I have a pal whose side hustle crashed.
He decided to become a driver for Lyft. Problem was, his car was 10-years old and that won’t work for companies like Lyft and Uber. Undeterred, he spoke with his contact and Lyft offered to rent a car to him. While the almost $800 a month fee seemed exorbitant, my pal learned that if he got enough rides, that fee would drop significantly. Excited, he got rid of his regular car and started driving for Lyft.
And then the wheels fell off, almost literally.
He never got enough rides, so his overhead was crazy and he couldn’t make a profit. Then he got in an accident and the car was undrivable. So, in the blink of an eye, he had no car (having sold his car), had no income, and owed the insurance company $1,000 for the deductible.
While the freedom that comes with being self-employed can be intoxicating, it can also be debilitating if you aren’t financially smart about it.
Indeed, there is a right way and a wrong way to do go about creating a side hustle. Here are a few smart financial tips to help you avoid some of the common financial traps that can befall the so-called gig worker:
1. Make sure there is a market for your gig. Before you get carried away by your big idea, and before you invest a lot of time and money into the project, you should first do a bit of research. Be sure that there is a need for what you are going to sell.
This might mean researching the niche and making sure that there are needs to be filled or doing the math to ensure that it will give you the extra cash you require. Having all your bases covered ahead of time will mitigate stress, thus allowing your creativity and passion to thrive. You don’t want to make any shortsighted decisions.
2. Don’t quit your day job. A side hustle is meant to be exactly that – a job you have on the side (at least for now.) Whether your side hustle is solely for extra cash or is an entrepreneurial passion project, you will still need a primary income to keep you afloat. Remember the age-old wisdom: it takes money to make money. Do not put yourself in a worse financial situation by quitting. Patience is a virtue.
3. Keep your overhead low. As we saw above, it can be easy to be carried away by the promise of your new side business. But you need to make sure you are not spending too much on it – your side business is something that should make you money, not cost you money. Sure, investing a bit of your own money may be necessary to start but until you are (mostly) certain it is a viable option, keep your overhead low.
4. Separate your business expenses and personal expenses. When you’re first getting started with new business ventures, mixing your business and personal expenses is an easy trap to fall into. This is something you need to take measured steps to avoid.
You need to separate business and personal finances and be able to keep track of your business expenses in an easy, organized fashion. The best way to do this is to simply open a separate bank account for business expenses. Running a program like QuickBooks® Onlinealso makes sense.
5. Invest your side hustle income. If you aren’t already investing, your newfound side hustle earnings are a great place to start. If growing your finances is your main goal, then investing could be one of your greatest tools. While you will not see the money right away, you will see it grow in the long run. This could prove very useful in emergencies, or even for launching your business full-time.
A lot of people are in the side hustle game right now, but only a handful of them are doing it right. Set yourself up for success and make sure that you are one of the few. Happy hustling!
Do you have a side hustle? Tell us about it in the comments below.
About Steve Strauss
Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business Success.© Steven D. Strauss.
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