More and more people have gotten creative with side jobs for extra income, especially since the pandemic.

The term side hustle is not a temporary trend, it has become a permanent income stream for millions of Americans. Believe it or not, a side hustle can be a valuable wealth-building tool. The opportunities are endless for turning your talents and skills into extra cash with a side hustle. And, you don’t have to quit your day job!

So, what exactly is a side hustle? A side hustle is a business that you can run during flexible hours, outside of your standard full-time day job. It is a part-time job that brings in some extra cash to supplement your main income. You might choose sell products on Etsy or offer freelance services on Upwork, or even offer community services on Nextdoor.

If you have a full-time job, should you consider a side hustle? The answer is a resounding YES! Why? It can be one of the smartest financial moves you make in your lifetime, as it can help to reach your retirement goals more quickly. A side hustle can benefit you in multiple ways, from increasing wealth to paying off expenses more quickly to even helping family members to get on their feet. Here are six things to consider when it comes to your side hustle:

1. Pay down your credit cards or student loans

Credit card interest can ruin any financial plan, with some rates as high as a painful 24 percent per month. Your first order of business with extra income should be paying off any credit card debt. Also, consider paying more of your student loan each month. With such debts out of the way, you can focus on saving and investing with your side business income.

2. Invest in a retirement account

Most people set automatic contributions at 3 percent to 6 percent of their paycheck into a 401k form a day job. If that sounds familiar, think about how an increase in what you invest monthly can compound over time. Invest your side hustle cash as well to accelerate your retirement savings. You might consider these options as part of your plan:

• Open a Solo 401k – be aware of maximum total 401k contribution limits – or a SEP IRA
• Fully fund your HSA
• Invest in a Roth if you meet the qualifications
• Contribute to your IRA

3. Take care of your family

Your side hustle can lessen financial stress for your entire family. You might choose to:

• Open a 529 college account for your children
• Help take care of aging parents
• Create a family emergency savings fund
• Develop a new frugal family budget

4. Fund your emergency savings

Have you fallen below six months of expenses in your emergency savings account? Your side hustle cash can help you build it back up. Take into consideration your lifestyle, dependents and household expenses. Place the extra money into an interest-earning bank account that can be accessed in an emergency – without monthly fees or penalties!

5. Plan ahead for tax time

With extra cash rolling in, your tax bill could also significantly increase. You’ll need to prepare for tax time to avoid a surprise bill:

• Set aside 25 percent each month for self-employment taxes
• Open a separate business account for your side hustle
• Determine if the IRS requires you to “pay-as-you-go” monthly or quarterly
• Save receipts from your expenses like supplies, internet or even car mileage
• Seek a referral from your financial advisor for a tax professional

6. Before your first paycheck comes in…

Planning is the key to benefitting financially from your side hustle. Before you start your side hustle:

• Make sure your current employment agreement allows for your side job
• Set aside time blocks and follow your to-do list so that you’re managing time wisely
• Contact your financial advisor to establish a plan for your earnings so that you don’t make the mistake of spending more freely instead of saving

If you’re about to start earning from a side hustle or if you already have extra income, schedule an appointment on Bayntree’s online calendar by selecting the date and time that is most convenient for you! You can also always reach us by emailing info@bayntree.com.

Bayntree Wealth Advisors provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.

Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.