How You Should Think About Your Side Hustle Income

Side Hustle Income

Many of us have or are looking to develop, side hustles to supplement the income from our main jobs.

But how should you categorize your side hustle extra income? Make sure every dollar from your side hustle income has a purpose with these 4 strategies:

1) Don’t double count your earnings

I recall my first non-wage side hustle income. It was the simplest introduction possible: I started selling my old stuff on eBay. My primary motivation wasn’t even the income, but rather the decluttering that selling my stuff would facilitate. I was looking to ditch dead weight, and focussing on physical clutter seemed like one way to begin. But, when the sales actually began hitting my PayPal account, I began thinking of all the things that new income stream could offset. And I do mean all the things. I was full of excitement about how that $75 I earned selling a handbag could cover my groceries for a week! And half a plane ticket to Vegas! And a nice restaurant meal out! I needed to slow down and realise it might offset one of those areas of spending, but not all. And that it ultimately represented a net loss anyway given the handbag probably cost over $200 new.

Once your side hustle income starts flowing, check that you’re not allocating it to more than one area. Give each dollar a singular purpose, be it covering day-to-day spending, bulking up your emergency fund, or investing.

2) Don’t spend it before you earn it

Closely correlated to the above, be mindful about adjusting your spending upward, especially before your side hustle income really starts materializing. My preferred way of looking at it is, earning side hustle income is not a good reason to spend recklessly, or in a way you wouldn’t have done otherwise.

An example of this is income earned from Airbnb, particularly if it’s only when you travel. I list my apartment on Airbnb when I go away on travel, but I only do so for trips I would’ve taken (and would’ve been able to afford) anyways. If I started taking trips just for the purpose of earning more AirBnb cash, I’d want to be very mindful of the overall cost of that travel, relative to the potential income generated.

With that in mind I would recommend AirBnb as a great way to make extra cash as it’s worked for me. If you wanted to try to list your spare bedroom, sign up to become an AirBnb host here. If you go through that link you can get $75 when you welcome your first guest and $20 in travel credit. Yes, seriously!

The same could be said of buying items to flip, which is a really interesting area to look into. Just be conscious that the inventory you bought doesn’t represent actual cash until you’ve successfully flipped it. And it should go without saying, but please don’t go into debt chasing side hustle income.

3) Budget for taxes

Depending on the character of your side hustle income, you may need to report it as self-employment income. One way or another, in most cases it will ultimately end up on your tax return. One exception would be when you have a loss on the sale of personal-use property, such as your car, home furnishings, or clothing (i.e. that $200 handbag I sold for $75), which is not reportable, as it’s not a deductible loss. In general, any source that has paid you more than $600 is required to issue you a 1099, which is reported to the IRS, and is then your responsibility to report on your tax return.

For a broad overview, the Turbotax blog provides a summary of what to think about. You should consult a tax professional for the specifics on this as related to your personal circumstances.

#4 Enjoy the process while you develop your hustle muscle

I’ve found delving into different side hustles to be a really fun process. Even just those first few eBay sales started building up my entrepreneurial drive. My side hustle muscle, if you will. It’s remarkable how different it feels earning your first independent income, versus getting the same old paycheck you’re used to.

I’ve found, and have noticed in others, that it tends to spark the desire to do more, to seek out new opportunities, to optimize other areas of life.

As millennials, we’ve tapped into the power of developing multiple income streams, and we certainly love the freedom and flexibility that allows. Keeping a few key concepts in mind as we do this will serve us well as those income streams grow and change over time. Whether your goal is to replace your day job income, pad your savings, or fund your next adventure, thinking more like an entrepreneur is going to get you there faster. You can take a peek at this post if you want some Side Hustle Ideas You Can Start Today.

Grace Taylor

Grace is an expat living in Dublin, Ireland, and blogging at Gracefully Expat. A US expat tax professional by trade, she writes about expat life and personal finance, with a goal of moving towards location independence and financial independence, with intention. She loves empowering people to take ownership of their financial lives. ~ It's no secret that millennials are a generation of hustlers.

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Some of the links in this post are from our sponsors, but all opinions are my own.

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