Being in the personal finance space for several years, we have heard all sorts of money advice.
One particular piece that keeps popping up is the tip to get a side gig.
Need to pay off debt? Start a side hustle.
Can’t afford your bills? Make some money on the side.
Want to cure cancer? Okay, just kidding, but you get the point.
While I am not against getting a side job, I don’t think it is the best way to fix a broken budget.
Earning $500-1,000 extra a month is not going to transform you into a debt-free individual who
can pay all of their bills on time.
The True Costs of a Side Gig
Before you start counting up potential income of a side gig, you need to consider the costs. How
much will you really make at the end of the month once you calculate the price you need to pay
to take on a side gig?
Start Up Costs
There are several legit work-from-home jobs that don’t require startup costs, but many do. Most
MLMs require the purchase of a starter’s package and a monthly order. Successful blogging
requires the purchase of a domain, hosting, and layout. Other jobs might require gear or software
Creating a successful side job requires a lot of sweat equity. I know a lot of MLMs boast that you
can make tons of money from just 30 minutes a day, all while enjoying the comfort of your
couch. Insert eye roll here.
Depending on the gig, earning real money on the side can eat up anywhere from 5 to 10 hours a
week – and that is being conservative. Often, this time does not add up to money earned. For
example, a freelance writer can write a killer article in three hours for $300. However, it could
have taken that freelancer an hour to pitch and finally land a job, an hour to research the piece,
and an hour to do revisions for the editorial team.
Not only are you going to invest extra time into your side gig, but you are investing your leftover
time. If you work a typical 40-hour week, chances are your energy reserves are pretty low when
you start your side gig. This means you can take longer to accomplish your side gig or you can
be cheating your real job of your best effort.
Since you are spending your free time earning money, you have less time to keep your budget
low. For example, you might need to hire more child care to have the time to work or you order
more fast food because you don’t have time or energy to prepare meals.
Taxes and Fees
Even if you do not receive tax forms from your side gig – i.e. you are paid in cash for babysitting
or pet sitting – you still must report the money as income on your tax forms. Even if you are
making as little as an extra $1,000-5,000 per year, the government wants their share.
For many side hustles, like freelancing, the IRS requires you to pay quarterly taxes. If you don’t,
you be prepared to pay penalties.
The Value a Good Budget Instead
Why do you want a side hustle in the first place? Are you looking for an extra $100-500 a
month? There is a good chance you already have that money, but you aren’t using it wisely.
Don’t believe me? Take this budget checkup to see if you are overspending.
- Do you live from paycheck to paycheck?
- Do you rely on your credit cards each month?
- Do you regularly throw out food?
- How many things did you buy that you didn’t really need this month?
- How many times did you go through the fast food lane?
The problem with overspending is that you are robbing yourself of financial freedom. A side gig
isn’t going to magically fix your overspending issue. In fact, it might make it worse while lulling
you into the false pretense that you are making enough to get by.
4 Ways to Save More Money Each Month
Before you investigate potential side income opportunities, see if you can make better use of the
money you already have. Heck, you’re already putting in the time commitment and paying taxes
on it, so you might as well make it work for your lifestyle. Here are four ideas to help you use
your money more efficiently.
1. Get a Handle on Debt
Credit card, student loan, and car debt are eating your budget mercilessly. Stop adding more debt
to what you already have. Stop viewing your credit card as an extension of your paycheck – it’s
not! Take charge of your debt and try the following, instead:
- Get rid of cars you can’t afford. If you can’t afford your $500 a month car payment, then
why do you even have it? Surely you can get by with a smaller, used car with a lower
monthly payment (or even better, no monthly payment at all).
- Transfer credit card debt to a 0% promotional APR card and commit to paying off the
debt within the given time period. For example, if you have $10,000 of credit card debt,
transfer it to a 14-month 0% intro APR card, and pay $715 each month for 14 months.
This will take focus and sacrifice, but – after 14 months – you will have wiped out
$10,000 of debt. (Be careful not to use this to rack up even more debt, though!)
- Consider refinancing personal loans, student loans, and car notes to a lower rate.
Look into programs for federal student loans to see if you qualify for lower payments or
2. Control Your Food Budget
There are many things within your budget that you can’t control, like how much you pay for
gasoline. However, you can always control your food budget.
If you’re on a tight budget, eating out is like setting money on fire. (Trust me, I used to do this
myself!) Take an hour each week to plan your meals and make a clear shopping list. This task
alone can save you a $100 a week on food (or more) and eliminate most impromptu fast food
runs. Utilize grocery stores that offer free or low-cost curbside pick-up to save even more time
and avoid shopping temptations.
3. Regularly Check Your Rates
At least once a year, shop for rates on insurance, internet, cell phone coverage, and more. Don’t
assume you are paying the lowest price. Many companies will slowly increase their costs, and
competitor companies might offer a huge discount for your business. Even paying $50 less per
month for auto insurance translates to $600 savings per year. That’s a free $600 you don’t have
to report to Uncle Sam because you already paid taxes on it.
4. Just Stop Spending
If you can’t afford your current lifestyle, try going on a spending freeze. Do you really need to
buy a new top? Is that extra grocery run really necessary? You probably have enough inside your
closets and cupboards to survive a week without hitting the store.
Make a game out of not spending. Try to delay grocery trips by making something creative from
the freezer or pantry. Borrow books, clothes, toys, or baby gear from a friend instead of buying
something new. Make your friend their favorite cookies and write them a heartfelt note instead of
buying a $20 gift.
Final Thoughts: Are Side Gigs Bad?
I’m certainly not against earning money on the side, but – just like more exercise doesn’t fix
overeating, more money never fixes overspending.
Get your budget in control first, then start a side business. Do it because you want to, not because
you have to. A side hustle can be a terrific way to accelerate your savings and debt repayment,
but it only works if you fix your spending problems first.
Greg Johnson is a personal finance and frugal travel expert who leveraged his online
business to quit his 9-5 job, spend more time with his family, and travel the world. He is
the co-owner of the popular blog Club Thrifty, where he teaches others how to spend
less and travel more.