The idea popped into your head and now it won’t go away. Maybe you saw someone’s side hustle and thought I can do that. Or maybe you dreamt up a new spin on an old product that could help a lot of people.
Table of Contents
- 6 Questions to Ask Yourself
- Trick No. 1: Understand money vs. value.
- Trick No. 2: Get an accountant.
- Trick No. 3: Reckon with the upside and downside of debt.
- Smart Money Quiz
Starting a side hustle doesn’t have to be difficult. There are tons of hustles that require very little effort or money to start—especially the already-established hustles such as dog-walking, house-sitting or virtual teaching. But if you’re just starting out in the side hustle game, start here. You’ll need to ask yourself some questions. You’ll need to do some planning. You’ll need to make sure this is what you want. Although side hustles are notoriously low risk (that’s the point, right?) you still need to lay a foundation and decide your level of commitment. Ready?
What makes a successful side hustle?
Success is a relative term, and it’s important to define the word for yourself. Here’s our definition: A successful side hustle is formed at the intersection of passion or interest, skill or talent, and societal need or demand. For example, if someone wants to launch a personal chef brand, but they don’t enjoy food preparation, then the idea lacks interest. Maybe the better hustle is in the oversight of recipe development or menu consulting. Maybe it’s as simple as hiring a sous chef and including that in your cost analysis.
What are you willing to put into your hustle?
A side hustle should never take precedence over your main obligations, such as your main source of income, your family, your self-care time, and so on. That being said, you have to put a number on your level of commitment. Some side hustles require more work on the front-end to get the wheels turning. If you’re looking for a casual hustle-when-I-feel-like-it gig, there are established options for that, too.
What is your ultimate goal?
Your side hustle goal doesn’t have to be lofty, and it’s probably better to start with small goals, anyway. Maybe you like new challenges. Maybe you want to master a new skill. Maybe you want to fund your daughter’s dance competitions.
Understanding the why behind your new venture ensures you don’t get off track by the well-meaning advice of friends and family. Not every business needs to scale up. Not every side hustle has to bring in six or seven figures. Stay on your course and enjoy the ride.
What’s your financial personality?
Are you a saver or a spender? Do you prefer buying new things or fixing up old things? Do you often have buyers’ remorse? Do you have trouble keeping yourself accountable when it comes to money? None of these traits are inherently good or bad, but it’s important to identify your relationship with money so you can prepare for how it might affect your side hustle.
“Think about what money was like growing up in your house,” says Anthony ONeal, a financial coach and best-selling author. “Did your parents talk about money? Did you worry about money or was money something you never had to think about? All of these things play into how you manage your money today.”
Consider sitting down with trusted family and friends to assess your financial habits. Often, we can’t see ourselves as clearly as a spouse or friend might. This isn’t a time to judge; it’s simply part of the planning process to get your side hustle off the ground and onto bigger profit margins.
“[Self-analysis] will help you to understand why you might feel tempted to go shopping when you’re stressed or why you feel the need to hold onto every dollar you make and feel guilty for spending any money,” ONeal says.
How will you budget for unpredictable dips?
Although a six-month-salary emergency fund sounds great, many Americans weren’t even there yet before this spring’s financial crisis. No matter your financial situation, it’s important to prepare for dips in income, especially in the side hustle game, which can be unpredictable. Start by living below your means, says ONeal.
“People who are living below their means may not be living a flashy lifestyle, but they’re living with intentionality and freedom,” he says. “They are telling their money where to go every month instead of wondering where it went. That’s the way to live, and that’s the way to build wealth.”
What if it fails?
A chance of failure is never a reason not to try. But it’s important to emotionally and mentally prepare for the difficult sides of business. Sit down with trusted friends and family—especially if they have entrepreneurial experience—and explore some possible failure scenarios. How would you pivot if a competing venture popped up in your target market? How would you manage if your manufacturer filed bankruptcy and you have 1,000 orders to fill? Don’t overthink this and risk worrying yourself into paralysis. It’s a fine line to walk between preparedness and unrealistic worry.
For many people, side hustles are about creating financial freedom in their lives. Your motivation for launching a hustle can be as simple as, I want to make more money. Even then, it’s important to check in with yourself before launching the hustle.
For example, is that extra money worth the stress of working four more hours every day after your 9-to-5 shift? Anthony ONeal, financial coach and best-selling author of Debt-Free Degree and The Graduate Survival Guide, recommends exploring some of the emotional ties we have with money.
With every decision comes a cost, so before you take on an extra side hustle, consider the value it will bring to your life, and weigh that against the extra money it brings.
“Would this extra money allow you to do things like get out of debt and save?” ONeal says. “If so, it might be something you need to consider. If you’re married, talk with your husband or wife and see if there are things you can do at home to make room for the opportunity.”
Taking on a side hustle of any size is a commitment. If you have a spouse or family, that commitment increases. Have a family meeting to share your plan and talk through how it might change various household responsibilities. Make sure your goal for the side hustle is worth the cost, financial and otherwise.
“If you are financially stable and don’t need the extra cash, you need to evaluate other factors,” ONeal says. “Having flexibility and time with your family is worth something, too. Success looks different for everyone, and money is not the only thing that adds value to your life.”
No matter the size of your hustle, hiring an accountant can provide peace of mind and often dollars saved—if not on your tax return, then certainly on time spent doing a task you’re not skilled in. But hiring an accountant isn’t an easy task.
If you’re hesitant about hiring an accountant and maybe don’t feel like your tax situation is complicated enough to outsource, consider this: “Think about how much time you’re going to spend trying to figure it out,” says Eric Nisall, a New York City-based accountant specializing in online entrepreneurs. “If you spent that time working on billable items, you’re going to make more than it’s going to cost to outsource those taxes.”
Here are his best times for hiring and working with an accountant:
- No one specializes in everything. A one-stop-shop tax preparer, auditor, financial manager and retirement broker sounds great, but beware, it may be too good to be true.
- Know who’s working your account. The accountant you signed a contract with isn’t always the one doing your taxes or bookkeeping—especially at larger firms.
- Get a cost estimate. Don’t accept an “it depends” answer. “If you have an S Corporation, you’re going to have a W-2 and a K-1,” Nisall says. “I can tell you within a 5 percent range based on what you tell me…. You should be able to get a reasonable estimate.”
- Never sign the return. As a paid preparer, your accountant should always sign the tax return, as the liability then falls on them, not you.
- Ask about their compensation practices. Work with someone who is salaried, not paid or bonused-based per return. “A tax return is not about the refund,” Nisall says. “It’s about accuracy.”
Business loans and credit cards are common in the entrepreneurial space. Depending on whom you talk to, debt is either a smart financial tool or your worst mistake. There is no one-size-fits-all financial advice, but when it comes to your new side hustle, less risk is often better in the beginning. After all, if your side hustle fails but you still have a business loan to pay off, that money will be coming from your main source of income, and away from your family and day-to-day responsibilities.
“I see so many people using debt to fund a lifestyle they can’t afford, and it’s making them stressed,” financial coach Anthony ONeal says. “Every paycheck that comes in is paying for your past when you should be focused on your future. Don’t spend money you don’t have.”
What’s your side-hustle money IQ?
Read next: The Side Hustler’s Handbook
This article originally appeared in the July/August 2020 issue of SUCCESS magazine.
Photo by @paolo_cristaldi/Twenty20.com