Having another source of income sounds great. But, are you prepared to manage the financial aspect of it?
f you’ve just started your first side hustle (or two) – congratulations! It’s a great feeling to have extra cash rolling in every month. But, did you know that your side gig will also require a bit of cash flow management?
If you have not yet created a game plan to manage your side hustle finances yet, fret not! Keep reading to learn our top five tips for getting a handle on your extra earnings. This way you can get closer to your financial goals faster than you ever imagined.
#1. Never stop tracking
If you are not carefully tracking all the extra money you’re bringing in (against your side hustle expenses), then you’ll never get a true sense of whether the effort you’re putting in is paying off. The good news is: You don’t necessarily need a fancy bookkeeping system to keep tabs on your side hustle earnings.
You can opt for a digital accounting apps like Quickbooks to track your income and expenses.
There’s also another benefit of tracking your side hustle finances on a consistent basis. Whether you’re bringing in an extra RM500 or RM5,000 a month from your side gigs, you’re officially an entrepreneur, with an obligation to file your taxes.
Ensure to keep track of your expenses month to month. For example, you may be able to deduct office supplies, gas mileage, internet services, and more.
Spreadsheet will make it easy to calculate how much you needs to set aside for paying taxes on the income she brings in. Without this step, you would be in for a bit of a shock when tax time rolls around. But, by estimating your taxes throughout the year, you are prepared to handle the payment when you are filing your taxes.
#2. Filing for income tax
Filing for income tax when you are freelancing might be different from when you are employed. For example, employees receive an EA form with information about their total salary earnings as well as total EPF and SOCSO contributions for the year. But, for freelancers, they will have to calculate their earnings by tabulating their profits through invoices and expenses.
Employees may also be under the Monthly Tax Deduction (MTD) programme where their company calculates and makes tax deductions for them, on a monthly basis. When comes the time to file taxes, they may only pay a small amount or even receive a refund if they’ve paid more. Other than that, both freelancers and employees undergo the same process to file taxes.
When in doubt on how to file your income tax, make time to contact LHDN to clarify the right way to ensure your filing is correctly done.
#3. Be careful how you budget
Some side hustles are inconsistent in nature, so it’s important to adjust your budget accordingly. But, usually your budget will be based only on your salary.
As you make money through your side hustles, add it to the income section of your budget and add how much you should set aside for taxes, if needed.
At the end of the month, once you have your final numbers, you can determines a purpose for the side hustle income. This usually involves putting extra payments towards paying for student loans, emergency fund, or property loan.
#4. Keep things separate
In this case, out of sight, out of mind, is actually a good thing!
One of the best ways to manage your side hustle finances is to keep your extra income in a separate bank account so that it is not mixed with regular earnings from your 9 to 5 job. This makes it a lot less tempting to blow through those extra earnings.
#5. Be cautious when taking on debt
If you can start a side hustle using your savings or better yet, find one that requires virtually no start-up money, that would be ideal. However, if you’re looking to scale your side hustle gig into a full-blown business, think about using debt only if you have no other choice. Or, use debt in small increments with a plan to pay it back fast.
Make sure when you are investing in five-figure web design, or fancy editing, or (full-blown) photoshoots, make some basic market research or getting clear on how they (plan to make) money so you can avoid finding yourself in all this debt.
You can also leveraged your debt incrementally to avoid overextending yourself.
#6. Outsource to grow your business
Outsourcing usually comes into play once your side hustle game starts to grow. Business-wise, you can get started with things that could be automated. This includes email marketing or scheduling out social media posts.
Eventually, you can start outsourcing of tasks that you have lesser knowledge or skills about. Things like graphic design, social media management, and video production.
You can also looked at other obligations that took up your free time and prevented you from working more and started outsourcing those as well.
For example, you can start by hiring a cleaning serving to come at your house and cut some hours off your week. You can also started using a grocery delivery service to save time. But, this depends on your needs and your time management.
With these five side hustle money management tips in mind, now is the perfect time for you to start earning extra cash with a side gig. Having a side income will definitely help to improve cash flow management and give some breather to your financial planning.
Do you have other tips to manage your finances when having another source of income? Share with us in the comments section below.