As the traditional workplace model evolves, more and more individuals are turning to freelancing to earn extra income. In fact, it is estimated that upwards of 60 million Americans earned income from freelancing in 2020, and that figure continues to increase. Flexibility and autonomy are often associated with freelancing, but this also comes with more responsibility. Here are a few smart ways to spend the income earned from your side hustle to promote further growth in your career.
One of the most important considerations when determining how to spend your side hustle income is to have a tracking system in place. This is especially important if you have multiple sources of income or a full-time job in addition to your side hustle. While each situation varies, there are tips for managing your side hustle finances that can help you be more organized.
For example, creating reports and keeping records, using separate bank accounts for your different income sources, or hiring an accountant are all ways that you can track your income more seamlessly. Using some of your side hustle income to invest in a money management system can also be a great way to keep better track of side work.
There are many types of side hustles and, depending on your industry, it’s important to have the proper safeguards set up. If you run your side hustle from your home, ensuring that you have business property insurance set up can protect both your personal and side hustle finances. If you have inventory or clients that come into your home for your business, your homeowners’ insurance policy most likely would not cover loss associated with business use. This is why having the proper coverage is a wise way to spend a portion of your side hustle income.
If you have family members that rely on some of your side hustle income, it’s important to reevaluate your life insurance coverage. If you were to unexpectedly pass away, having protection for those who rely on your income (from both full-time and freelancing work) is an important safeguard. When determining the amount of coverage to secure, a good rule of thumb is to account for 10-12x your annual income from all sources. In most cases, this amount will provide adequate protection for family members to continue to meet monthly obligations such as a mortgage or vehicle payments. Using a portion of your side hustle income to increase your policy coverage is another smart use of your side income stream.
When you have a side hustle, you may be using this income to pay for monthly obligations that you currently have. While this is a good use of your additional income, another great use of your side hustle earnings is allocating some funds to build up your savings. Because freelancing can often be subject to business fluctuation, it’s especially crucial to have some funds set aside for a rainy day.
Experts suggest having three to six months built up in a separate savings account in case of an emergency or unanticipated event. If something were to happen to your full-time job or if you were to experience seasonal fluctuations or a decrease in business from your side gig, having this money set aside can help keep you afloat.
If you are interested in making your side gig a more full-time position, a wise way to spend your freelancing income is to reinvest it into your business. Using this money to grow your business can allow you to spend more time on your side hustle. For instance, using your side hustle income to reinvest in marketing efforts or expanding your inventory can help you take your business to the next level.
You could also consider investing in courses or professional development opportunities to help you further your knowledge, which can, in turn, help you expand your side hustle. Once you have established some short and long-term goals for your side hustle, you can forecast your side hustle income to further determine how best to allocate your resources back into the business.
While you most likely have a lot on your plate when managing both your full-time job and side hustle, remember to make time for yourself. It’s essential to set aside time to relax and unwind so that you can be your best self in all of your endeavors. Self-care doesn’t have a one-size-fits-all approach, and the way you make time for yourself may look different from how others promote self-care.
Maybe you have found that between the pandemic and working multiple jobs, you haven’t had a vacation in quite some time. If you have the opportunity, look into destinations you may be interested in for an extended period of time or even a day trip. Using some of your side hustle income to invest in yourself can help you to recharge and feel more motivated. Some other ways to promote self-care when managing multiple streams of income include taking time away from your devices, breaking up your routine, or finding something small to look forward to each day.
When you have a side hustle or freelancing gig, it can be difficult to determine the best ways to spend your extra income. While there isn’t one right answer, reviewing the different options available to you will help guide you to spend some of your hard-earned money to help you reach both your personal and professional goals.