These days, it seems like everyone is making
money on the side. Your brother drives for Uber, your mother
rents out your old room on AirBnB, your sister sells candles that smell like your grandma,
and your grandma is running a quilting blog. Almost 44 million Americans are reported as
having a “side hustle”. Most people start them for one of two reasons: 1:They want more income. Or 2:
They want to start carving a path out of their current job. A side-hustle can definitely help you achieve
these goals, but not without proper research and planning. So here are five things you need to know to
make sure that your side-hustle won’t be hustling you. [MUSIC] This is Jenny. Jenny wants to quit her job and work for herself
selling sweaters for hedgehogs. After all, she’s a member of the 20,000-strong
HEDGEHOGS FO LYFE Facebook group. If just 10% of those people bought a $30 sweater,
that’s $60,000! That’s a nice dream, but before she starts
knitting, it’s time for a reality check. Are there people out there who are currently
making money at a venture like this? According to research done by Earnest Lending,
85% of side-gig workers make less than $500 a month. AirBnB has the highest average profit of $924
a month. Uber comes in 4th at $364 a month and Etsy
(where Jenny’s hedgehog sweaters will probably end up) is number 7 at a measly $151 a month. Maybe Jenny should sell a more established
product--like supplements or makeup--with one of those network marketing companies. After all, she’s got facebook friends who are always
looking for new recruits. If you’re considering joining up with a
network marketing company, be extra cautious. According to a government study, only 1% of
network marketing participants actually turn a profit. By law, these companies have to share some
of their financial data with you, like average income. Before diving into any new venture, you should
seek out every piece of information you can get your hands on that will give you some idea
of how much you can realistically expect to make. This is Tim. Tim found out that the going price of used
textbooks almost doubles around the beginning of the school year. So, he figures if he sinks his savings of
$8,000 into a metric ton of Intro to Biology, he can sell them on Amazon in September and
double his money! Not so fast, Tim. Just because you’re not making a product
doesn’t mean you won’t have COSTS. Tim will need somewhere to keep all those
books for the next 6 months, which means renting a storage space; each book will have to be
mailed to the buyer, which means 400 individual packing and shipping fees; and online retailers
like Amazon take a cut of every sale you make. Congratulations, Tim, you’re still making
a profit, but when you calculate how much time you’re spending listing, selling, packaging,
driving from the storage space to the post office… how much are you really making per
hour? Essentially, Tim is the sole investor in his
own company, and no smart investor would put a single dollar into a new venture without
seeing a honest list of expected costs and revenues. If you want your side hustle to be a real
business, you’ve got to treat it like one. Which brings us to... Kendra wanted to make some extra money so
she started driving for Lyft on weekends. After 6 months, she had more cash in her pocket
and decided she liked it more than her day job. But since all the costs and earnings were mixed
up with her personal finances, she can’t tell whether it’s a good idea to go full-time. If Kendra had started a separate bank account
for her rideshare income, and paid for expenses like gas, maintenance and car insurance strictly
from that account, she’d have a much clearer idea of how profitable her side-hustle really
is. You don’t need anything fancy. Just open a separate account in your individual
name at the place you’re currently banking. It’s a simple way to keep track of your
new income, and will make your life way easier come tax-time. Speaking of which…. After a year, Kendra’s made enough extra
money to put a down payment on a new car! There’s just one problem. This is the most consistently nasty surprise
we see sneaking up on side-hustlers. They’ve been making money from a new business
but haven’t put ANYTHING aside for when the government comes knocking. We can’t stress it enough: Do not make this
painful mistake! If it’s your first year as a side-hustler
and you don’t know how much you’ll have to pay in taxes, start by setting aside 25%
of every dollar you earn for Uncle Sam. After your first year of business, you will
be required to pay an estimate of your taxes on a quarterly basis. Just go to this website to set up an online
account directly with the IRS. Believe it or not, they actually make it pretty
easy to pay them. Jenny’s hedgehog sweater company is really
taking off thanks to an endorsement in Erinaceidae Aficionado. But is it safe to quit her job at the widget
factory? Before she leaps out of that plane, she needs
to make sure her parachute is big enough. First off: Does your side-hustle profit equal
at least half of what you make at your day job? If Jenny makes $3,300 a month at Widgets,
Inc. and her side-hustle is making a profit of $2,000 a month, she’s probably in a safe
position to give her two weeks notice. Second: Does she have 3 months worth of expenses
saved up for emergencies? 82% of small businesses fold because of cash
flow problems. If the market for hedgehog sweaters temporarily
dips, Jenny will need those funds to stay afloat until it goes back up again. If that means she has to keep her day job
for a little while longer… well, that’s better than having to ask for it back! This might seem like a lot of work and planning
for something that was supposed to be “on the side,” but it’s essential that before
you invest your time and money into a new venture, you understand what you’re getting
into. It’s not uncommon for people, once they
find out what’s actually involved in starting a side business, to decide they like their
day job more. That’s why your side hustle should be something
you genuinely like to do. After all, extra money only has value if it’s
contributing to your overall happiness. And that’s our two cents! [MUSIC]
