How do you manage your money from a side hustle?
What’s the best way to track your income and expenses?
So you’ve started a side hustle with a goal to make some extra income. Or maybe you’re already having some success.
You put a lot of thought into your product or service, how to find your customer, marketing, social media, not to mention how to grow your business! That’s great and all the important things you should be doing. But that’s not all!
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When did you last set aside time to plan or review how to manage the money of your side hustle? Last week? A month ago? Two or three months ago?! If it’s been awhile, don’t worry, we’ve all been there.
Now’s a great time to tackle it and set up some good financial habits that’ll save you loads of time later on.
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How To Manage Money: Where Should You Start?
Tracking income and expenses of course! Otherwise known by it’s less sexy and more cringe-worthy term: bookkeeping. Fear not! This doesn’t have to be complicated, stressful or take a ton of time.
How can you painlessly manage money? The two key ingredients are finding a system that works for you and regularly set time aside to keep it up to date.
Investing time early on to set up a bookkeeping method will pay off dividends in reduced aggravation and save you time.
Chances are how you manage money will be straightforward. You don’t have employees and your venture falls under self-employed. My favorite method is quite simple, start a spreadsheet with two tabs:
- Income: record all sales from the business
- Expense: record all money you’ve spent on this your side hustle
Most of this information can be downloaded from your bank account, or details from your Etsy shop, PayPal etc. Alternatively, you can invest in bookkeeping software that ranges from applications you download to those offering online services. The main thing is to find a system that works for you. Then all you have to do is spend some time regularly collating your financial information.
Invoices and receipts
Even if you have your financial transactions downloaded from your bank, you still need to retain a copy of invoices and receipts. Before filing any physical invoices and receipts, scan or take a picture of them to store digitally. Paper invoices and receipts fade quickly. Six months from now, you’ll have a hard time reading the details! Also, if the paper copy is ruined, you have a backup.
Separate bank accounts for personal and side hustle finances is key on how to effectively manage money
This isn’t an accounting hard rule but come tax time, or if you have to go back 8 months to locate a transaction or figure out whether a transaction was for your personal or side hustle finances, this will save you TONS of time. Not to mention your side hustle needs are probably simple, you can get away with opening a free non-business chequing account. Again, a little bit of up-front effort will save you lots of time later. So you can, you know, focus on areas that generate income.
How to manage money with a sales tax
No doubt sorting this out will apply to everyone. However, what you need to do will depend not only on your specific country but likely the region where you operate. Your best bet is to do your research and consult a professional for advice.
Let’s cover some basic information for Canadian residents. This is based on experience and for informational purposes only. You should always consult a professional. As a general rule, there are two exceptions to charging sales tax: if you provide goods and services that are exempted from sales tax or if you make less than 30K revenue in a year.
If your business is face to face, you simply charge the federal and your provinces applicate rate. But what if you run an e-commerce site? How much and when do you charge sales tax?
- Sales shipped outside the country, you don’t charge sales tax.
- Sales shipped within your province, you charge your provincial and federal tax rate.
- Sales shipped outside your province, you charge the provincial + federal tax applicable to where the product is shipped.
One final note on sales tax, if you charge it, you need to register for a business tax number.
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How You Manage Money Affects Your Personal Income Tax.
There are two sides to this: the tax you pay the government and expenses you claim. The expenses you claim reduces the total income for the year. Which lessens the taxes you pay. That’s the whole thing in a nutshell.
Income tax
For simplicity, we’re going to assume you haven’t registered an online business outside of your home country. That’s a whole other topic. Making a profit means your taxable income has increased.
9 to 5 + side hustle = total income
How much extra tax will you owe? It all depends on the tax bracket you fall into. I like using online tax calculators as a rough guide. For Canadians, simple tax has a nice one. For Americans, check out Smart Asset. The percentage you set aside will vary depending on the tax bracket you land in with base income+side hustle. You don’t want to be scrambling and figuring this out when taxes are due. If you’re short, you’ll end up paying the government more money than you needed to in interest.
If you play around with income tax calculators, you may notice the amount you pay is slightly higher for the self-employed portion than the employee. This is due to Canadian Pension Plan (CPP), or Social Security for the US. This is a mandatory contribution to federal retirement savings plans on all income you earn. For wages earned as an employee, you and your employer split this cost. With your side hustle, you’re effectively employer and employee, so you pay the full amount.
Don’t forget to write off expenses for your side hustle
This is the fun part of tax time! Aside from a refund of course. You know all those receipts you kept? Time to take them out and claim any applicable costs you had for running your side hustle. This applies whether or not you’ve made a profit. You should consult your local government tax site to get a list of categories or consult a tax professional if you’re ever in doubt.
Your Side Hustle Finances Tracker Shows You’ve Made a Profit!
Taxes Are Squared Away. What now?
Deciding how to best deploy profit is an important aspect of how you manage money. Profit can be used to help achieve your personal financial goals or re-deployed into your side hustle. If you don’t have a plan, you should think it over and one. You worked hard for that money, it should work just as hard for you! Everyone’s situation is unique so what’s right for one person may not be for another. If setting personal finance goals seems overwhelming, the concepts are not too different than a video game. Let’s take a quick peek at some key considerations for this.
Debt reduction
If you have any high-interest debt, this should be a priority. If you have debt in several locations (car loan, a line of credit, credit card, student loan, etc), focus on the highest interest debt first. There’s no sense in paying off a 6% interest line of credit before your credit card that’s charging you 19.99% interest! Make a debt repayment plan by doing the math!
Build an emergency fund
If you have no high-interest debt, what about an emergency fund? Side hustle income is a great way to stock up on your emergency fund. As discussed in the video from MoneySense, you’ll want to save 3-6 months worth of basic expenses. This is like an insurance policy that protects your plans should an unexpected expense come up or life throws you a curveball, like a layoff. This has other fringe benefits: less stress, increased peace of mind, may let you take a greater risk of an opportunity… You get the idea!
Investing
After you have enough set aside for income tax, paid off debt and have an emergency fund, why not top off your tax-sheltered investment accounts? Not only will this grow your personal funds for later, but it will also reduce your taxable income. Remember the tax money you set aside? You’ll get to keep more of it! As in the government’s eyes, your total income for that year has reduced! Again, you may want to talk to an investment advisor or tax professional to get some facts and expert advice.
Re-invest in the side hustle
Investing profit back into the business is really a ‘thinking ahead’ move. You don’t necessarily need to spend it right away. Funds re-invested into your side hustle fall into two strategies: Sustain and Growth. Here are a few examples:
- Savings for unanticipated expenses
- Ability to buy supplies during a reduction in cash flow due to seasonal or unexpected dip in sales
- Invest in marketing to reach more customers
- Pay fees for new marketplaces or exhibits you want to test out
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Tackle One Thing At a Time
So there you have it! A beginner guide to tackling your side hustle finances. Don’t try to tackle everything at once! A house is built on top of a foundation, one brick at a time. The same should be done for your side hustle finances. Chipping away at it will avoid burn out and have enough time saved to actually produce your product or service you sell.
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To quickly recap, we’ve covered:
- How to track your income and expenses and other major bookkeeping topics.
- Important things to know about income taxes
- Options on what to do with your profit.
Do you wonder how to manage your money from a side hustle? Click here for side hustler finances tips, plus get your FREE Side Hustle Finance Tracker. #entrepreneur #sidehustle #money
Do you have any experience dealing with how to manage money from a side hustle?
More About Guest Contributor
Melissa of Wymances of Finances is passionate about making conscious money choices that support and slay your dreams and goals. Finances don’t have to be scary. When I’m not blogging or spreadsheeting, I love camping, lindy hop dancing and working on all sorts of creative pursuits.
Last Updated on July 24, 2024
Kristi McAllister says
I haven’t started the side-hustle thing yet, but I’ve been rolling that idea around in my head for awhile now and I really like all your suggestions. Give me something more to consider while I make a plan! Great post!
Whymances says
I do find it easier to ‘bake’ things (i.e. financials) into plans rather than retrofit it after the fact. It’s not always easy to make it happen once things get going.
Best of luck on your future side-hustle! The starting line can be such an exciting time.
Nellwyn says
I had to learn a whole bunch of new financial stuff when I became self-employed, but tracking my income, expenses, and business expenses in my bullet journal has been a life-saver! Keeping good records is so helpful when tax season comes around and having a good accountant who knows how to handle side-hustles/self-employed income is also a must for me.
Whymances says
I do consulting myself so I totally get where you’re coming from. It was a steep learning curve and a good accountant was a lifesaver. Knowing when to DIY and when to get professional help is important.
Tracking financials in a bullet journal?! I was trying to picture it so I turned to my good friend google. That is a really neat idea. Never thought of that. Good going on finding a system that works well for you!
C-Ludik says
Start a side hustle, and take control of your future. It certainly isn’t easy — but it is easier than you think. When you receive paychecks from different sources, it allows you to take more chances in your regular career. More income means more options. More options equals freedom 🙂
Whymances says
Totally agree with you. Diversified income sources, whether from multiple clients, a combination of full-time/side-hustle, investment portfolio, etc do give you the confidence to choose off-the-beaten-path choices.
Ana Ojha says
Side Hustle sounds like a wonderful tool for managing the money. I usually monitor everything on Google Spreadsheets but I’ll check out this tool! Thanks for sharing about it!
Whymances says
You should do what works!
Angela @ Tread Lightly Retire Early says
One more reason I think I’m glad my blog is just a hobby, not a side hustle, because this is more work than I want to have to do on the back end 😉 But excellent information for anyone with a real side hustle!
Whymances says
This is what I’d refer to as admin overhead! I don’t find it takes too long but that’s a subjective opinion.
Thanks for reading!
Shannon says
Not quite making money from my side hustle yet, but hopefully soon! I’m so glad a resource like this is out there because I feel like making money through a side hustle or other self-employment can be pretty complicated. Definitely pinning for when I’m actually making money!
Whymances says
I’m glad you found the information helpful. Best of luck with getting to the profit stage with your side hustle!
Amrita says
This is a very useful post.We all get overwhelmed with money matters.
Whymances says
True that! I’ve found anything unfamiliar is overwhelming at first when you realize how much you don’t know and trying to figure out where to start. It totally gets easier one step at a time!
Mikel says
I definitely agree that side hustles should go to a separate bank account. I use mine to invest in things that I want to work on.
Whymances says
That’s a great way to use extra funds.
Jessica says
I started the side hustle thing back in April (www.shoprusticpineapple.com) and I really need to get it all under control. Luckily I meet with the CPA next week but I havent eve decided on quickbooks or not. ugh so much adulting!
Whymances says
Good idea meeting with a CPA. Sounds like things are rolling on your side hustle. Whatever method you choose, be it spreadsheets or software, the most important thing is that it works for you. No sense in paying all sorts of money for features you don’t use.
Best of luck with your side hustle! So exciting!
Aine Mulloy says
I’m terrible at budgeting to this is great advice, particularly having an emergency fund is absolutely key
Nadalie Bardo says
Hey Aine,
It’s one of those things we all know we need to do! Once you see it all plain in front of your eyes, you get serious perspective.
Viv for Today says
So clearly laid out and easy to understand. Thanks for making it less daunting!
Whymances says
Glad you found it useful!
Angela says
This is extremely useful! I have a few side hustles and I keeping track of the income and expenses was a challenge at first but I have gotten the hang of it. I re-invest a good chunk of what I make back into my little businesses which allows me to attract new clients.
Whymances says
Re-investing is a great option. Especially if it’s to grow your business.
Tatianna says
i love how in depth this is! these are some amazing tips, thank you so much for sharing!
Whymances says
Glad it was useful!
Brandi Michel says
This is an extremely thorough post and I love how you pointed out about why we should be creating a plan to reinvest in your side hustle. Too many times we forget about that and end up eating our seed we need to keep our business growing.
Whymances says
Thanks for reading! I found it easy to get lost in learning how to track the money and all other stuff, when it came time to earnings, it’s easy for it to go wherever without a plan.
Kat says
Thanks for this. I’ve been trying to figure out how to start keeping these records. I’m going to use this info!
Nadalie Bardo says
Hey Kat,
You’re so welcome! Best of luck managing those business finances.
Sheri says
I love how the information here is packed full, yet so easy to understand. A lot of people are very relaxed when it comes to finances. This beginner guide is fantastic!
Whymances says
Thanks for reading!
Sarah Kerber says
Great article! Lots of info.. I definitely recommend Dave Ramsey’s book Total Money Makeover. It’s life changing!
Nadalie Bardo says
Hey Sarah,
It’s a great book for learning how to manage your money, especially when you don’t have much.
SHELLEY R KING says
One thing I am very good at is budgeting! My Dad taught me at a very early age how to do that. I track all of our spending and that is what keeps us on track. I wish I had time for something on the side but it also tells me business is good for me at this moment. This is great information for anyone no matter what stage you are in!
Nadalie Bardo says
Hey Shelley,
That’s awesome! I wish that was my superpower. Good on your dad, more parents should be as proactive teaching their kids about finances.
So glad you enjoyed the money management tips.
Kim @ Berly's Kitchen says
This is a well written post. When I first started my blog, it was a side hustle and wasn’t bringing in any money. We didn’t worry about receipts or separating income/expenses when it did bring in a few dollars. It finally started to make money last year, so we went full time blogging this year. This info would have been so helpful during the transition. Keeping up with the income/expenses is something that has to be done daily.
Catalina says
I don’t have a side hustle for the moment, but now I am thinking to start one. Having more incomes is aways a good idea! I think some of your ideas and tips cand be used with any kind of income.
Bianca Dottin says
These are great tips! I don’t have a side hustle anymore but could’ve used these tips when I did.