If you’re considering a side hustle to make extra money, you may be obsessing over what type of work you want to do. But there’s an equally important question to answer: How will you use the money you make? Without a plan in place, it’s too easy to spend your extra income on indulgences. And while that spending might be fun, it won’t necessarily give you financial freedom.
So, let’s get you ready to change your finances for the better this year. First, we’ll walk through a few ideas for side hustles. Then, we’ll do a deep dive into smart ways you can deploy your newfound side hustle income.
What is a side hustle?
A side hustle is part-time, income-producing work you do outside of your full-time job. Side hustles can be an in-person or part-time gig with set hours and taxed wages. Or, they can be more flexible work you do in your spare time. Either way, the usual goal is to make extra money.
Examples of lucrative side hustle ideas
Side hustle ideas usually fall into two main categories. You can either perform independent tasks in your spare time for money. Or, you can deploy assets you own for passive income. These categories can overlap somewhat, too. Ridesharing is an example — you must actively do the driving, but you also need the car to do the job.
Task-oriented hustle ideas
- Online surveys: Join the Survey Junkie community and make money for sharing your opinion about products and services via focus groups and online surveys.
- Freelance writing or graphic design: Promote your writing or design skills on gig websites like Fiverr and Upwork to land freelance projects.
- Blog creation: Launch a blog and write about topics you enjoy. You can make money via advertising.
- Yardwork: Network with your neighbors to make money for mowing lawns and pulling weeds.
- Craft sales: Make unique crafts in your spare time and create your own business by selling them on Etsy.
Asset-based hustle ideas
- Short-term rentals: List a spare room on Airbnb to secure short-term tenants. There are some 2.9 million hosts on Airbnb, making it one of the more popular hustle ideas.
- Ridesharing: Make money giving rides for Uber and Lyft.
- Selling used goods: Make money by selling your old clothes, tools, or furniture on apps like Mercari. You could also offer the same service to friends and family for a commission on every sale.
- Storage space or parking space rentals: Earn extra income by offering up empty space in your garage as a storage rental. You could also lease an unused parking space in your driveway.
Choosing a side hustle
Let your interests and your scheduling requirements guide you to the right side hustle idea. First and foremost, you must enjoy the work. If you don’t, you’ll have trouble staying motivated. Secondly, the hustle must fit into your lifestyle. If you can only work from home after you put the kids to bed at 9 p.m., for example, ridesharing isn’t an option.
Once you land on the right gig, start planning the best uses for your new income stream. It’s fine to reward yourself a little at the beginning, of course. But you’ll want to buckle down and use your side hustle income to improve your finances. That way, you won’t always need a side hustle plus a full-time job to get by.
Deploying your side hustle income
Use the waterfall outline below as your guide to a richer future. Here’s how it works. You start by addressing the top priority, which is balancing your budget. Once you achieve that milestone, use remaining side hustle income to address the second priority. If you still have extra income left, move to the third priority, and so on.
1. Balance your budget
Your budget is unbalanced when you’re spending is higher than your income. The only way to survive with an unbalanced budget is to borrow to cover the shortfall. As a result, you’ll see your credit card balances gradually rise over time.
To tackle this issue, sit down and analyze your expenses over the last six months. Find out where you’re overspending and by how much. Look for opportunities to cut back.
Your side hustle earnings can raise your income to match your spending, but this is a short-term solution. You don’t want to depend on having two jobs forever. For that reason, you must also reduce your living expenses.
Focus on your food, housing, and transportation needs. These areas can offer big savings opportunities, if you’re willing to change a few habits. Cook more and dine out less. Consider relocating to a smaller place. And, if it makes sense, downgrade your car or take public transportation more often.
2. Knock down debt
After your budget is balanced, use your side hustle income to pay down your debt. Credit card debt is particularly toxic to your finances. With low minimum payments and high interest rates, these accounts are difficult to repay.
There are two primary schools of thought on how to repay debt. The cheapest approach is to make larger repayments on your highest-rate debt and minimum payments on everything else. This reduces your ongoing interest charges.
It may be more motivating, however, to tackle the lowest debt balance first. In this way, you repay an entire account faster and eliminate one monthly payment. That frees up more money to make larger payments on the remaining accounts.
Depending on the structure of your debt, one approach will stand out as the more sensible strategy. Whichever it is, set your plan in motion and stick to it.
3. Build up your emergency fund
A sufficient emergency fund balance protects you from charging up those credit accounts again. When a surprise expense pops up, you can cover it from your cash on hand. It’s only when you have no cash available that you must pull out the credit card.
From a numbers perspective, it’s smart to put your side hustle income into an emergency fund only after you’ve repaid your high-rate debt. This is because you pay a higher rate on your credit card than you earn in a cash savings account.
Also, if you’ve worked hard to pay down your debt, you’re in the habit of sending that money somewhere. Once your credit cards are repaid, it’s an easy transition to redirect the funds to a high-yield savings account.
You’ve repaid your debt and saved up enough cash to cover six months of your living expenses. Now what? This is where your real wealth journey begins. You’re ready to start investing.
Different ways to invest money
When you invest, you are deploying money with the expectation of earning a profit. Investing is most associated with the stock market, but you have other options, too.
1. CD Funds
You can get a higher yield on your cash deposits by agreeing to leave your funds untouched for six months or more. You do this by opening a certificate of deposit or CD. These are issued by banks and credit unions and insured by the FDIC or the NCUA.
Shop around for the best rate and term. And once you commit, leave your CD funds on deposit at least until the term ends. You’ll pay a penalty if you withdraw the money earlier.
2. Professional development
Famous investor Warren Buffett has said, “Investing in yourself is the best thing you can do.”
Depending on your line of work, an investment in professional development could provide very strong returns. Could you improve your ability to make money at your full-time job with another degree or professional certification? Or, could added training help you turn your side hustle into your primary income stream?
3. Exchange-traded funds (ETFs)
ETFs are portfolios of investments that sell ownership shares to investors. Those shares trade throughout the day on a stock exchange. This is different from a mutual fund, which settles trades once daily. Also, many mutual funds have minimum investment amounts, while you need only to buy a single share of an ETF.
ETFs are generally less risky than individual stocks because they are diversified. An S&P 500 ETF, for example, gives you exposure to 500 different stocks. In aggregate, those 500 stocks will be less volatile than any one single stock.
If you’re new to investing, start with low-fee index funds that invest in large, well-established companies. Many of these companies pay dividends, so these ETFs often provide a new passive income stream, too.
If you have a financial background and enjoy research, you can invest in a portfolio of individual stocks. As with ETFs, it’s wise to stick with mature companies to start. You should also own at least 20 individual stocks at a time, so you’re not overly dependent on any one of them.
With ETFs and stocks, you can invest a set monthly budget in the assets you choose. This is less risky than investing a large sum every six months or so.
And, if you use a brokerage like Robinhood that supports fractional investing, your monthly budget can be very small — as low as $1 a trade. Rather than spending $100 on a single share of Amazon, you can buy one-tenth of a share for $1. In this way, you can build a diversified portfolio of stocks for as little as $20 monthly.
Investing in ETFs and stocks is itself a side hustle — albeit a long-term one. Plan on keeping your money invested for at least five years. If you earn dividends, reinvest them unless you absolutely need the extra income.
5. Real estate
Owning real estate is also a side hustle, as well as a proven strategy to build wealth and make money. The most common approach is to buy property you can rent out. The trick is to make sure your rents will exceed your expenses, including the mortgage. That gives you another income stream you can reinvest elsewhere. The property should also appreciate over time, which increases your equity and net worth.
5. Alternative assets
You can also invest in various “alternative assets.” These include things like gold, bitcoin, collectibles, and private equity. Private equity is ownership in a company that is not publicly traded — like, say, the coffee shop your neighbor owns.
Alternative assets are best suited for experienced investors. There are opportunities to make money, but these assets can be very unpredictable. For an example, look up how bitcoin’s value has evolved over the past three years.
It’s also important to note that investments like collectibles and private equity have no pricing transparency. That means you don’t really know what they’re worth until you try to sell them.
Side hustling right
A side hustle you enjoy is a smart way to earn extra cash in your spare time. Choosing the right side hustle is your first decision to make. But a fast second decision is your best use for that new income stream.
Balancing your budget, paying down debt, padding an emergency fund, and investing — in that order — are smart money moves. Imagine how much stronger your finances will be when you can accomplish those milestones. You will forever remember the day you decided to side hustle as the start of something big!