When it comes to finding ways to make extra money on the side, millennials are creative. From pet sitting to renting out bicycles and apartments, they’re go-getters who are rethinking the art of the side hustle and making it work for their lifestyles. Their innovations are fueling the rise of a new sharing economy that turns assets people already own like cars and homes into business opportunities. Thanks to ride-sharing apps and home rental sites, there are now endless opportunities for a motivated person to turn their free time into cold, hard cash.
If you’re one of the 44% of people between the ages of 25 and 34 pursuing a side hustle to make extra income, you know that using your free time to cushion your bank account can be empowering.1 Say you’re living paycheck to paycheck, struggling to pay off student loans or credit card debt. A side gig can ease stress when unexpected car repairs or other bills pop up. Maybe you’re relatively comfortable financially but unfulfilled at work. Starting a business during your free time allows you to be your own boss while pursuing a passion project.
Whether your side hustle is necessary for you to make rent or pay off debt each month, or an outlet for you to chase your entrepreneurial dreams, monetizing your free time is a great way to achieve your goals. And once that extra cash starts flowing in, you’ll need to manage it carefully to maximize your income.
If you’re working a full-time job and managing a side business, your time is limited. Money management is one task many side hustlers forget to factor in to their schedule. Planning ahead for this is important. Tracking the money you’re making as well as the money you’re putting into your side gig is key to understanding how best to maximize your side hustle income. Just like with your personal budget, the more info you have up front, the better equipped you’ll be to make smart business choices.
Thinking about reinvesting some of your side hustle money back into your business? If you’ve been keeping good records, you’ll know exactly how much extra cash you have on hand to put toward buying a new computer for your freelance graphic design work or revamping your website. If you’re more interested in boosting your personal savings, tracking your business finances carefully will let you know exactly what amount you can afford to move over to your personal savings account each month.
Automating as much of your money management as you can is another helpful time saver. Free online tools like Freshbooks can help with invoicing and record keeping. If you use tools like these as you go, you’ll save yourself hours of tedious accounting work later. Keeping these factors in mind up front and setting aside time in your schedule to address them will save you from feeling maxed out and overbooked.
It’s important to remember that just like the money you make at your day job, income from your side hustle is taxable.2
Filing taxes in April when you have multiple sources of income can be daunting. Whether you file taxes yourself or enlist a CPA for help, it’s important to carefully record all the money that goes in and out of your business and set some extra cash aside for tax payments down the road. Keeping good records helps you take full advantage of available tax write-offs and small business tax credits. And setting money aside for taxes ensures that you have plenty of cash on hand when it’s time to pay the IRS.
To prepare for tax season, you’ll need to track both the money you put into your side business and the money you earn from it. This can be tricky if your business is cash or tip-based, like bartending or nannying. Try making a quick note every time you deposit cash into your savings or checking account. You can do this on paper in a dedicated notebook or by shooting yourself an email with the amount and date. Google Sheets and other business income/expense tracking templates are also useful and readily available for free online.
It’s also important to find a system of filing business receipts that is easy to manage. If keeping track of paper receipts doesn’t work for you, try going digital and snapping photos of all your business-related receipts with your phone. You’ll also find 1099 and other IRS forms on these apps, which you’ll need when you file your taxes.
Navigating the sharing economy can be tricky. If you are making money by renting out your apartment or sharing your car, tracking and categorizing personal vs. business spending can be complicated. It can be helpful to open a second savings or checking account to manage your side hustle income. Consider online banking apps to simplify things like deposits, bills and digital payments.
Opening a second account provides clear boundaries between your business and personal finances. For instance, if you are renting out your home, you can use a second checking account to buy necessary household items like guest towels and cleaning supplies. When you buy groceries for personal use in your home, you’ll use your personal account. When finances are divided into separate accounts up front, it’s easier to avoid confusion between these different categories of spending down the road.
Millennials are diverse, and so are their options for making extra money on the side. But no matter how you choose to turn your free time into profit, setting aside time to manage your finances, preparing ahead for taxes and setting up clear boundaries between your personal and business finances will ensure you get the most out of your hustle.
This site is for educational purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
Careerbuilder.com (2016, September 29). Retrieved August 27, 2017, from: http://www.careerbuilder.com/share/aboutus/pressreleasesdetail.aspx?ed=12/31/2016&id=pr968&sd=9/29/2016
Forbes.com (2017, June 29). Retrieved August 27, 2017, from: https://www.forbes.com/sites/kellyphillipserb/2017/06/29/6-things-to-know-about-your-side-hustle-and-taxes/#577e1e1a60a8
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