When developing your path to financial independence there are many factors that can determine how fast you get there. The two biggest factors are: how much money you earn and how you spend it. There is a lot of information on this website and out on the internet about ways to live more frugal. That information should be used as a guide for how you spend your money. The other option you have is to make more money.
There are things you can do to promote yourself within your place of business to get bigger raises and bigger bonuses. At the moment my website does not take a deep dive into that topic but there are many blogs and there is a lot of information out there that can assist with earing more money at your place of work. Once you have maxed out what you are able to make at your regular job it is time to look at a side hustle. A side hustle is simply defined as a job that a person takes in addition to their primary job in order to supplement their income.
Why you should want a side hustle?
There are a couple different reasons why you might want to try a side hustle. Maybe you are passionate about something that isn’t your daily job and you want to provide that service to the world. Maybe you know of a product or service that can help humanity in some way. Or, maybe you just want to make some extra money! That extra money is only going to expedite your FI path and can take as little as 1 hour a week to accomplish it!
So what does a side hustle look like for you?
You have to determine what skill set you have and then figure out what side hustle you would be able to perform. Take a look at what people at work, or in your personal life, come to you for help. Do they ask you to repair electronics, build things out of wood, or help them with accounting questions? By them asking you for that kind of help you know there is a market for your skillset and there is a place to earn money.
When you are deciding what kind of side hustle you want to try you need to come up with a startup budget to determine if it is something you are really interested in. This can include things like computers, software, preliminary marketing expenses (website building software, registering URL, and online ads). For a quick intro on how to determine the startup cost of your business check out this short video from the Small Business Association .gov website https://learn.sba.gov/learning-center-launch/learning-center-financing-your-business/estimating-startup-costs
Remember, the best kind of side hustle is one that creates passive income. Passive income is defined as money you earn in a way that requires little to no daily effort to maintain. An example of this would be to create a recorded virtual training seminar that people can purchase to watch. You can continually sell that product and you don’t have to perform the whole seminar to get paid!
How to get started with a side hustle?
Create a master list of tasks that take you all the way to the startup of your side hustle. Then block out a certain amount of time that you dedicate to your side hustle where there will not be any other distractions. Complete one of those tasks during the dedicated time and you will find a sense of satisfaction as you get closer to your launch. This can include things like determining what kind of side hustle you want, research startup costs, obtain a business license in your state, obtain office equipment, secure a location, create a logo, find employees, etc.
Do you need to pay taxes on income?
Once your business starts up you need to be aware that our government expects you to pay estimated taxes throughout the year, not just in one lump sum. This is called a “pay-as-you-go” tax system. But if you only plan on bringing in a couple hundred bucks each year then you can relax. You can file the income with your personal income taxes in April. In general, you’ll pay estimated taxes if you expect to owe more than $1,000 in taxes when you file your tax return. That’s, of course, after subtracting your federal income tax withholding from the total tax you expect to owe this year.
Do you need to keep your personal and business money separate?
You should, but don’t have to. By opening a separate checking account for your side hustle it is much easier to track your expenses throughout the year. Some of your business expenses can be tax deductible and you don’t want to miss one if it is in your personal account. The same can be said about opening a business credit card. When you do your taxes you are going to be asked how much money your company has made for the year. You will need to know what kind of money was spent so that you can tell them how much money you earned.
Do you need to have a business entity before you start your side hustle?
When you first start your side hustle you don’t necessarily have to form a business entity. Our tax system allows you to operate as a sole proprietor without the need to create a business entity. However, you should file “Doing Business As” paperwork with the office of your state secretary of state or treasurer. Some banks may require one for you to open a business account.
The second option is to form a business entity like an LLC or a corporation. This has the advantage of bringing you liability protection in the event that someone wants to hold you liable for an issue related to your side hustle. This protects your personal assets from being included in the lawsuit.
If you decide to move forward with becoming a business entity there are a couple of ways to do this. The first is to contact an attorney or an accountant and they can file the paperwork for you to become a business. This usually costs a couple thousand dollars as they get paid by the hour. The cheaper (around a couple hundred dollars) option is to create the business entity yourself.
When I created my LLC I utilized Rocket Lawyer. It was a free service to use, with a trial subscription, and they walked me the process to create and submit the proper paperwork. It was very easy and I highly recommend their services. Please use this affiliate link to access their website.
There are a couple of steps required to become an LLC:
- Determine your LLC name. Your name needs to be unique and should be checked via your states government website. Check out Ohio’s https://businesssearch.ohiosos.gov/
- Appoint a registered agent. This will depend on whether you create the business through a lawyer or by yourself. This individual or business entity agrees to accept legal papers on the LLC’s behalf if it is sued. There are some other requirements depending on your state.
- File Articles of Organization. That includes LLC’s name, effective date of articles, terms, address, e-mail, phone number, registered agent’s information and signature of LLC member/manager. This comes at a cost of around $99 for Ohio. I completed mine via Rocket Layer.
- Prepare an operating agreement. This is something that is not required but is highly recommended. If you are going into partnership with another person this is where you would put information on how you plan on settling any business related conflicts. This article isn’t filed with the Secretary of State and is strictly used as an internal document.
- Depending on what type of business or how many people will be a part of your business you may need to register to obtain an EIN. This can be done for free online at www.irs.gov . You may also need to obtain a business license depending on what type of business and where it is located. Lastly, if you will be selling goods or collecting sales tax you will need to register with the Department of Taxation for you state. This can typically be done online.
What do you do after you have created your business entity?
Once you have started your first LLC you can take the next steps in creating a brand for yourself by creating some sort of Logo and start your advertising. You can advertise on social media, create a YouTube channel or even create an e-newsletter to stay on everybody’s mind. Start talking to your friends and family and possibly hand out business cards to further get your business name out there.
What are some side hustles that can help create passive income?
This information can be found in the penthouse section of this website. In order to become financially independent your assets need to sustain your lifestyle for the rest of your life. If you can continue to make money through passive income (through dividends, interest, side hustles) then the amount of money that you will need to be defined as FI goes down and the time that it takes to get there shortens.
Take away points:
- Side hustles can be a great way to supplement your income
- Side hustles can shorten your time to reach FI
- Side hustles can develop into something you continue once you reach FI
- The time it takes to start a side hustle can be as short as one hour a week
