Ultimate Guide to Earning Extra Income in the Gig Economy
If you’ve ever wanted to make more money, pay off debt faster, or save for a vacation, then a side hustle might be for you. “Side hustles” are any type of employment that is undertaken in addition to full-time employment.
Even though full-time employees have worked second (or even third) jobs for decades, side hustles have become more accessible in the past few years, and it’s largely due to the gig economy.
What is the gig economy?
The gig economy is all about self-directed freelance work and part-time jobs that let you set your own schedule and work as much (or as little) as you want. Thanks to the internet, new opportunities for short-term gigs have become more common as technology allows consumers to connect more directly with a willing workforce. Even beyond that, side hustles or side gigs have become a legitimate and even necessary way for workers to supplement their full-time income.
Before you dive in and start hunting for that extra income, there are a few things you might want to consider.
What you need to know before you begin
When it comes to side hustles, there’s a lot you’ll want to consider, like time management, hourly rates, and skills. Even though you need to deal with the details, it’s also important to remember the big picture.
Prepare for taxes
Taxes are probably the last thing you think about when starting a side hustle, but the truth is they should probably be the first. If you earn extra income you might also have to pay more towards taxes.
“You want to be in front of your tax situation,” explains Neal Frankle, CFP® and editor at Wealth Pilgrim. “You don’t want to have a great first year where you make $20,000 [in extra income], and you're so excited and you go out and spend it, but then you don’t have any left for tax season.”
One of the best ways to prepare for taxes and manage your side hustle income is to keep your business bank account separate from your personal bank account. It might also be a good idea to speak with an accountant to ensure that you’re properly prepared for tax season.
“Get an inexpensive accounting package like Quickbooks and keep your records,” says Frankle. “That way you can show your accountant how you are doing. You’ll also be able to tell whether you are making or losing money with your side hustle.”
Depending on the type of side hustle you pursue and whether or not you’ll be launching an actual business, you might want to register as a limited liability company (LLC) or S Corporation through the IRS. But before your rush to file the paperwork, it’s important to understand the work you’ll be doing and whether or not it’s necessary.
“When you’re just starting out, it’s best to keep things as simple as possible,” explains Frankle. “If you’re doing things with a product or service that insurance doesn’t cover, then it might be a good idea to talk with a lawyer. If you’re feeling confused or unsure, it might be worth it to spend $300 to $400, talk with a lawyer and make sure it makes sense.”
Choose the right side hustle
Once you’ve considered the big picture of your venture, it’s time to choose the right side hustle. Every job is different and whether or not a side hustle is your worst nightmare or dream gig will depend on a variety of factors that include your personality, goals, and skills.
“If you need to make money fast, you might be tempted to do the first thing that comes your way,” says Frankle. “But it’s important to spend at least a month really looking at [the job] and talking to people—both customers and [potential colleagues]—to make sure it’s a good fit. If you go down the wrong path, it might discourage you from trying again.”
If you invest time in research at the beginning, you might be able to save yourself from a lot of headaches down the road.
Popular side hustles for the gig economy
1. Drive for Lyft
If you own a car with four doors and feel comfortable chatting with strangers, then driving for a rideshare app might be the perfect side hustle for you. Here’s how it works: you log in to the app when you want to work and simply leave it closed when you don’t. Drivers can expect to keep between 70 and 75 percent of the fare
2. Freelance on Upwork
Whether you’re a graphic designer, copywriter, voiceover artist, or something else altogether, sites like Fiverr and Upwork allow you to list your services and set the price. This might be perfect side hustle for workers with a specific skill.
3. Babysit or nanny on Care.com
Babysitting is no longer just for teenagers. Thanks to sites like Care.com, nannying has become a lucrative and respected side gig. Most parents are looking for experienced babysitters with CPR and First Aid certifications, so this might be a great fit for teachers (especially during the summer months). Prefer watching four-legged kids? You can also find work as a pet sitter or dog walker.
4. Run errands with TaskRabbit
Next time you’re at the store buying groceries, you can log in to TaskRabbit and get paid to pick up someone else’s as well. There are a variety of tasks on TaskRabbit that range from picking up groceries to fixing a broken door.
5. Deliver food with Postmates
If you enjoy driving and making people happy, then delivering food might be the perfect side gig. All you need to do is go to the restaurant or store, grab the food and drop it off. It’s as simple as that.
6. Rent your home on VRBO
If you’re a homeowner who loves to travel, then renting your home might be a great way to earn extra money to fund your trips. You’ll need high quality photos of your home, an accurate description of what guests can expect, and great customer service.
Pros and cons of side hustles
As with most things in life, there are pros and cons to side hustling. Before you dive in, it’s important to understand the potential benefits and pitfalls. Here are a few things you might want to consider.
Pro: More money and new skills
Here’s the truth: earning extra income with a side gig will boost your bank account. So if you struggle to pay your bills on time each month or are dealing with debt, a side hustle might be a great way to earn more money.
Katherine Pomerantz, a 26-year-old from Oklahoma, began as a freelance actor and dancer, but she never considered herself a business owner, and as a result, she struggled with money.
Pomerantz explains, “Once I made the connection [between my mindset and my money], I switched trajectories and a year later I owned an accounting firm. Now I help other side hustlers and nontraditional entrepreneurs so they can avoid my mistakes.
“Even the smallest of side hustles makes you self-employed, and self-employed [people] simply have more options when it comes to financial management. If you take the time to explore those options, not only will you have more money, you'll be better at making that money work for you.”
PRO: Unlimited earning potential
Jen Smith, a podcast host and blogger originally started earning extra income in the gig economy as a way to rapidly pay off $78,000 of debt a few years ago. She’s now debt free, but she continues to learn new lessons about the gig economy.
“In the last few weeks my Amazon account [where I sell] t-shirt designs was terminated due to copyright infringements,” Smith says. “I was naive in thinking I could get away with stuff I saw other people selling on Amazon and Etsy, but because the shirts sold well they were picked off and it led to losing $1,000 per month in income. So now I tell people, ‘Even if it's harder and takes longer, do things the right way.’”
But despite the lessons and occasional setbacks, Smith believes that having a side hustle is a “must.”
“If you work for other people, they dictate your employment. With a side hustle that can at least cover your monthly expenses you can weather the storm without panic,” she explains.
PRO: More confidence
“Side hustles bring a sense of accomplishment and self reliance,” explains Frankle. “You might be a full-time worker, but [your job on the side] might give you a good sense of accomplishment.”
Some of the biggest benefits of having a side hustle can’t be measured or tracked, and that’s true for confidence. Here’s the deal: nothing feels better than knowing that you can earn extra income every month and that’s one of the greatest advantages of a side gig.
“It also sets a positive example for your family,” says Frankle. “Your partner or children see that you are working hard to achieve a better future for yourself and for them. They learn the value of hard work because they see you modeling it. Plus, it puts spending in perspective. It’s a lot harder to make a dollar than it is not to spend a dollar.”
Con: Too much pressure
The thought of working a side hustle might feel overwhelming. There are taxes to pay, legal questions to answer, and the day-to-day challenges of running a business. Combined with a full-time job and other responsibilities, earning extra income in the gig economy might seem like too much pressure.
“Not everyone is able to balance a side-gig with their full-time job—sometimes one or the other suffers,” explains freelance tax accountant Eric Nisall. “Also, not everyone is meant to run a business. You can be great at a specific task, but only when under the supervision and oversight of someone else. Not everyone can deal with the marketing, deadlines, and customer-facing aspects, which is a big part of many side gigs.”
If you ultimately decide that side hustling isn’t for you, that’s okay. Sometimes the best way to boost your income is to focus on your full-time job and earn a raise.
CON: Hidden costs
When Josh Overmyer started driving for Uber in 2014, he had one goal: earn extra income. With annual earnings between $9,000 and $17,000, he’s accomplished his goal, but he wasn’t necessarily prepared for the hidden costs of his side gig.
His advice for aspiring side hustlers is simple: consider all-in costs because you might find yourself making $2 to $3 per hour.
Depending on your side hustle, all-in costs might include equipment costs, shipping fees, driving time, and item depreciation. For example, if you sell a handmade frame on Etsy for $20 and it takes two hours to create it and ship it, you might think that you earn $10 per hour. But if materials cost $5 and shipping costs $3, your true hourly rate is $6.00.
“In a pinch, it can help float your budget for a while,” says Overmeyer. “But in general, [rideshare] customers treat your vehicle like crap and waste your time. Plus, you're really just force-depreciating your vehicle, which you'll have to replace sooner.”
CON: Distracts from full-time work
“[Your side hustle] might hurt your performance at your nine-to-five job,” warns Frankle. “It might diffuse your energy and focus at your full-time job. You have to compartmentalize your life. In the same way you keep your business accounts separate, you’ll want to do that with your side hustle work as well. If you’re taking time away from your main gig to support your side gig, you’re actually being unethical. You’re stealing from your employer.”
If you have a full-time job, you need to prioritize it. Regardless of whether or not you enjoy your full-time gig, you’ve agreed to do a certain job and are being compensated for it. Even beyond that, it’s important to remember that your main job is the job paying your bills.
“Don’t get dragged into [working on your side hustle at your full-time job]. When you’re doing your side gig after work, use a time tracker so you can stay focused and effective,” suggests Frankle.
It’s great to earn extra income, but it’s important to remember that side gigs require hard work. The best way to be successful is to be clear about your goal.
Frankle explains, “It’s really important to know why you are doing it. What is your goal and what needs to happen for you to feel successful? You need to get very clear about what you want to achieve and when you want to achieve it.”
Ready to go? Good luck out there! And remember, if earning extra cash isn't enough to straighten out your finances, MMI's trained budget counselors are available 24/7 and counseling is free!