Welcome to our week-long series on How to Earn Extra Income from a Side Hustle. In this final article, we look at how to turn your side hustle into a full time dream job.
Let’s assume you have successfully found a rewarding niche and financially profitable side hustle. That’s impressive! While your initial motivation may have been to save for a vacation, pay off college loans, crush your credit card debt, or pay off an unexpected bill, you have surpassed your expectations and have been thinking seriously about taking it full time. Let’s look at some steps to maximize your success.
What’s Your Number?
What will it take for you to say good bye to your full-time job? Setting a monthly income goal will be different for everyone. You may be single, a sole breadwinner in a marriage, or you may be in a two-income household. Basic to each unique situation is the need to calculate current monthly expenses. Don’t forget to figure the expense of replacing insurance benefits your employer is now providing. This information will allow you to set a target amount.
Assess the Consistency of Your Side Hustle Income
Once you’ve hit your magic number through side income, the next step is to honestly assess how likely you are to consistently achieve your income needs from your side business. If you rely on a single source for a significant portion of your revenue, how confident are that the revenue source will stay with you? What is the likelihood that the market for your goods or services will decline in the foreseeable future?
Diversifying your income streams is one way to address this uncertainty. Another approach is to keep your job until you’ve hit your magic number consistently over a period of months.
Save An Emergency Fund
We often stress the importance of having an emergency fund. But in the case of the self-employed or small business owner, the need is greater and the amount is substantially higher. In order to protect yourself against the unexpected, you should have an emergency fund equal to one year of expenses. Business trends can be unpredictable, so don’t kid yourself into thinking that you can build this fund after you set off on your own. This needs to be accomplished before you cut the cord.
Take care of Health Insurance
Don’t skip this one. Even if you are single, young, and in good health, you need coverage. A high deductible plan can offer reasonable coverage in the event it’s needed. If you have a family — shop around. The cost of these plans can be crazy and the coverage not so good. Consider joining your local Chamber of Commerce. They have group plans that offer savings for small business owners who are members. Although the Chamber doesn’t contribute in any financial way, joining as part of a group does mean lower premiums and more options including better benefits, more responsive customer service and rate stability. You can easily compare health insurance rates online. And HealthInsurance.org is another good resource providing free information on every aspect of purchasing individual plans.
Can you find reliable workers?
If the plan is to grow your business by adding staff to assist with the work load, consider conventional ads, internet sites (such as Craigslist), employment agencies, and your network of friends and colleagues. When your search turns up potential applicants, be sure to check them out thoroughly — including contacting references and testing their skill levels. If freelancers will fit the bill, consider Elance or oDesk and hire a “virtual employee.”
Save for Retirement
This will be a challenge considering you were having it regularly deducted from your guaranteed paycheck. But considering retirement can last 30 years or more, this is not something to put on a “to do” list. Set up a meeting with a financial planner and map out your retirement goals. Walk through the process of rolling over your 401K into an IRA and understanding tax advantages for both you and your business. If you go through a slowdown in cash flow, try to avoid the impulse to back off contributions. It’s hard to catch up at a later date.
Keep in Good Standing with the IRS
Taking it from a side hustle to full-time will change things a bit. Hopefully before now you put a priority on keeping accurate records and maintaining a separate bank account. These practices are imperative when running a small business. Contact a qualified tax accountant. Paying for this expert advice will keep you ahead of what the IRS requires of you. Your tax expert can help with your questions, make sure you have all the necessary licenses and permits, help you take advantage of all qualified tax deductions, and help with your tax filings.
Exit Strategy/Backup Plan
This may seem counterproductive, at least in terms of a positive gung-ho “let’s do it!” sense. While fear of the unknown can keep us from ever taking the first step toward achieving great things, you can feel confident about taking the plunge when you know you have covered all your bases. A back up plan is like keeping one foot on solid ground. It provides a certain sense of comfort. However, if you have taken your time, tracked the growth of your business, funded your emergency account, considered your insurance options, planned for retirement and tracked a course for future expenses (college for the kids maybe), then you have done a great job of hedging your bets.