Side Hustle, What?!

When I was younger if you had a second job, it was just that – a job. It wasn’t anything to celebrate, because often you were working to help pay your bills. I’m not sure what’s changed, and I fully admit I’m not 100% in touch with current lingo – but as I understand what I’ve been hearing, a “side hustle” is something people SHOULD have.

I can think of many instances when this is a good idea; for example if you have a hobby  you’re trying to become better at, in the hopes you can make it into a career (i.e. wood carver). After all, assuming the following:

1) Malcolm Gladwell’s theory it takes 10,000 hours to master a skill is accurate

2) We work and sleep on average (8) hours per day

3) We can spend (4) hours of each day (Monday – Sunday) working on our skill

It would still take us almost (7) years to become a “master” (6.85 years). That’s a long time to work on something for no reward (other than the satisfaction of becoming better). So getting paid to practice could be a great way to both stay motivated to learning and put a little extra cash in your pocket.

However, I question if this is why most people have a side hustle – I think for many it’s a way to increase their income. Nothing wrong with this, if you’re honest with yourself and you know what you want the money for. If it’s being used to cover monthly expenses, then I encourage you to revisit your spending habits. On the other hand, if you’re using it to save for a specific goal; just to have some extra cash; or as I postulated above, to get better at a skill more power to you!

Here’s where I become an old fuddy duddy (as proven by using the words “fuddy duddy”). When you consider a side hustle, and are determining how much money you’re going to make – please consider the associated expenses. This means if you’re driving for one of the ride share apps consider the increased frequency of required maintenance (oil changes, detailing, brakes, etc); the same goes if you’re renting a room or your house – typically there are additional expenses, including insurance, that often go overlooked.

If you’re “earning” $500 per month, but spending an extra $300/mth doing so evaluate if it’s really worth it. Many of the side hustles I’ve seen people do have the potential to be very lucrative; but like anything if you don’t know what it’s costing you you cannot be sure you’re really making a profit.

If you’re not sure how much you’re really making, track your cash flow. This is nothing more than the money coming in vs the money going out. You can set up a tracker in basic tracker in excel or talk to a financial advisor.  I like to see my clients saving at least 20% of money coming in for goals (not just retirement, things like trips to Disney & new cars as well). If you can’t, even with the side hustle, I would encourage you to evaluate where your money is going – and not just take on something else. And remember, although I’ve only talked about money; there’s another cost to be considered – time. Use it wisely, I don’t know of anyone who died wishing they’d spent more time working.

The Catch-22 of Taxes and Social Security

I don’t think anybody likes taxes – in fact I think it’s safe to say we would all prefer not to pay them. To that end, we do whatever we can to reduce what Uncle Sam sees as our taxable income; and why not – after all we work hard for what we earn! Unfortunately, not very many companies offer pensions, so it’s up to the individual to save for his or her retirement. Add a child with a disability, and you’re saving for at least two generations; and this is where the catch-22 comes into play.

If you reduce your taxable income your reducing the amount you pay into social security. Social Security considers the average of 35 years of wage history, with any years not reported counted as $0 income. This average is used to determine what they will pay you, the worker, in the event you become disabled or retire. The lower the amount you pay in, the lower the amount you receive. This will be even further reduced by taking social security before your full retirement age (FRA).

So what,  you may be saying. Well, remember what I said in the first paragraph about most of us not receiving a pension. Without Social Security, 2 in 5 elderly Americans would have incomes below the poverty line – that’s 40% of people aged 65 and up (source Center of Budget and Policy Priorities). If you decrease the amount you “earn”, without saving for your retirement, you’re also reducing your retirement income; not to mention what you’ll leave behind for your spouse or disabled child.

Disabled adult children become eligible to receive SSDI, provided they were disabled before the age of 22, paid on their parent’s Social Security earnings record. There are additional requirements (found here); but the point I want to make is YOU control what your child will receive. In 2017 the maximum earnings subject to Social Security payroll tax is $127,200. This means if you’re married or head of household you’d be in the 25% federal tax bracket.

In my opinion it’s worth it (to me) for my son to receive the highest amount of SSDI possible. I’m not a fan of paying taxes, but I do want to ensure my son’s quality of life doesn’t drop when I’m gone. I’m not counting just on social security, I have life insurance and I’m fortunate to transfer some of my military pension to him as well. Each of us needs to make our own decisions, there is no right or wrong answer. However ensure you are making an informed decision. Weigh the pros/cons of taxes, and consider what you’re doing to help yourself, and if applicable, your disabled child.

This, like many financial decisions, doesn’t have to be made in a vacuum. Talk to your advisor and/or accountant; get their input. The solution is not necessarily always reducing your taxable income, especially if you’re a self-employed business owner and you’re reinvesting everything you make back into the business (not saving for retirement).

Walk before you Run

I don’t think very many of us step foot into the gym after a prolonged absence and decide to push yourself as hard and as fast as you can – at least not more than once, especially if you’re older than 40. We know, or at least have a fair idea, if we did it would not be pleasant (to put it mildly). Yet many of us are so quick to think other aspects of our lives, specifically financial, would be any different.

I get it, I hear many of the same “experts” telling us we need to save more and spend less – and we do! But, and this is a very big but, you should not think you can suddenly do a complete shift and sustain it. You need to train yourself, just as you would if you were going to run a marathon.

Saving/spending are just as much habits as smoking or making coffee every morning (my personal vice). Yes, in a perfect world all of us would be saving at least 20% of every check towards clearly defined goals (retirement being just one of them); but this isn’t a perfect world – we all have other “stuff” going on that can distract us. So rather than try to make a drastic change, and then quit because it’s too hard, start smaller.

Although transportation and housing make up a significant portion of our spending, many of you reading this are probably not in the market at this time – so there probably isn’t much opportunity to reduce your spending here. However, if you are in the market, or if you haven’t looked into refinancing and you’re mortgage rate is over 5%; here are a few things you can do to help yourself.

Aim at keeping the house and auto payment down. If you have to finance a car for 60 or 72 months, consider a less expensive option. Cars are depreciating assets – meaning you will never get the money you put into it back. Refinancing your mortgage could free up some cash – and since you’re used to not having it go ahead and put it directly into a savings/investment account; don’t spend it.

For the rest of us, track how often you buy something every day/week. For now, don’t worry about how much you’re spending, this is to determine your purchasing habits. For everything you buy make a note of “need” or “want”. What drives your purchases? Are there certain times of the day you are buying more frequently, is it just super easy because your card info is saved on the website? These are the types of questions you should be asking yourself.

From here, pick one thing to change and commit. Maybe it’s deleting your card info from Amazon Prime, or you don’t hop on the computer right after work because it leads to retail therapy. Whatever it is, just make (1) small change and stick with it for at least (3) months. Easy way to track – Federal holidays. If you start something around the 4th of July, next step is reevaluate around Labor Day or Thanksgiving. No reason to make it super complicated, the easier it is the more likely you’ll follow through.

What you shouldn’t do: don’t suddenly increase your 401(k) from 2% to 15%; that’s too much of a shock to your system. Don’t tell yourself “I’m just not going to shop anymore”. That’s a punishment, not a constructive realignment of your attitude and behaviors (fancy talk for making yourself miserable). If you’re in a committed relationship with joint finances – don’t make any changes on your own. Have an open dialogue, and if necessary, use an impartial 3rd party to help steer it. Pick a pace that leaves you a little uncomfortable and get started. There’s no better time than now.

 

Don’t Let the Tail Wag the Dog

I enjoy coaching business owners, helping them determine where they can increase efficiency and dial in their focus running the business – as opposed to the business running them. Over the years I’ve found some very common themes – “not enough time” and “too much to do”; both of which can be addressed by stepping outside the business and looking at it as a perspective buyer, rather than the owner. Buyers look for opportunities and weaknesses (so they can bid the price down), they’re not emotionally invested in the company and won’t make excuses about why something is happening.

Unfortunately, many of us get so wrapped up in the day-to-day operations we lose sight of the bigger picture – where we want our company to be in 5, 10 or 20 years; and what is the core service or product our business provides. If you don’t have a vision for your company, or if you can’t put your finger on the core service/product, then ask yourself why you’re a business owner. Sure, there’s a lot of hype right now encouraging people to be entrepreneurs and chase their passion; but that passion may be met through hobbies or volunteering at much less cost than starting a business.

Same goes for “side hustles”. Unless you’re working part-time for someone else, you should be treating your hustle like a business. If you’re an Uber or Lyft driver, or you rent room(s) on Airbnb, then understand what your expenses are – please don’t delude yourself into thinking what you earn is “all profit”. I would also like to encourage those of you with side hustles to ask yourself “why”. Why do you have the hustle, what is the money going to help you do? Take this answer and make sure you’re taking the steps necessary to follow through.

Perhaps you’re saying “sure, this all sounds like a great idea; but you just don’t understand how busy I am”. Again, I challenge you to think as a buyer. Do you care how busy someone is, do you let them off the hook for a poorly delivered service or product? No, of course you don’t – so why are you treating yourself any different?

Make the time. Set at least one day each month aside for your business. Instead of arguing how much business  you’re going to lose (cost); think of it as an investment which will increase your profits by improving efficiency and honing your focus. Create an agenda for your day, and follow it. It’s going to feel weird at first, and maybe you’re not super productive right away – it’s a new skill and it’s going to take time to get good at it. Don’t give up, push through. If you’re not sure how to start find a mentor or hire a coach.

I need to stay busy, but I don’t like to waste my time. Think back to why you started your business or side-hustle; I’m willing to bet it wasn’t so you filled your every waking moment with work. Be honest with yourself, do you really want to run a business? Be okay with the answer, whatever it is, and take the necessary steps to be successful. Just do something.