Over the past decade, and really since the dawn of the internet, side gigs have become huge income sources for so many people. Being able to create content online or even put in a few hours doing Uber on the weekends has created an accessible source of secondary income. Once that extra income starts flowing in, the easiest thing to do with it is to spend it. Earn, spend, repeat. However, let’s look at some other options that could be more beneficial:
• Create a sinking fund for upcoming expenses: In essence, this is still spending your extra income, but this is doing so in a more thoughtful way. Let’s say you have some big ticket items coming up (down payment for a new car, big vacation, tuition, etc.). Rather than waiting until that day and either having to put that big expense on a credit card or pulling from your savings, the alternative is to start saving early. Take the extra income you earn each month, dump it into a separate savings account labeled “VACATION” (or whatever goal you have), and start dumping all your secondary income into that bucket. That way, your normal monthly income and expenses aren’t touched. You can view your secondary income as entirely funding that big item. It can be motivating to earn more through your secondary source of income and also not feel guilty about spending that money when the time comes.
• Establish a proper emergency fund: American citizens are living paycheck to paycheck. There’s no secret about that. Have a second job? Take that opportunity to establish a proper emergency fund. A good place to start is 3-6 months’ worth of expenses, but even just setting up a separate savings account and beginning to put money in it is an excellent first step.
• Pay off high-interest debt: With interest rates going up, credit card rates are doing the same and eating consumers alive. As soon as you deposit money from your side gig, immediately make a payment on a credit card in that exact amount. It goes into your bank and immediately out as if you never had it. But you’re paying down high-interest credit cards and getting back on track with your personal balance sheet.
• Save for anything in the future: Debt-free, emergency fund set up, big expenses paid for, and wondering where else to put it? Save it, don’t spend it. Keep your overall cost of living low, and take every dollar you make and save it. Saving it can look like a high-yield savings account, a brokerage account, or even a retirement account, depending on your time horizon. But, the big emphasis here is don’t just spend it. Now, as the great Tom Haverford would say, “TREAT YO SELF” is an acceptable way to reward yourself for the hard work of extra income. Celebrate the fact that you’ve worked hard to be in a spot like that financially, but then go back to saving.
Awesome job figuring out a secondary source of income. Having money coming in above and beyond the 9-5 job is a great way to get ahead financially. And, it’ll look different for everyone depending on where you’re at in life (as described with the various paths above). No matter what, take advantage of your extra income, improve your balance sheet, and get ahead.