Starting a side hustle can be intimidating, especially when you’re first starting out. I’m going to share the 5 tips for starting a side hustle that you need to know. All of these tips my family had to learn in order to turn outside hustles into our current businesses. We’ve had our business for over 5 years now and have learned so many lessons that I’m excited to share. Now no two journeys are the same. But these tips are relevant to anyone who’s starting a side hustle and jumping into entrepreneurship.
Tip #1 Why Do I Need a Side Hustle?
I learned that there are different phases in life where a side hustle is needed. At the beginning of our journey, we created a side hustle to help us accomplish our financial goals. We had a lot of debt, a wedding to pay for, and a family to start. But when my husband saw that there was potential to quit his job and turn our side hustle into a business. We realized that our dream life was more reachable than we thought. The way you approach your side hustle matters. That’s why it’s so important to ask yourself as soon as possible, “why do I need a side hustle?” Is your side hustle just to help you accomplish a goal, a lifestyle, or a business?
Accomplish a Goal:
You may look at your side hustle as a way to help you accomplish a goal like paying off debt. At this point, you know that there’s an end date of how long you have to do this side hustle. It’s not a forever thing. You’re just doing this side hustle for right now to help you save up for something you really need. Just knowing this will allow you to set up boundaries to protect your energy and only make short-term sacrifices until you reach your goal.
Accomplish a Lifestyle:
You may look at your side hustle as a way to help you enjoy a certain lifestyle that your current income isn’t allowing you to. This can be extra money for traveling, eating out, buying clothes, or other luxuries that you want. Doing this is fine for a certain amount of time because the truth is that this lifestyle wants never ends. Which leaves a lot of people burned out trying to overwork for a lifestyle that never ends. It’s important to be cautious that if you’re doing a side hustle just for lifestyle wants. Because you could end up with less than you expected.
Accomplish a Business:
You may look at your side hustle as a way to leave your 9-5 and start your own business. Just knowing that this is why you want to start your side hustle is a powerful motivator. Just knowing that my passion project will one day be my way out of corporate America to live on my own terms is empowering. You start to design your side hustle to grow and you look for ways to reinvest in your business. These are the mindset shifts that I start connecting when I stopped looking at my side hustle as just a “hustle” and more as a long-lasting business.
Tip #2 Separate your Personal & Business Finances.
When starting a side hustle, a lot of people miss separating their personal and business finances. This means having separate business bank accounts, budgets, and records of expenses from your personal finances. This is a big deal when it comes to taxes, record keeping, and business success. Not knowing how your business is doing and if it’s profitable or not can result in a lot of missed growth opportunities as an entrepreneur.
For most businesses having separate business accounts and records isn’t an option. If you want to protect your personal wealth from any legal business matters you must keep everything separate. Meaning that your bookkeeping, taxes, and income needs to all run separately in different bank accounts. This is why following all of the legal steps to protect your personal finances from any issues down the road is highly recommended.
How many Business Accounts do you need?
Now if you know me, I love having separate bank accounts to help me organize my finances with purpose. This led me to create the High-5 Banking Method for my personal finances. But once we starting our businesses, I learned that we could use a modified version of this method to manage our business finances as well. Here are some tips to consider when it comes to banking for your side hustle:
Min Business Bank Accounts for Goals:
If you’re looking at your side hustle as just a way to help you accomplish a goal. Then you have to remember that you’ll be using most of your funds to help you reach your goal. So you’ll need a minimum number of bank accounts to help keep clear records of your income and expenses. Plus a routine to help you set money aside for taxes. The following are the minimum number of business bank accounts to consider:
1 – Checking account for your business income/expenses
1 – Savings account for taxes
Min Business Bank Accounts for Business:
If you’re looking at your side hustle as a way to start your business. Then you’ll need a minimum number of bank accounts to keep you organized. You can have more accounts if you’ll like, but remember that it all depends on what you’re business will need. But to start here are the business bank account that you want to consider:
- Checking account for your business income/expenses
- Savings account for taxes
- Savings account as a sinking fund/short-term goals
* Having a sinking fund will allow you to purposefully set money aside to reinvest in your business without going into debt.
Tip #3 Pay your TAXES!
Whether you have a side hustle or a small business you need to put money aside for taxes. Making it a routine to pull a certain % out of your income for taxes is vital. Creating positive routines will help you stay up to date with your bookkeeping and for a spontaneous IRS visit. One piece of advice that my mom always told me was “Do not mess with the IRS”. They have a lot of power in this county and that’s one organization that you don’t want to be in trouble with.
“Do not mess with the IRS”
As a business owner, you have to remember that business taxes aren’t owed at the end of the year like your personal finances. Business taxes are actually owed quarterly. You have to personally pull taxes from each check and place it in a separate savings account. So that way you can be ready to pay Uncle Sam with no issues every 3 months.
Another tip here is to remember that your city and state charge their own taxes and fees. If you have an LLC, this fee can run you a pretty penny depending on what state you live in. For California, the LLC fee is $800 regardless if you make money or not. You want to look up how much your state charges and create a calendar reminder of your due date because they charge high late fees too.
Tip #4 Know the Hidden Cost of Starting a Business
Knowing the hidden costs of turning your side hustle into a business that replaces your 9-5 is mentally a lot. It took my husband and me a long time to get used to the cost of healthcare for my family. Especially when you have a child with a heart defect that can’t afford poor healthcare coverage due to expensive surgeries. Otherwise, a Health Care Savings Plan (HSA) would have at least been a good option for us.
A few of the other hidden costs are funding your own retirement without any company matches or a 401k plan. Everything is on your own, plus any other expenses that you have to cover due to your specific business. Just being aware of these expenses and how much they costs is a big eye-opener. You start to see all the little steps that it takes to maintain a successful business.
Tip #5 Know the Difference Between Risk vs Calculated Risk
In life, I constantly heard people say that you have to take risks in order to move forward. Although this is true, there are ways to still take risks without losing the shirt off your back. Knowing the difference between taking risks vs calculated risks are two different strategies to moving forward in life. Taking risks is simply gambling on a 50-50 chance and hoping to win something at the end of the risk. But taking a calculated risk isn’t really risky at all.
An example of taking a risk in business is like quitting your 9-5 job to start a side hustle. You haven’t yet tested the idea or if the business will even make money. This is just jumping off the cliff and hoping you make it. Versus taking a calculated risk where you still have your 9-5 while you start your side hustle. All while paying off debt, building an emergency fund, and positioning yourself to turn your side hustle into your full-time business. These are two different approaches that will have you approaching your business in two completely different ways.
To be as transparent as possible, my husband and I used our side hustle to position ourselves financially. We used our side hustle and our 9-5 income to pay off debt, build an emergency fund, and most importantly lower our minimum cost of living. By not having high living requirements, we gave ourselves the grace to start our business without the stress of life pulling us down. Housing, healthcare, and kids are expensive and these costs alone can deter you from starting a side hustle and turning it into a business. By working on our personal finances we realized that we don’t have to wait until we’ve hit FIRE (financially independent retire early) to live our dream lives. We can start the businesses we love while working at home to raise our kids.
To learn more about side hustles, check out Bola’s new book Clever Girl Finances: Side Hustle Guide. Plus my feature in the book!
- The High-5 Banking Method: How to Bank with Purpose
- What’s an Emergency Fund: What is it and how much do you need
- 4 Game-Changing Financial Strategies
- How to Balance Motherhood and Entrepreneurship
- Should You Join the FIRE Movement?
- Self-Funding Your Retirement with a Roth IRA