This post was written by our regular contributor, Erin.
Side hustle income is all the rage these days, especially with the millennial generation. It’s one of the most flexible ways to earn more money.
But…why exactly are people so crazy about earning more?
Side hustles require a lot of motivation and dedication, and without a strong reason behind why you’re working more, you’re likely going to lose steam.
Whether you have a clear goal in mind for your side hustle income or not, these 7 ways to use your extra money should give you better direction.
1) Pay Off Debt
One of the biggest reasons young adults choose to side hustle is to accelerate their debt payoff progress.
As a generation practically drowning in student loan debt with somewhat limited earning potential in the “real” job market, this is one of the best ways we can get ahead.
There are also people who are simply sick of being in credit card debt and decided enough was enough. They turn to side hustling to hammer away at their high interest debt. As an added bonus, since side hustles tend to be time consuming, they might start spending less!
An interesting way to look at it is this: try and get a side hustle that will pay you enough per month to make at least the minimum payment on a debt.
If you can get extra money to cover your debt payments, that gives you an extra cushion in your regular budget.
Of course, I can’t mention side hustling to pay down debt without mentioning DC’s book, Hustle Away Debt! If you’re interested in starting a side hustle to pay down your debt, then you should definitely give it a read.
2) Save it
Just as you can accelerate your debt payoff with side hustle income, you can also increase the amount of money you save each month. What’s better than that?
Think about your savings goals and apply the same logic we used for debt payoff here.
Can you take on a side hustle that will give you the money you need each month to meet a savings goal? For example, maybe you want to save $500 per month for your wedding. Find a side hustle that will allow you to do that!
If money is tight and you haven’t had a chance to save, I recommend funneling some of your side hustle income to an emergency fund. You can start one if you haven’t, or keep padding your existing fund until you’re comfortable with the amount in it.
Most of the time, emergency funds should be kept in a savings account so that the cash is liquid (and there when you need it), but you can also elect to put it in a CD or money market account.
3) Put it in a Retirement Account
This is technically saving side hustle income, but there’s no harm in viewing your retirement savings as a separate entity. You shouldn’t be thinking about touching the money here anytime soon anyway!
Are you earning enough on the side to increase your 401(k) contributions at your day job? Or can you open a Solo 401(k) with the amount you’re bringing in?
You can also look into funding an IRA, especially if you don’t have access to a 401(k) at your job. It takes $5,500 to max out an IRA as of the 2016 tax year. Try to earn that much in side income and put your money to work for you!
4) Treat Yo’Self
Okay, enough with the “boring” stuff. Sometimes, you just want to treat yo’self, am I right? One of the benefits to earning more (instead of cutting back) is letting loose with your extra money once in a while.
That doesn’t mean blow through it in one night out on the town, but treat yourself meaningfully so you get the most out of it. You’ve been working hard – maybe you need a bit of a break to recharge and get your creative juices flowing again.
Book a vacation, buy that new outfit you’ve had your eye on, go to a concert, go see a show, or go see your favorite team play. Do you keep a wish list of things you’d like to have? Pick something off the list and give yourself a gift.
5) Reinvest in Your Business
This is one of my favorite options. There’s nothing like reinvesting the money you’ve made from your side hustle back into it to grow!
Some people have a problem with the concept of spending money to make money. Regardless of your views on this, it’s important to reinvest in yourself or your side hustle to keep scaling your business. You’re not going to get anywhere permanently functioning on level 1 while everyone else is climbing to level 2 and beyond.
However, reinvest in your business wisely. Don’t say you need a new iPad because you want it. Make sure any investment you make makes sense for your business and lines up with your long-term business goals.
6) Fund Another Side Hustle
Have you had your eye on another money-making idea that might not take off right away? Perhaps you want to write a book, create a course, or become a coach. Unfortunately, not all side hustles or product ideas are made equal.
Freelance writing requires very little to get started, but becoming a freelance photographer or graphic designer may take a few more upfront investments. Likewise, creating a course takes a lot of upfront work with content creation and video production.
Depending on what your other business goals are, figure out if it’s worth investing in a new side hustle with the income from your current one.
As long as you can keep the income coming in from one while focusing on the other, you might be in a good position to diversify your services or product offerings.
7) Set Money Aside For Taxes
I hate to break it to those of you who are thinking side hustle income is all yours to keep. That’s not quite the truth. As long as you earn over $600 in taxable income, you have to pay up.
The less you earn, the less you need to pay, but if you meet the above requirement, get ready to set aside some of your side hustle income to put toward quarterly taxes.
Trust me on this one. You don’t want to forget to pencil this in and then get a nasty reminder from the IRS come April about owing!
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It’s clear that earning side hustle money will get you closer to your various financial goals quicker than you would get there by cutting your spending. If you’ve been thinking about starting a side hustle, one of these reasons should give you enough motivation to get started!
Did you start side hustling for any of these reasons? Which one influenced you the most? How much of a difference did earning extra money make?
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I really don’t have much of a side hustle these days, but we did start for a number of these reasons. We also funnel income from different parts of our business to different things we’re saving/working towards. It helps motivate us to hit the goal and a little simpler to manage.
Great ideas. We don’t side hustle much now with two kids, but in the past we’ve put that extra money toward saving for a house, retirement, and debt payoff. It definitely helps to have a goal motivating that extra work.
I used to just throw any side hustle money into our regular bank account, then I started saving it specifically for vacations, and now I’m using it to boost our E-fund.
I started side hustling to offset the lack of freelance income I was getting from my main gig. I wish I had started it sooner as a freelancer. While I’m cutting way back on side hustling now, I still plan on keeping a couple things in the fire to accelerate retirement saving!
W
FrugalRules Yes, I love that idea, John! I don’t really “side hustle” per se, either, especially as a freelancer, but I do enjoy linking my clients or specific services I offer to certain financial goals.
Pretend to Be Poor Nice! Those are all great goals to work toward. Kids definitely make it a bit more difficult to work around, but it’s good you took advantage of time before that to get ahead.
MoneySavingMave Awesome! I like the idea of using side hustle money to fund fun things like vacations that you otherwise wouldn’t take. If you’re living just fine off your current income, might as well give yourself some breathing room.
Beachbudget Woo for retirement savings! I wish I had started side hustling sooner…making the jump straight from employee to freelancer was rough without clients. It would have made the transition easier (and it’s something I tell everyone when they ask!).
Hannah UnplannedFinance I love seeing that in action! And a mattress is a great investment. Having that side money makes decisions like that a lot easier, which is nice.
If I did side hustle, it’d just go into savings or retirement. I know, I’m boring. My husband may start playing in some pool tournaments. If he makes some money off that, I guess it’d be a side hustle? Either way, it would just offset the cost of his hobby. Or maybe we’d take the money and invest in a pool table for the house.
Jaime Donovan Way to go! It’s very tempting to leave it all as extra spending money, especially when you’re used to having so little to live on.
AbigailP I like to be boring, too. =) That sounds like a good plan to me! Playing pool is pretty fun, and being able to offset the cost of any hobby is great.
I love side hustling! I think I have done all of these options with my extra cash at some point. Right now I am transitioning into the “car fund” savings account. My car is turning 12 and she hasn’t been doing so well lately. I am hoping I can go another year or two before it’s time to make a decision. I wish I had been saving longer for this fund, but now I am trying to get aggressive. I have no idea if I will buy new or used, but I hope to have options when the time comes!
believeinabudget I’m doing the same! My car is actually 14 years old so I’ve been stashing money away just in case. Good luck with saving and buying (if/when you have to)! Definitely better that you started saving, regardless if it was a little later.
I use my side hustle money mostly to pay off my debt. Once it’s paid off I plan on using that extra money to fill up my savings.
Jason @ The Butler Journal
Right now all my side hustle income is going towards debt! I’ve got savings and retirement contributions set so any extra is towards my mortgage. After I’m debt free, it’s all about saving!
Haha I love the saying “Treat Yo Self!” I use my side income money now to pay off debt, and in the future will use it for savings!