10 May 2017

7 Things to Consider Before Starting a Side Hustle

7 Things to Consider Before Starting a Side Hustle

Making extra money on the side sounds great, right? Thanks to the internet and mobile technology, new ways of making money after work are becoming a norm in our society. Side hustles can serve several different purposes – from creating an emergency fund, retiring early, or making a down payment on your first house.

It seems like there are endless stories about people striking it rich from a random side gig, but there's actually much more to it than meets the eye.

Side hustles, no matter how small, are still a business. Just like you have to hustle to get ahead in your actual job, the same goes for side hustling, and it may be even harder because you are building it from the ground up!

Here are 7 things to seriously consider before starting a side hustle:

1. Do you have a business model?

This can be a fairly intimidating aspect of starting any type of business, especially if you don't have any prior experience. The most important part of building a successful brand is learning how to plan correctly and find your target market.

Here are a few things you'll want to think about when you are planning your side-hustle strategy:

  • Does the service you are providing actually provide value?
  • How will you advertise and find clients or customers?
  • What is the realistic amount of time it will take to get your business up and running?
  • Is there a specific legal structure that would work best for your type of business?
  • What are the tax implications that you may face later down the road?

While you may be thinking that your business will just be a hobby that you do in your spare time, it's always smart to make sure that you understand every aspect of your business before getting started.

Don't be afraid to hire an attorney to help you create a strong legal structure that will separate the business from your personal assets. If you don't, it's possible that your personal assets could be vulnerable in the unfortunate circumstances of a lawsuit.

You may also want to pay an accountant to give you guidance on the best tax strategy for your side hustle moving forward. If there is anyone you don't want to forget about, it's the IRS.

2. You may need startup capital

In addition to the professional services mentioned above that you may need to cover the cost for up front, there are also other business expenses that you may need to prepare for.

Even a service as simple as pet-sitting requires extra money in gas and potentially pet insurance.

Many side hustles don't require a massive amount of startup capital, but it's always a good idea to sit down and create realistic estimates on what it will cost you to run your business.

3. It can take more time than you think

The time that it takes to run a successful side hustle has to come from somewhere, and it's usually what would be your time to relax on the couch or go to a movie on the weekend.

Depending on the nature of your side hustle, you may need to schedule your time very carefully to make sure you are still able to do things that help you recoup from your actual job.

4. Your primary income comes first

It's easy to get obsessed about the extra income that is coming in from your side hustle, but your primary job still needs to come first.

One of the biggest risks involved with creating secondary income streams is that you are essentially burning the candle at both ends. The last thing you want to do is experience "burnout" at your main job or have your performance slip to a point where you could be fired.

No matter how great your side hustle is, if it doesn't at least match or even exceed your day job income – it needs to take a back seat.

5. Do you have a goal?

With as much time as side hustles actually take to become successful, you'll want to make sure that you have a goal going into it that will help keep you motivated to put in the extra work.

It could be as simple a goal as saving extra money for vacations, or as big a goal as retiring from your job 10 years earlier than you originally planned. Whatever it is, make sure that it's important enough to push you to put in the extra time.

6. You'll probably have to learn to sell

The reality of keeping a business alive is that you'll have to feed it with new sales. If you have no background in sales at all, trying to convince other people to give you their money for a product or service can be fairly intimidating.

While there are certainly sales strategies and tactics you can learn – it's going to take trial and error. Every time you have a successful sale, there may be ten times that you get turned down.

Just like with anything else, practice makes perfect.

7. It could fail

Before you take the leap into part-time entrepreneurship, you need to understand that your venture has a real chance of not making it. There are a number of reasons for this, but at the end of the day it's just the nature of business.

They just don't always make it.

Fortunately, if you provide a great service or product that gives value to your target consumers, you're much more likely to thrive.

Don't let this list discourage you

Even though the above list may make side hustles seem like an intimidating challenge, they are still an incredible tool for getting ahead financially and meeting your biggest goals sooner than you originally planned.

As long as you take your side gig seriously and treat it like a real business, you have a great chance to find success and create a viable second income stream.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).
20 Mar 2017

Should You Save or Invest?

Should You Save or Invest?

For every professional just getting started in his or her career, one of the earliest financial hurdles to clear is the savings versus investing argument. While it would be awesome if there were a silver bullet to this discussion, I can tell you firsthand that there isn't (sorry). You'll have to constantly balance the two strategies over the entire course of your career.

The reality is that the amount you save or invest is completely dependent on your life and career goals. With young professionals especially, this is becoming a lot less structured than previous generations.

For Baby Boomers and many in Generation X, the common plan was to work hard and consistently over 30 plus years while building enough of a nest egg to retire later in life. Millennials on the other hand are completely different, and the idea of early retirement, taking a year off from working, and a bigger focus on working for less money to preserve work–life balance are gaining a lot of ground.

There honestly isn't a right or wrong approach, but there are serious financial implications if a disciplined focus on investing and saving strategies isn't considered in advance.

What is saving?

Saving is the process of setting aside cash in accounts that are safe and allow you to easily access your money (also known as "liquid"). When you first start out, you'll want to make saving money the priority over investing by building a strong cash emergency fund. The reason is fairly simple—having cash on hand allows you to avoid taking on debt in an emergency situation, which can kill your ability to build wealth during your career.

The commonly recommended amount of cash to hold in an easily accessible savings account is three to six months of expenses. The idea is that you would be able to cover yourself in the event of an emergency or short-term period of unemployment.

Please understand—learning how to save is the foundation for everything else that you will do financially throughout your life. It doesn't matter how high your income is; a person who makes a million dollars a year and wastes it has just as much as someone who makes 75 thousand a year and wastes it.

After your emergency fund is set, a good rule of thumb is to continue to save 20% of your income. This will allow you to put funds toward investing and hitting goals like putting a down payment on your first house.

What is investing?

Investing is the process of using your money to achieve a profit. There are countless vehicles for investing (i.e., real estate, stocks, bonds, annuities), and they all have varying degrees of risk associated with them. The risk involved is one of the biggest reasons that investing should become a large part of your overall financial strategy only after you've mastered the ability to save money.

You'll want to use your saved capital outside of your emergency fund to start working for you through investing. The investment vehicle you choose is largely dictated by what you're the most interested in and the type of risk tolerance you possess.

Even though saving should be your first financial priority during your career, investing is arguably more important over time and is a key factor in building real wealth that will allow you to eventually retire.

Are you starting your own business or not?

I've been an employee before, and I'm currently a self-employed business owner. Each one has its benefits, but they also tend to dictate your long-term investing and saving strategies.

Any mental health professional who is considering starting his or her own business needs to know that the first year or so can be a scary period of time. The more cash you can have on hand, the better. Because a self-employed income isn't guaranteed, having an extensive emergency fund helps you sleep better at night and also allows you to make the best decisions for the direction of your business without having to take on excessive debt.

If you are employed through a normal job, you need to take advantage of any type of retirement plan that you are offered. If you were offered a 401k with a match, you'd be smart to contribute the maximum amount allowed (hint: it's essentially free money).

In some professional sectors like public education systems or government jobs, it's really important to assess the type of retirement plan that is offered to you and decide if it's sufficient enough. As a former teacher, I found that the retirement system I participated in through the district wouldn't be enough for me to retire the way I wanted to. It's important to find a way to supplement your retirement funds through a separate investment vehicle if needed.

Time is the most important asset you have

The answer to the original question of "Should you save or invest?" is honestly both, but you'll have to prioritize them differently over the course of your career. The common theme with each is that the more time you spend doing them, the better off you'll be financially down the road.

Take some time as early in your career as possible to define what you want out of your working years and especially what retirement truly means for you. Having a strong idea of what you want to do in life will help you guide your saving and investing goals in an organized and thoughtful manner.

Never forget that money is a tool to increase the quality of your life, and learning how to use it in a disciplined and systematic way early on will be a huge help to you in the future.

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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06 Mar 2017

How to Develop Great Saving Habits Early In Your Career

How to Develop Great Saving Habits Early In Your Career

After talking to thousands of people about student loan debt, early financial mistakes, and things they wish they would have done, I've found that one thing is always clear: They wish they had developed great financial habits earlier.

Starting out in any new career after years in college is an exciting step in life. After receiving an undergrad and most likely a masters and/or doctoral degree, the first few months of employment for psychology professionals is a huge relief.

Not to mention—you feel like you're rich! Going from eating ramen noodles to making thousands of dollars a month is a massive shift in lifestyle.

However, you have to be careful not to fall in the trap of "lifestyle inflation," which is the very common process of living at or above your means as you make more money. Understanding how to effectively save money and avoid lifestyle inflation is one of the most important financial concepts to master early on in your career.

Here are 5 ways to become a great saver:

1. Set clear goals for your future

Whether it's buying a house, saving for an early retirement, or setting aside seed money for your own firm, the goals you make are key to success with saving. Just like anything else in life, having a plan will make the journey easier.

Unfortunately, too many people go through the motions of earning and spending for the first half of their career, only to have to play catch up later on. According to the Department of Labor, every 10 years that you don't save for retirement will require three times as much saving to get back on track.

As soon as you can, sit down and make a detailed and actionable set of goals for your career and life in general. You'll need short-term goals, medium-term goals, and long-term goals.

2. Start with an emergency fund

Whether you have student loan debt from college or not, setting aside an emergency fund is unbelievably important. A healthy emergency fund needs to be at least three to six months of after-tax salary (many personal finance experts are even beginning to prefer as much as eight months).

This money needs to be as easily accessible as possible, and generally needs to be held in a "safe" account that won't be affected by swings in the market. A normal savings account will do, but also be sure to keep an eye on potential high-yield savings accounts as the Fed begins to raise interest rates in the near future.

The reason for the emergency fund is simple—it keeps you from having to max out a credit card or apply for a personal loan when something goes wrong. Accruing any kind of consumer debt, especially the high-interest variety that's associated with credit cards, can be an absolute killer of your ability to save money every month.

3. Automate whenever possible

There's enough to think about in the beginning phases of your career, which is why automating your savings is an effective tool. As technology has improved vastly over the past few years, so has the ability to set aside money every month without even thinking about it.

Most major banks allow customers the ability to set up automated transfers into multiple accounts. For example, if you'd like to save for a down payment on your house as well as a vacation, you can set up two different accounts and have money automatically transfer whenever you'd like.

Don't think that the automated transfers needs to be huge amounts, either; just $50 per month over the course of a year will turn into $600 over 12 months!

4. Consider buying a used car instead of a new one

One of the biggest mistakes I see from people that are just starting their career is spending too much too fast. Remember—lenders want to loan you the most money possible for cars and houses. The bigger the amount and longer the terms of the loan, the more of your money they put in their pockets.

Don't rush out to buy a new car just because you can afford the monthly payment. Far too often, people just starting out want to "reward" themselves or show their friends on Facebook that they are successful with their new job.

The problem is that the reward feeling fades and after the social media likes and "congrats!" comments fade, you have a large car payment that will weigh you down financially for as many as seven years.

Consider buying a used car or even saving to buy an older car with cash (for reference, I drive a $6,000 2004 Yukon and make well over $100,000 a year).

The money that you save from driving a slightly older vehicle can be a nice supplement to your emergency fund, down payment on a house, or brokerage account.

5. Join a financial community

The reality is that saving money sucks (I hate to break it to you, but it's true). It's one of the least fun parts of personal finance, but it's arguably the most important. One of the easiest ways to keep yourself motivated to save money and get ahead financially is to find a community of people that have similar financial goals as you.

There are plenty of great personal finance blogs, podcasts, and YouTube channels that will keep you both entertained and informed on all of the great things you can do with the money that you set aside every month.

Be sure to actively seek out a financial community and participate as much as possible. Your bank accounts will thank you later!

-- Bobby Hoyt is a former high school teacher who paid off $40,000 of student loan debt in a year and a half. He now runs the personal finance site MillennialMoneyMan.com full-time, and has been seen on CNBC, Forbes, Business Insider, Reuters, Marketwatch, and many other major publications.

The opinions and advice expressed in this article are those of the author and do not necessarily reflect those held by the American Psychology Association (APA).

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