Why Now is the Best Time to Start a Side Hustle

Posted: April 25, 2022 in Achieving Financial Goals

We live in uncertain times, and many people are navigating how to deal with personal and financial situation changes. A side hustle is something that can help give you more control over your financial future.

Here we will discuss what a side hustle is, why now is the right time to start a side hustle and important things you should consider.

What is a Side Hustle?

A side hustle is a business you run alongside a full-time or part-time job. Some people start a side hustle without the intent of turning it into a full-time business, while others might be doing so as a way to ramp it up before taking the risk of quitting their day job.

The benefit of a side hustle is that you are receiving additional income and increased income diversity. If something happens to your job, you at least have some income coming in, and you can consider the option of expanding the side hustle versus seeking another job. If you work variable hours and risk having your hours cut, you can use that time to work on the side hustle instead.

Side hustles come in all shapes and sizes, from making and selling jewelry to dog walking, baking cupcakes, and beyond. Some people do freelance projects related to their day job, but most side hustles are entirely different. It's not uncommon for a hobby to become a side hustle because who doesn't love getting paid to do something you love?!

Another example of a side hustle is renting a room or ADU (Accessory Dwelling Unit) for Airbnb. If you live in a tourist area or a larger city, consider becoming a part-time tour guide. Doing walking tours in the evening can get you extra money and help you stay fit.

Why Right Now is a Good Time to Start a Side Hustle

Now is a fantastic time to start a side hustle. We've already mentioned the significant uncertainty going on, but here are a couple of additional reasons:

If you have moved to working from home, you will have extra time from not having to commute. Why not put it to good use?
More money is always good.
Online shopping is becoming ever more popular, making it easier to start a business selling things without a storefront.
In this digital age, the internet makes it easier to find and connect with clients.

Things to Consider When Starting a Side Hustle

The first thing to consider when starting a side hustle is the tax implications. The IRS classifies side hustles as either businesses or “hobby income.” There are significant advantages to being considered a business; however, you will have to fill out a Schedule C every year. Consider getting a tax advisor to assist you with your Schedule C and your eligible credits and deductions.

You may need to pay estimated taxes. Ask your tax advisor if you should increase the withholding on your employment to avoid dealing with this. Keep the receipts for everything you buy for the business for seven years. You will also owe self-employment taxes (about 15%) if you make more than $400. Set aside 20-35% of your income for taxes.

A few more things you should consider:

Open a separate checking account right away. Some people wait on doing this until they establish their business, but they often regret it. Keeping your business income separate helps you track business expenses and operating capital - making life easier should you get audited.
Use tax software or a spreadsheet to record all income, expenses, and the source.

You don't need to form a business entity, but you may have to get a business license before selling your first product or getting your first client in some states. However, you might want to do so when you start to become successful.

Ready to get started? Our business service specialists at ProFed Credit Union are ready to help you open your new business checking account, a new savings account, or set up an IRA. Contact us to find out more about how we can help with your new side hustle.

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