The idea popped into your head and now it won’t go away. Maybe you saw someone’s profitable 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.
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6 questions to ask before starting a side hustle
Starting a profitable side hustle doesn’t have to be difficult. There are tons of hustles that require minimal effort or money—especially the already-established hustles such as dog-walking, house-sitting or freelance editing and writing. But if you’re just starting out in the side hustle game, start here. You’ll need to lay a foundation, decide your level of commitment, ask yourself some questions, do some planning and make sure this is what you want. 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 in to make your side hustle profitable?
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 determine your level of commitment. Some side hustles may require more work on the front end to make them profitable, while others are more casual, hustle-when-I-feel-like-it gigs.
What is your ultimate goal?
Your side hustle goal doesn’t have to be lofty, and it may be better to start with smaller, short-term goals anyway. Maybe you like new challenges. Perhaps you want to master a new skill. Or maybe you want to fund your daughter’s dance competitions.
Understanding the why behind your new venture may help ensure you don’t get off track. You don’t need to listen to all 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 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? When you go shopping, do you often have buyers’ remorse? Do you have trouble keeping yourself accountable when it comes to money? Not all 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 O’Neal, a financial educator and bestselling author of Debt-Free Degree and Destroy Your Student Loan Debt. “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. This isn’t a time to judge; it’s simply part of the planning process to get your side hustle off the ground and become profitable.
“[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,” O’Neal says.
How will you budget for unpredictable dips?
Although a six-month-salary emergency fund sounds great, many Americans’ emergency savings have actually decreased—just 26% have a larger amount of emergency savings than they did a year ago, while 25% of people have about the same amount and 39% have seen a drop in their emergency savings, according to a 2023 Bankrate survey. Additionally, in the event of job loss, 68% of participants reported that they would be somewhat (23%) or very (45%) worried about being able to cover the cost of living expenses for a month.
No matter your financial situation, it’s important to save money to prepare for dips in income or unexpected expenses and emergencies, especially in the side hustle game, which can be an unpredictable source of income. Start by living below your means, says O’Neal.
“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 your side hustle isn’t profitable?
A chance of failure is never a reason not to try, but it also doesn’t mean you shouldn’t be prepared for difficulties. 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 had 1,000 orders to fill? Don’t overthink this and risk worrying yourself into paralysis. There’s a fine line between preparedness and unrealistic worry.
3 tips to maintain a profitable side hustle
1. Understand money vs. value
For many people, side hustles are about earning extra money. According to an Insuranks survey, 63% of participants have a profitable side hustle “for something to do and a bit of extra cash,” while 44% have a side hustle “to make ends meet/cover bills.” A 2023 Bankrate survey found that “one in three (33%) of side hustlers need the income for regular living expenses.”
Even if your motivation for launching a hustle is as simple as, “I want to make more money,” 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? Consider the value the side hustle 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?” O’Neal 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 profitable 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,” O’Neal 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.”
2. Get an accountant.
No matter the size of your hustle, hiring an accountant can provide peace of mind and possibly dollars saved—if not on your tax return, then certainly on time spent doing a task you may not be skilled in.
If you’re hesitant about hiring an accountant and/or 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, the Florida-based founder of AccountLancer. “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% 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 bonus-based per return. “A tax return is not about the refund,” Nisall says. “It’s about accuracy.”
3. Reckon with the upside and downside of debt.
Business loans are common in the entrepreneurial space. Depending on who 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 financial risk may be better in the beginning. After all, if your side hustle fails or isn’t profitable 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,” O’Neal 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.”
This article appeared in the July/August 2020 issue of SUCCESS magazine and was updated July 2023. Photo by DimaBerlin/Shutterstock