Solutions to Make Better Decisions with Your Taxes and Money

What to Do with Your Side Hustle Income

What to Do with Your Side Hustle Income - TaxAct Blog

A side hustle (or side gig or freelance job) can help people achieve financial goals and obtain a level of job security.

Developing a second skill set to bring in money can not only help you build a nest egg in addition to your current salary, but also give you an income stream if you ever lose your job.

But what should you do once you start earning side hustle income?

Keep Track of Your Money

The first step of side hustling is to keep track of your income. You need to know who owes you money and how much you earned each quarter.

Also, you need to keep your finger on the pulse of how well your side gigs are bringing in money.

It’s gratifying to watch your earnings go from a few thousand dollars in the first months or year to tens-of-thousands of dollars later on in your freelancing career.

You can also learn to determine when you should adjust your rates.

You can keep track of your money with sophisticated software or kick it a bit more old school with a detailed spreadsheet.

Prep for Paying Estimated Quarterly Taxes

It doesn’t sound like the sexy thing to do with your new income, but you have to brace yourself for Uncle Sam.

In fact, you may have to start paying estimated quarterly income tax on your side hustle money. This is why it’s important to keep tabs on all your earnings and to set aside a portion of each freelance paycheck for taxes.

You can use TaxAct to pay your estimated quarterly taxes just like you do when filing your annual return by April 15 (or April 18 for tax year 2015).

Debt Repayment

Some freelancers start their side hustles out of a desire to pay down existing debt like student loans, credit card balances or a mortgage.

If you already put money from your primary salary towards debt, you can use additional side income to help annihilate the balance even faster and get back in the black.

Plus, paying off debt in a few years instead of decades will save a lot of money in interest.

If you do use side hustle income for debt repayment, remember to save some of the funds for taxes. You don’t want to have to dip into savings or an emergency fund because you got so aggressive with paying down debt.

Save, save, save

After tucking away about 25 percent of your freelance income for taxes, saving up your money can help you meet financial goals in significantly less time.

Focus on a dream European vacation, buying a car, saving up for the down payment on a house, having a baby or building your emergency fund to help you build up at least six months’ worth of income.

The money you save can be spread across various savings goals or focused on one specific target.

Don’t forget to tuck it away in a savings account with a higher-yield annual percentage yield than your standard 0.01 percent.

There are accounts offering 1 percent or higher. On $10,000 in savings, it can be the difference between earning a dollar or $100.

Live a Little

A strong work ethic is important. If you have a regular job and start side hustling, you clearly don’t need to be told twice about the merits of hard work.

But don’t forget to use your money to enjoy yourself from time to time. Treat yourself by going out to lunch when you normally wouldn’t. Buy a latte or join a friend for a movie. Buy a bike you’ve had your eye on or spend the money on a class you’ve always wanted to take for fun.

TaxAct makes preparing and filing your taxes quick, easy and affordable so you get your maximum refund. It’s the best deal in tax. Start free now or sign into your TaxAct Account.
About Erin Lowry

Erin is a millennial personal finance expert and the founder of BrokeMillennial.com. She's also the author of Broke Millennial: Stop Scraping By and Get Your Financial Life Together. Lowry and her work have been featured on CBS Sunday morning, CNBC, Fox & Friends, USA Today, The Wall Street Journal, Cosmopolitan and NBC News. Connect with Erin on Twitter, Facebook and Google+.

Speak Your Mind

*