a freelance writer or social media manager. In that case, related expenses might include web hosting for your website, paying for branding consultation and logo, and a domain. Other digital tools to help you do your job could include a cloud backup service, time tracking software, invoicing software, and project management software.
If you side gig as a handyperson on TaskRabbit, you might need to invest in some basic tools and equipment to do your job. Ongoing expenses could be fuel to fill up your tank, and basic car maintenance and any needed repairs.
Pro tip: figure out which expenses are monthly, and which expenses you're billed yearly. This will help you know ahead of time when these bills are due.
Look for Ways to Get Started for Less
If you're just starting out, think of ways you can get started inexpensively. If you're a digital creator, there are plenty of free versions of tools at your disposal. Or, start with a side hustle that doesn't require a lot of equipment or know-how.
An easy way to enter the side hustle zone is to sell items you have lying around the house, with the goal is to start making money as soon as possible. Once you've begun to gain momentum, you can put more resources and time into your new endeavor.
Assign a Job to Money Earned from Side Hustle Money
It's also important to figure out what your side hustle money will be used toward. The goal is to use cash from side gigs so that it's in step with your larger goal or to reinvest it back into your endeavors. Will it go toward covering monthly living expenses, toward a money goal, or to pay off debt? Or maybe it will be reinvested to help you grow your side hustle into a side business.
Another way you can approach savings is by allocating a percentage of money earned toward some of your financial goals. For instance, maybe half will go toward your bills, 25% toward paying off debt, and the remaining 25% toward growing your side hustle.
Separate Business and Personal Finances
Even if you're a part-time side hustler, it's important to separate out your business and personal expenses from the get-go. For one, having a bank account just for your business can make it easier for you to manage your business expenses. You can keep track of what's coming in from your side hustle and pay business-related bills and expenses from this account. Plus, tax time will be less headache-inducing.
Open a Business Credit Card
Also consider opening a business credit card. Consider using it to pay a few business-related expenses, then paying off the balance in full. If used wisely, having a business credit card can make it easier for you to track expenses. You'll only need to pay one bill a month versus juggling paying several throughout the month.
Even if you're not making a ton your first with a side hustle, it's still important to separate out your business and personal finances. It'll make things easier and more manageable as you scale and grow your business. Plus, you can rack up rewards points, which can be used to go back into your side hustle.
Link Side Hustle Income to Certain Bills
A persistent challenge of budgeting as a side hustle is dealing with income that can fluctuate. If you are using side hustle money to go toward your bills, one tactic is to link steady-ish gigs with somewhat predictable income to particular bills.
For instance, if you deliver groceries several times a week and your weekly income hovers around $200, you can put that toward a larger bill, such as your rent or student loan debt. For gigs that bring in smaller amounts that land in your bank account at more unpredictable times, these can go toward discretionary expenses, such as on food, household items, and going out.
Set Up a Rainy-Day Fund and an Opportunity Fund
You never know when you might need extra cash for your side hustle. An unexpected emergency might arise, your car might break down, or some changes in your industry might mean you need to pay for additional insurance or fees.
Along the same lines, consider setting up what I like to call a "future fund" or an "opportunity fund." Just like how we should squirrel away funds for when things go south, it's important to have extra cash set aside for unexpected opportunities. And you might eventually want to turn it into a full-time job. If so, figure out how much you might need to make that happen.
Setting up a budget for side hustle can help make sure your related expenses are covered. And should you decide to expand your existing gig or foray into other hustles, you'll have the means to support your plan for the future. You got this!
Jackie Lam is a personal finance writer whose work has appeared in Salon, Business Insider, and GOOD.