When deciding how to earn extra income there are many factors to consider, both financial and non-financial. Here are key factors to consider if you’re thinking about entering the gig economy or launching a side hustle.
Need Money Now?
Side hustles that will earn money right away are generally time-intensive, meaning that in order to earn more you need to put in more time. These side hustles may involve working for others or using the sharing economy. They generally have limited growth potential and limited control over increasing the hourly rate. This type of additional income can be a great fit for folks who need to earn money now and have some extra time.
Want to Earn Money Later Too?
Many people want to earn money now and later by building an income stream that starts earning money right away and continues to grow and earn more over time. This version of additional income may be more of a small business than a side hustle. Most small businesses don’t earn money right away, but the earning potential is much higher than a side hustle.
Have you heard the idea that low risk means lower reward, while high risk can mean a higher reward? The same applies to time devoted upfront when starting a business or side hustle! Side hustles in the sharing economy provide income right away but generally won’t provide long-term income growth. Time spent creating or testing business ideas in which you have more ownership over the product or service can have the potential for more income growth!
Experimenting with different business or side hustle ideas is a great way to learn new skills and break limiting beliefs around earning. While traditional education teaches failure as a negative, failure is often where the most learning occurs in business.
Keep in mind the upfront costs of starting a business. It’s great to start with a business where all you can lose is the time you put into it, but some businesses may require upfront money to start. It’s best practice to only risk what you can afford to lose.
Here are some questions to think through:
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What are the upfront costs and can they be reduced? Maybe you don’t really need a website right away, or if you sell handmade products at craft fairs you can start with smaller ones where booths don’t cost as much
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Will the price cover costs? Get out a pencil and paper or a spreadsheet and give it your best estimate. You can also find your hourly rate by dividing the profit by time spent working.
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Can you increase prices as your skills increase? The benefit of learning a skill or gaining new experience is that it may lead to the ability to increase future prices.
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Can you reduce the time spent to get the same dollar amount? If you are selling a handmade product you may not be able to increase the price, but if you can decrease the time spent making the product, you effectively increase the hourly rate. The ultimate version of this is creating a product or service you only need to make once but can sell repeatedly. Examples of this include digital products such as online courses or ebooks, or providing a group service instead of an individual service.
Check out How to (Successfully) Start Your Own Business for more info on thinking through this type of additional income stream. When looking at any new side hustle or business, remember you will need to save at least 25-30% of all income that is not already taxed. Finally, remember that the dollar value of a product or service is a reflection of economic value, not personal worth. One idea that doesn’t work is one idea closer to finding one that does!
