Having a side hustle is great because it does not interfere with your main job or your career objective. It can help you pay bills, clear debt, save for retirement, start a business or just offer some money to splurge. However, with extra money coming in, you need to be able to organize your finances.
The major concern with side hustles is that they're seen as secondary sources of income, so most people don't try to up their game. As soon as the side gig starts making money, they tend to relax and make poor financial decisions.
The reality is that your side hustle can become a full-blown business in the future if you make smart financial decisions now. If you have no idea how to do that, here are six tips help you organize your finances and get you started.
Create A Separate Bank Account
Although your side hustle may not be a separate business entity, it's wise to keep a separate bank account. This will help you track how much money you're making outside your main job.
Having a separate bank account is a great way to organize your finances as it will prevent you from scrambling when money comes in.
For instance, you will have a pool of money to draw from when you want to grow your side gig. People who don't keep separate accounts often find themselves dipping into their regular income.
Budgeting is always important when you want to organize your finances. Some side gigs like freelancing have inconsistent income. Therefore, it's imperative to work with an adjustable budget.
For example, calculate your total income at the end of the month and decide how you will spend it. Successful entrepreneurs often prioritize using the extra money to repay debts or in emergency and sinking funds.
Spend Within Your Means
The surest way to grow your side gig is to treat it like a real business. And that means spending as little as possible and being smart about where you spend the extra money on.
It also means striving to grow your hustle without taking on debts. So instead of taking loans to grow fast, keep your main job to foot your bills and reinvest your earnings in growing your side hustle.
Track Your Money
Tracking is essential if you want to successfully organize your finances. If you don't track where your side hustle money is going, you will never know whether your efforts are really paying off. This doesn't mean you invest in an expensive bookkeeping system. A simple spreadsheet can be enough.
Another benefit of tracking your side gig money consistently is that it helps you when filing taxes. And this brings us to the next tip.
Set Aside Money For Taxes
When your side hustle starts bringing in money, you officially become an entrepreneur and tax obligations kick in. Tracking your money to organize your finances can help you set aside money for taxes. If you skip this step, you can be extremely frustrated when filing taxes.
It is not uncommon to find entrepreneurs scratching their heads when whacked with a tax bill. Owing money to the IRS can have a huge impact on your finances when the taxman comes knocking.
Create A Business Plan
If you want to take your side gig to the next level, you will not get far without a business plan. A written plan forces you to specifically identify your target audience, your competitors and specific ways to scale.
In other words, a business plan helps you research and determine whether it is really feasible to scale your side hustle. Entrepreneurs who often scale their side gigs blindly face find themselves struggling to cope with market demands or realize they made a wrong decision when it's too late.
A side hustle is a great way to increase your income without sacrificing your full-time job or career development. But if you don't make these smart financial choices, you may end up in more debt or living beyond your means because you assume you have extra money coming in.