Before you head down the path of finding the best side hustle for YOU, it’s a rather important exercise to take a step back to ensure your personal finances are in order. By seeing where your money is actually going, you’ll be better prepared to stretch every dollar even further, which in turn will help you more readily reap the financial benefits that come from taking on a side hustle. For those of you that already have their personal finances truly in order – good for you! Pat yourself on the back and get back to work as your next side hustle awaits. For the rest of us mere mortals, please read on.
Here are the 5 steps to get you going:
1. The key to mastery is knowledge … record your spending habits
The first step you i’ll want to take, is to keep a log of all your daily expenses — every trip to the supermarket, every movie night, every dinner out — all of it. This is important because it will help give you an overview of your current spending habits, as well as act as a diagnostic tool for your financial health. If you prefer to track your finances digitally, services like Mint can help to automate the process. Do this for a week — or, even better, a full month. Seeing your spending habits written down on paper can be a big eye opener, and help you recognize where your weaknesses lie and where you can cut back. If you are spending more than you are bringing in, this exercise will be a good wake-up call for you to take control and make some significant changes in your life.
2. Research, research, research … and then research some more
Once you have an idea of where your money is going, it is time to do some research to make sure you are getting the best possible deal on all of your recurring expenses. Some things you will want to research include different health insurance providers, car/home insurance providers, phone companies, streaming services, and internet providers — among others. It may be helpful for you to take out a pen and paper and write down a list of your current monthly bills. If you have been with the company for a long time, call them up as a long-term customer and see what they can do for you. You’d be surprised at how much you can save by taking these steps. Research, compare, and then research a little more to make sure you find the deals that best suit your needs.
You can also try using Trim (or apps like it) to find and cancel unwanted or forgotten subscriptions. Trim will also find where you are overspending on bills, and can even negotiate the price down for you.
3. Create (and stick to) your budget
The next step is to create a realistic budget that you can actually stick to. When putting together your budget, start by seeing if there are any areas that you can cut down on. Do you really need Stan, Netflix and Foxtel? Perhaps choose just one and cut out the others. Are you making full use of your gym membership, or will a simple walk around the block be a good replacement? Can you cut down on take-out and cook at home more often? Every little bit helps when it comes to getting your finances in order and making that dollar stretch.
Once you have determined where you can cut down, it is time to write out your budget. You can use a simple spreadsheet (like Excel), a budgeting app (like Mint), or even just pen and paper. The important part is that you figure out each area in your life where you regularly spend money and allocate a specific amount to it. This will help keep you honest in your spending, as well as give you reachable goals every month.
4. Automate your savings
It’s a great idea to get into the habit of transferring your paycheck straight into a savings account. Because let’s face it, you are much less likely to spend money you don’t see. Start by paying off any essential monthly bills, and then only transfer the amount you decided upon for your budget into your checking account.
Another option is to have your paycheck deposited into your checking account, and set up an automated monthly transfer into your savings account. In this scenario, you can designate a set amount of your budget to savings, press a button to automate the process, and consider it another monthly bill — paid to yourself.
5. So you are bringing in extra money from your side hustle … now what?
Over the weeks, you will begin to notice a big difference in your finances and gain more control over them. Once you’ve reach this point, you will be in the best place possible to start looking for that side hustle. Since you are already utilizing every dollar you bring in to the best of your ability, any extra money brought in can be put to good use and maximized as much as possible.
It’s easy to get carried away and start splurging once the extra cash starts flowing in, so make sure you set some realistic and meaningful goals for yourself. As you prepare to start your side hustle, ask yourself: What do I want to do with the extra money I am bringing in?
A good plan is to invest at least part of your side hustle’s income back into the side hustle itself. This will be especially important in the beginning and will help you get your new business off the ground — as well as prevent you from derailing your budgeting and savings efforts. For this reason — as well as for tax purposes — it is important to keep your personal finances and business finances separate. Consider opening a separate business account at your bank, just for your side hustle.
Not having your personal finances in order is just a recipe for disaster that will negatively impact you in many ways over time. When you don’t know exactly where your money is going, it is equally easy to have it slip through your fingers and lose sight of any financial goals you may have had. If you DO decide to start a side hustle when your finances are on shaky ground, just know that any new money that starts rolling in may just feel like it disappearing into the ether.
You know what need to do, so go do it. The faster you do, the sooner you can get your side hustle on in an intelligent way.