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Avoid These 7 Common Side-Hustle Mistakes

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If you’re thinking of starting a side hustle, you’re in good company. According to a survey by VistaPrint, 27% of respondents reported having a side gig. Whether you’re a college student or a retiree, earning extra income makes a lot of sense. It can give you some breathing room in your budget, boost your retirement nest egg, and even help you achieve your goal of going on a dream vacation.

However, it’s important to run a side hustle like a real business. Otherwise, you risk running into some common pitfalls that can hurt you down the line — and reduce the amount of cash you’re bringing in.

Managing a side gig doesn’t have to be complicated, though. With some preparation and planning — and a few helpful tips from us — you can keep yourself from making these seven common side hustle mistakes:

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1. You don’t establish a reasonable schedule for yourself

A common issue people face when they start doing extra side work is burnout. While earning extra cash can be addictive and you may need to put in extra hours at first to build your business, it’s easy to overdo it and exhaust yourself.

Before putting in more hours or taking on yet another side gig, spend time thinking about what a reasonable schedule looks like for you. If you work a full-time job, working a second job every night may not be realistic. That could cause you to get less sleep and have less time with your friends and family.

Instead, start working on your side hustle for just a couple days a week or contain it to just working a fun weekend side gig. Whatever you do, make sure you also build in plenty of time for relaxing and unwinding. As the business grows and you get a better handle on your schedule and work output, you can scale up or down as needed.

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2. You don’t do enough research beforehand

While there are many legitimate companies and apps out there that allow you to earn money, there are a lot of shady companies that take advantage of people looking to make additional income.

For example, multi-level marketing companies (MLMs) aren’t all bad, but some aren’t transparent about their costs and your potential earnings. Some may require you to spend thousands of your own dollars to get started and maintain your status as a seller.

Before investing your hard-earned money, do your due diligence and research each company. Check their rankings on the Better Business Bureau and TrustPilot, and search for the company on ClassAction.org to see if they are involved in any class action lawsuits.

Also keep in mind that there are many side gigs that pay well that require little-to-no startup costs. For example, you can deliver groceries for Instacart and all you need is access to a car, a smartphone, and the ability to lift 50 pounds. Or, you can teach English with VIPKid if you have a webcam, headset, and internet access.

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3. You set your rates too low

When you’re just starting out, it may seem like a good idea to keep your rates low to get more clients. But doing so can cause you to undervalue your work. To make decent money, you’ll have to work many more hours, preventing you from being able to spend time finding better-paying clients.

Do research using tools like PayScale to find out what professionals in your field charge, and aim for a pay range in the middle. As your experience and portfolio grows, you can charge more until you’re in the high end for your side gig.

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4. You don’t separate your personal and business finances

As you start to earn additional income from your side hustle, keeping your business and personal finances separate is essential. Otherwise, you could run into significant accounting headaches and even put yourself at risk of an IRS audit.

To run your side gig correctly, set up a business checking account that is completely separate from your personal account. Business expenses should be paid from your side hustle checking account rather than your personal one, and all of the income from your side gig should be deposited into that business bank account as well. You can set up regular transfers to your personal checking account to “pay” yourself, but it’s important that your income enters your business account first.

Having a separate account will make tax time much easier, but it also will make it simpler for you to see how much money you have coming in each month. You can just review your account statements to see what you average each month so you can budget accordingly.

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5. You don’t have a business credit card

While having a separate business checking account is important, it’s also a good idea to have a business credit card for your side gig. You’ll get the convenience of using plastic to make transactions while being able to easily track your spending — and keep your business and personal expenses separate come tax time.

Plus, you can earn valuable cashback or travel rewards that you can redeem to grow your business (or to save up for that dream vacation).

However, keep in mind that your business credit card shouldn’t be used for personal expenses. Doing so can make it more difficult to complete your taxes, you could lose certain buyer protections, and you could even risk the credit card issuer taking away your spending privileges.

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6. You don’t set aside enough money for taxes

If you have a side hustle, one of the biggest mistakes you can make is not setting aside money for taxes. According to Michele Cagan, a Certified Public Accountant, that mistake could result in a surprise tax bill and hefty penalties and fees.

You should expect to pay a substantial amount of your income in taxes, and the best way to prepare for that is to put that money into a separate account just for taxes each time you get paid. How much should you put aside? “[I recommend] about 20% to 25% of your freelance net income after expenses,” Cagan said.

With a side hustle, you may also have to make estimated tax payments each quarter. The deadlines for each payment are April 15, June 15, September 15, and January 15. But Cagan said there may be a way to avoid having to make quarterly tax payments. “If it’s a side gig, [you] can increase the withholding from the main job’s paycheck,” she said.

With this approach, you adjust the withholding on your W-4 form with your day-job employer so more money is taken out of your paycheck for taxes each pay period. This is an easy strategy, since you can fill out a new W-4 at any time. You just need to contact your employer’s human resources or payroll department and submit a new form.

If you want to skip estimated taxes, adjusting your W-4 withholding can be a smart and simple way to ensure enough money is being withheld from your paycheck for taxes.

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7. You don’t have goals in mind for your extra income

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According to The Hustle, the average side-hustle earns $12,609 per year, with the average person working 11 hours per week. That’s a nice sum of extra cash, but if you don’t have a financial plan in mind, those hours and dollars can go to waste.

With money coming in regularly, it’s easy to fritter it away on new clothes, electronics, or travel. Before you know it, you could spend all of the additional income you made without even realizing it.

Instead, come up with set goals for your side-gig earnings. For example, you may decide you’ll put 50% of your side gig income to go toward your student loans. Or, you could set aside all your profits in an emergency fund. But by having a plan in place and setting up automatic deposits, you can ensure your money has a purpose and that your side gig helps you accomplish your financial goals.

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Bottom line

When you’re launching a new side gig, you’ll likely make some mistakes along the way — and that’s totally normal. But by doing your research and some homework, you can prevent some common issues from becoming big problems later on. By developing a plan for your money and developing a good accounting system, you can more easily make the most of your side hustle.

This article originally appeared on FinanceBuzz.com and was syndicated by MediaFeed.org.




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