Side hustles have become increasingly popular these days as more people look for ways to supplement their income. Everything is so expensive these days and it’s almost impossible for most people to get onto the property ladder or afford luxuries without an extra income stream.
While having a side hustle can be a great way to earn extra cash, it’s essential to keep your finances in check to avoid getting into debt or overspending. Whether you’re a freelancer, a blogger, or an artist, it’s crucial to have a solid financial plan in place to manage your earnings effectively.
Importance of Managing Finances as a Side Hustler
Managing finances is crucial for any business, big or small, and a side hustle is no exception. It’s easy to get carried away with the excitement of earning extra money and forget about the importance of managing your finances. But if you want your side hustle to be successful and sustainable, you need to have a solid financial plan in place.
One of the main reasons why managing finances is so important for side hustlers is that it helps you stay in control of your money. When you have a clear understanding of your income and expenses, you can make informed decisions about how to allocate your resources. You can also identify areas where you may be overspending or where you can cut back to save more money.
Tip #1: Set Financial Goals and Create a Budget
The first step to managing your finances as a side hustler is to set clear financial goals and create a budget. This means identifying your income sources and expenses, and then determining how much money you need to earn each month to meet your financial goals.
When setting your financial goals, it’s important to be specific and realistic. For example, instead of saying you want to “make more money,” you might set a goal of earning an extra £500 per month from your side hustle. This gives you a clear target to aim for and helps you stay focused on your goal.
Once you’ve set your financial goals, you can create a budget to help you achieve them. A budget is a plan that outlines your income and expenses for a certain period of time, usually a month. It helps you track your spending and make sure you’re not overspending or underspending in any area.
To create a budget, start by listing all your income sources, including your side hustle earnings, any regular paychecks, and any other sources of income. Then, list all your expenses, including fixed expenses like rent or mortgage payments, utilities, and insurance, as well as variable expenses like groceries, transportation, and entertainment.
Once you’ve listed all your income and expenses, subtract your expenses from your income to determine your net income for the month. This will give you a clear picture of how much money you have left over after paying your bills.
Tip #2: Keep Track of Expenses and Income
Keeping track of your expenses and income is essential for managing your finances as a side hustler. It helps you stay on top of your cash flow and make informed decisions about your spending.
If you’ve never had a side hustle before, it can be easy to spend a lot on new equipment and not even realise how much you are spending, and spend more than you are earning.
One of the easiest ways to track your expenses and income is to use a spreadsheet or budgeting app. This allows you to enter your income and expenses as they occur and see your cash flow in real time. You can also categorise your expenses to see where you’re spending the most money and identify areas where you can cut back.
Another tip for keeping track of your expenses and income is to keep all your receipts and invoices organised. This makes it easier to track your expenses and ensure you’re getting paid for all your work. You can use a filing system or online tool to keep track of your receipts and invoices.
This also makes it easier when you come to do your self-assessment tax with the HMRC. There are many accountants that help with filing tax returns for self-employed people or do accounting for limited companies.
Tip #3: Separate Personal and Business Finances
One of the biggest mistakes side hustlers make is mixing their personal and business finances. This can make it difficult to track your expenses and make it harder to do taxes.
To avoid this mistake, it’s important to keep your personal and business finances separate. This means opening a separate bank account and credit card for your side hustle and only using those accounts for business expenses.
Many companies do business accounts, or you can open an account like Monzo.
Tip #4: Invest in Retirement and Emergency Funds
As a side hustler, you may not have access to a company retirement plan. However, that doesn’t mean you should neglect your retirement savings.
You can ensure you get your state pension by filing your taxes and paying your national insurance. You need 35 years of contributions to get the full state pension. You also can set up a private pension (I use PensionBee) and pay into that.
In addition to retirement savings, it’s also important to have an emergency fund in place. This is a savings account that you can use to cover unexpected expenses or income disruptions. Experts recommend having at least 3-6 months’ worth of living expenses saved in an emergency fund.
Tip #5: Maximise Tax Deductions and Credits
Finally, as a side hustler, you may be eligible for various tax deductions and expenses that can help you save money on your taxes. These can include home office deductions, mileage deductions, and self-employment tax deductions, among others.
To maximise your tax savings, it’s important to keep accurate records of your expenses and income throughout the year. This will make it easier to file your taxes and ensure you’re taking advantage of all the deductions and expenses you’re entitled to.
An accountant will be able to help ensure you do this correctly.
While it can be challenging to manage your finances as a side hustler, there are many tools and resources available to help you stay organised and in control. By avoiding common financial mistakes and staying focused on your goals, you can make the most of your side hustle and achieve financial freedom.
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