A side hustle is one way to improve your financial future and the extra income created can help you reach major financial goals. But, sometimes, your side hustle can grow to become your main hustle and transform your whole life.
Are you considering taking the leap and pursuing your side hustle full-time? It can be an exciting prospect. But this transition can lead to a lot of emotional questions and financial decisions.
In partnership with the tax pros at Block Advisors, we’re going to talk about both the financial side and emotional side about making your side gig your main hustle. Because while the income earning potential is great, there’s a lot about taxes and other things you need to know. Get help from proven tax professionals at Block Advisors >>>
Today, I will share what you need to know before your side hustle becomes your main hustle.
From Side Hustle To Main Hustle: My Personal Experience
When you start side hustling, it's likely that you’ll try several different options before finding something that works for you. Personally, I tried a handful of side hustle opportunities before settling on freelance writing.
As a fresh college graduate, I landed a state job in my field immediately after graduation. But since my field of wildlife biology didn’t pay very well, I knew that I needed a side gig to make things work. I decided to try my hand at freelance writing about personal finance. My Masters in Management gave me the baseline knowledge I needed to dive in headfirst.
Within two years, I had the option to take my side hustle full-time. Based on my own personal experience, here are a few questions that I recommend asking yourself before you make your side hustle your main hustle.
Do You Enjoy The Time Spent On Your Side Hustle?
First things first, do you want to do your side hustle full-time? If you don’t particularly enjoy your side hustle, then you might not want to take it full-time.
Think about how you would feel if you were spending all of your working time on your side hustle. If you don’t see yourself enjoying this hustle as a main source of income for the long-term, then you might want to keep it in the side gig category.
Personally, I enjoy writing about personal finance and helping others pursue their financial goals. Plus, the flexibility of writing was enticing.
Do You Want To Be Your Own Boss?
A major component of taking your side hustle full-time is the transition into becoming your own boss. As a side hustler, you probably have the discipline you need to succeed as your own boss. But is this a responsibility you want to take on?
For me, I always dreamed of becoming my own boss. The ability to set my own hours was a freedom I craved. Plus, the option to dramatically increase my income on my own terms was an enticing factor that made the idea of making freelance writing my main hustle alluring.
Does Your Side Hustle Have Solid Expansion Potential?
A key indicator that a side hustle has the potential to support you full-time is the potential for expansion. Consider whether there are more opportunities to bring in cash if you had more time in your day.
In my case, I knew that my time was the biggest limiting factor for my side hustle. With that, freeing up more time in my week was a no-brainer. But make sure your side gig has a pathway to the income you need to support yourself fully.
Would Giving Up A Steady Paycheck Stress You Out?
As you approach the tipping point, consider your risk tolerance. Many of us feel a certain amount of security in our day jobs. So many of us cling to our day jobs in hopes that our income will never disappear.
Whether or not that sense of security is validated or not will depend on your industry. As we saw in 2020, a ‘regular’ job doesn’t protect you from unemployment. With that in mind, transitioning into your side hustle full-time could be the right option.
As a small business owner, you have the ability to diversify your income streams to create a sustainable business model that will hopefully survive the future of the market. But it's understandable - and completely okay - to transition into your side hustle slowly
Would You Miss Your "Real" Job?
When my side hustle reached the tipping point, I knew that I had to make a tough choice. At the time, I had a "dream" job as a marine biologist. But the compensation was not enough to reach my financial goals.
With that, I decided to approach my employer and ask for a part-time role. I knew when I made my ask that I might have to walk away forever.
But luckily, my boss was very understanding. We worked out a part-time arrangement at my day job that allows me to enjoy some time in the field as a marine biologist. However, most of my days can be dedicated to writing for a living.
As you approach your tipping point, think of creative solutions to scaling back work at your day job. You may not have to dive full-time into your side gig suddenly if you have a flexible employer that is willing to work with you.
How To Prepare Yourself Financially And Emotionally
If you know that it's time to make your side hustle full-time, you probably feel very excited, but also a bit nervous about the unknown. Here’s how to prepare yourself financially and emotionally for when your side hustle becomes your main hustle.
Expect Ups And Downs
The cash flow of many businesses rises and falls through the seasons. As a freelancer, you may experience a feast or famine workload that can be difficult to predict.
If you are aware of this possibility before you dive in, you can prepare yourself. On a financial level, building an emergency fund can help you weather business downturns of the future.
Beyond the finances, don’t forget to take care of the emotional side of running your own business. Although everyone reacts differently, I found the process of taking my side hustle full-time to be an emotional roller coaster. The struggle to strike a balance that worked for me was prolonged. But eventually, I found a happy medium that works.
In the last several years, I’ve learned that a solid emergency fund is critical for my peace of mind as a small business owner. If I have a slow month, I don’t have to stress out. Instead, I can continue living below my means and tap into my emergency fund if I need to.
Choose The Right Business Structure
The right structure for your small business will depend on your financial situation. The options include:
Do some research on the different options to determine the best fit. If you’re unsure about the right business structure for your business, consult with Block Advisors.
Block Advisors helps entrepreneurs and small business owners understand the tax impacts of these complex decisions. Don’t feel like you have to rely on Google to find the best answer, when a proven tax pro at Block Advisors can help.
Keep Accurate Records
Proper bookkeeping will help you manage your business efficiently. Not only can organized books help you make the right financial decisions for your business, but they also make tax time less stressful.
You can do it yourself with online services, but if that seems overwhelming or takes too much time, you can find a bookkeeper to help. In fact, a bookkeeper is one of the first things most small businesses outsource.
You should also start a separate bank account for the business. This keeps business and personal information separate and helps facilitate record keeping and bookkeeping.
Block Advisors offers bookkeeping services as well as tax preparation, so you can have all your important financial docs in one place. Check out Block Advisors here >>
Don’t Forget About Taxes
Although you are transitioning into a new income stream, you can't forget about taxes. Many side hustles forget about this critical piece of the puzzle. Unfortunately, this can lead to an unpleasant surprise at tax time.
Depending on your financial situation, your tax liability may be thousands of dollars in self-employment taxes each year. It's important to keep track of your liability throughout the year. Furthermore, depending on your tax structure (which we talked about earlier), you may need to file quarterly estimated tax payments as well, or have other state filing fees.
If you have questions, you can always consult with a tax professional. Block Advisors makes this easy by having tax pros in your state that know exactly what you need to do for your business. Beyond the bookkeeping, they can help file your tax returns every year.
Consider Opening A Self-Employed Retirement Account
Without a W-2 job, you won’t have access to the same retirement accounts that you are used to. But there are many great retirement investment plans for self-employed individuals.
Don’t put off saving for your future. Learn about the best self-employed retirement accounts available today. Not only can you save for your future, but you can also save a lot in taxes when you contribute to one of these plans!
Although it can be a big step to take your side hustle full-time, it can be incredibly rewarding. I have never regretted my decision to turn my side hustle into my main source of income. The increased control and flexibility are second to none in my opinion.
Don’t let anything hold you back if you want your side hustle to become your main hustle. But don’t forget to create an emergency fund, set aside cash to pay taxes, and save for your retirement.
Are you ready to take your side hustle to the next level? Let us know!
And if you need help with the financial side of the equation, check out Block Advisors to get the accounting and bookkeeping help you need to move from side gig to full time entrepreneur. Make an appointment here >>
Sarah Sharkey is a personal finance writer covering credit cards, mortgages and student loans. She has written for numerous finance publications, including MagnifyMoney, Business Insider and ChooseFI. Her blog, Adventurous Adulting, helps young adults get a handle on their finances.