If you’re one of the 44 million Americans who have a side hustle, you probably want to make the most of your hard-earned money. After all, when you’re taking on extra gigs on top of a day job, it could feel demoralizing if it seems like that money is just vanishing into thin air.
Instead of your side hustle earnings going purely toward covering monthly bills, why not funnel some of that extra cash into building your net worth? Read on for a handful of ways you can use your side hustle money to grow your wealth.
Understand Saving Vs. Investing
First things first: Note the difference between saving and investing. Both can help you grow your money in different ways.
Saving involves stashing money away into an account for a specific goal such as a vacation, your kid’s college education or your first house. Investing is when you stash your dollars toward a retirement or investment account. Thanks to the power of compound interest, the money you put in will grow in value over time if you keep it in the market long enough.
In my humble opinion, saving and investing are the sweet meat of personal finance. It’s the equivalent of having hard biceps after going to the gym every day for 6 months in a row. When you have some money freed up to put toward your savings and investments, you’ll have more options and in turn feel more empowered.
Allocate A Percentage Toward Building Wealth
Even if you’re side hustling out of necessity, figure out how you might be able to allocate even a small percentage of your earnings toward your savings and investments. For instance, if you’re raking in $200 a month from dog walking, see if you can set aside 20% (or $40) each month toward growing your net worth. Then put half of that toward a savings goal and half toward investing.
I prefer committing a percentage of your side hustle money versus a set amount. That’s because you can squirrel away more toward your savings and investments if there’s a month where you’re earning than more usual.
Turn Your Side Hustle Into Savings
Money you put toward savings will build your wealth slowly but surely. For instance, if you’re saving for a down payment on a house, that house could build equity and be a valuable asset, therefore boosting your net worth. Or if you’re saving to renovate your current residence, doing so could in turn increase the value of your abode.
Here’s a tip: If you’re able to do so, auto-save. Set up a separate savings account for specific savings goals. Then set up auto transfers to happen every week or month. By going the “set it and forget it” route, you’ll stay on track. Plus, you won’t have to agonize over whether you can afford to save since the decision will have been made for you. Chances are you won’t even notice that you have slightly less money in the bank.
Besides allocating a percentage of your earnings, you can look for an online bank that offers a high yield savings account (earning interest of 2% or higher). That way your money can earn more in interest than if it were to sit in a bank that offers a measly 0.01% annual percentage yield (APY).
Put It Toward Investments
If you’re in it for the long haul, your investment accounts will grow in value over time. Historically, the average rate of return in the stock market over time is 10%. If you put in $20 a month into a retirement account for the next 30 years with an average rate of return of 10%, your money will have grown to nearly $40,000. If you put in $100 a month over 30 years, you’ll have nearly $200,000.
Here’s the thing: You don’t need thousands of dollars to get started. Through micro-investing apps you can get a jump on investing for a mere five dollars a month. What’s more, you can certainly invest even though your side hustle income may fluctuate month to month.
Reinvest Into Your Side Hustle
If you actually enjoy your side hustle more than your day job, you might want to reinvest your earnings into growing your side hustle into a business. Maybe moonlighting as a proofreader could segue into launching your own editorial services company or your love for dog sitting could turn into a full-fledged pet sitting venture.
You can also put some of that money toward fancier equipment, tools and supplies. You may choose to invest in yourself by attending a professional conference or taking an online course. You might want to hire contractors to lessen your workload so you can focus on your particular zone and expand your endeavors.
Using your side hustle earnings to boost your net worth is a solid way to make sure your money is working for you. Stick with it, and over time it could help you turn that money into a wealth-building machine.
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.