It can be incredibly exciting to think about earning extra money or finally getting paid for a creative passion. Whether you're looking to build a financial safety net or just want to explore a new interest, your drive to improve your situation is powerful. We want to help you harness that energy so your new venture supports your life rather than complicating it.
When you build a side hustle, begin at the end
It may seem counterintuitive, but the best way to build your side hustle is to start with your goals and work backwards. You need to understand why you're doing it and what you hope to accomplish before you spend a dime.
Ask yourself a few honest questions. Is this just for fun and a little extra income on the side? Are you doing it for personal growth and education? Perhaps this is a financial safety net or a first step toward working for yourself. Whether you are building a cash cushion, paying down debts, or covering everyday expenses, defining these goals is the best way to start.
A small side hustle may wind up being more successful than you imagined, or you might hit hurdles trying to get a business off the ground. Clarity on your "why" helps you navigate both scenarios.
The 3 types of side hustles
Not all hustles are created equal. Whether you sell macramé on Etsy or deliver for DoorDash, it's important to know which category you fall into so you can manage your expectations.
Gig work
These are infrequent, one-time types of events. This is the life of many amateur musicians and other performers. It's usually a sideline while a day job provides most of the income. The payoff is a little extra cash, but the real goal here is often to have fun and be creative.
"Franchise" hustles
This happens when you join someone else's network, such as Uber or Grubhub. The upside is that someone else sends you business, and you generally can work as much as you wish. You're working for a known entity, so you don't have to prove your credibility or explain who you are.
These are the most popular because they are the easiest to start and you start earning income right away. They can be flexible, but the catch is that you may not generate tons of extra income since you are limited by the platform's rates.
Entrepreneurial side hustle
This is true self-employment. The good news is that you're on your own. The bad news is that you're on your own. How much you work and earn is entirely up to you, but there is no safety net. Many full-time self-employment gigs started this way. Our advice is to build this hustle gradually. Learn as you grow, be OK with failure, and only launch to true independence when you are financially prepared.
Be realistic out of the gate
Don't quit your day job, at least right away. Make sure you know what you want out of the gig and start small. It's okay to dream big, but let reality, not dreams, drive your initial decisions.
Gigs don't always pay off immediately. It may take a fair amount of time to become known, build a reputation, and get customers. Understand the time commitment required to get up and running. If possible, start small and grow into a bigger business later. Avoid making big decisions right away so you can learn from your mistakes while the stakes are still low.
Funding your side hustle
Never take on "hustle debt" unless you can comfortably afford it and don't expect the hustle to pay back that initial debt for a long time. This goes double if your hustle involves paying someone to get your business going, such as a real estate investment course with "practically guaranteed results."
Watch your costs carefully. Don't make the mistake of treating an expense as an investment unless your research shows a good chance of building a profitable income stream. For example, are you thinking of starting a podcast? Instead of starting with the $3,000 mic set-up, try the $100 mic. Get up and running first, and then progress from there.
Don't forget about taxes
The factor many budding entrepreneurs forget is taxes. No matter what kind of hustle you start, the federal government and (in most cases) state governments will want their cut. Paying quarterly estimated taxes is usually the best way to avoid potential penalties, but you should talk to your accountant or a CFP® professional.
Needless to say, keep receipts and records for every expense and every dollar of income. If the IRS has questions or chooses to audit you, you'll be glad you have them.
Make it part of your roadmap
No matter what your goals are, it's smart to understand how this new venture fits into your broader financial picture. Before spending money to build a side hustle, evaluate how it impacts other areas of your life. Will it take away from other goals? Will it mean dipping into your emergency fund? Will it affect your ability to deal with unforeseen financial emergencies?
The goal is to minimize financial risk while maximizing personal reward. If you want to see how your current hustle integrates into your larger journey, we're here to help.
The Facet difference
At Facet, we believe your financial life is about more than just investment returns. It's about how your money supports the life you want to live. That's why we pair you with a CFP® professional who looks at your entire picture - from your career and side hustles to your retirement and taxes. We operate on a flat membership fee, so our advice is objective and focused on helping you achieve self-fulfillment.
