How to Budget Earnings from a Side Hustle

Juggling finances from a side hustle can certainly seem like quite the task, particularly when trying to figure out how to keep this income separate from your regular paycheck. Believe me, I understand the waves of confusion that come with it! However, after much research and experiments with various strategies, I’ve managed to find effective ways to budget earnings from these sideline gigs. Are you ready for guaranteed financial peace of mind? Let’s dive in!

Key Takeaways

• Side hustle earnings can vary each month, so it’s important to budget with the smallest amount you think you’ll earn.
• Use tools like EveryDollar to track your income and expenses from your side hustle separately and allocate any extra cash towards other areas of your budget.
• Create a monthly budget for your irregular side hustle income by listing all sources of income, prioritizing essential expenses, allocating money for savings or debt repayment, and tracking and adjusting throughout the month.

Understanding Side Hustle Earnings

Side hustle earnings can be different each month. They are not like a regular job that pays the same money every time. This is called an irregular income. You might get more money one month and less the next. It’s good to plan your budget with the smallest amount you think you’ll get in a month. EveryDollar is a cool app that can help you budget this kind of income. With it, you put in all the money you earn and what you spend on things like groceries, housing or other basic needs. If there’s extra money after paying for these important things, then split up that extra cash into other areas of your spending plan. Do not forget about business costs if your side hustle has any. Also, keep track of how much tax will come out of your side gig pay as part of planning for expenses.

Budgeting Basics

To effectively budget earnings from a side hustle, start by listing your income and expenses. Subtract your expenses from your income to determine how much is left over. Track your expenses regularly to stay on top of your finances.

Listing your income

First, write down all the money you make. This is your income. Include what you earn from your side hustle and other jobs. Add in any extra money you get during the month too. If your pay changes every month, use the lowest amount you think you could make. Look at old pay stubs to help figure this out. If this is your first time earning an irregular income, guess on the low side for now. You can change it next month if needed.

Listing your expenses

Start by writing down all your costs. These should include food, housing, utilities, and getting from one place to another. Don’t forget things like insurance and paying back any loans you have on time. Also write down money spent on fun stuff or personal items that aren’t needed for daily life. The ‘Four Walls’ principle can help you put basic needs first in your budget list. All the other expenses come next in line after these key needs are met. By doing this, you get a clear picture of where your money goes each month.

Subtracting expenses from income

To find out how much you earn from your side job, subtract your costs. First, write down all the money you make. This is your income. Then, list what you spend to do your job. These are your expenses. When you take away the expenses from what you made, that shows if you earned or lost money from your side work. Make sure to keep track of all costs so they can be taken off right when doing this part of budgeting. Be honest and careful in logging every penny spent on business needs! This helps show truly how much profit comes from the hustle after all costs go out for it.

Tracking expenses

Tracking expenses is an important part of budgeting for earnings from a side hustle. It helps me understand where my money is going and make informed financial decisions.

• Separate business and personal expenses: I track both my business and personal expenses separately to maintain accurate records.
• Use tools and apps: There are various tools and apps available that can help me track my expenses. Budgeting apps and expense tracking spreadsheets are some examples.
• Be consistent: I make sure to record all my expenses consistently, whether it’s a small purchase or a larger expense. This helps me have a clear picture of my spending habits.
• Categorize expenses: I categorize my expenses into different categories like groceries, housing, transportation, etc. This allows me to see which areas I’m spending the most on.
• Review regularly: I review my expenses regularly to see if there are any areas where I can cut costs and save money. This helps me stay on track with my financial goals.

Budgeting with an Irregular Income

When dealing with an irregular income from a side hustle, it’s important to make adjustments on payday and create a new budget each month. This helps you adapt to the fluctuations in your income and ensure that you can effectively manage your expenses.

Making adjustments on payday

On payday, it’s important to make adjustments to your budget. Take a look at how much money you’ve earned and any changes in your expenses. If you’re earning more from your side hustle, consider allocating some of that extra income towards savings or paying off debt. On the other hand, if your expenses have increased, find areas where you can cut back to stay within your budget. By making these adjustments regularly on payday, you’ll ensure that your budget remains accurate and aligned with your financial goals.

Creating a new budget each month

Creating a new budget each month is important for managing your irregular side hustle income effectively. Here are some steps to follow:

1. Start by reviewing your previous month’s budget: Look at how you allocated your income and assess what worked and what didn’t.
2. Estimate your side hustle income: Take into account any fluctuations or trends in your earnings. Use an average of the past few months as a starting point.
3. Prioritize your expenses: Identify essential expenses like rent/mortgage, utilities, groceries, and debt payments. These should be prioritized in your budget.
4. Allocate money for savings and goals: Set aside a portion of your income towards savings, emergency fund, or specific financial goals you have.
5. Determine discretionary spending categories: These are nonessential expenses like dining out, entertainment, or travel. Assign a specific amount for each category.
6. Track and adjust throughout the month: Keep track of your spending and compare it with your planned budget regularly. Make adjustments as needed to stay on track.

Effective Strategies for Budgeting Side Hustle Earnings

Implementing a simple budgeting plan can help you effectively manage your side hustle earnings.

Implement a simple budgeting plan

To implement a simple budgeting plan, follow these steps:

1. Start by listing all your sources of income.
2. Write down all your expenses, including bills, groceries, and other regular payments.
3. Subtract your expenses from your income to calculate your available money.
4. Track your expenses carefully to see where your money is going.
5. Set aside a portion of your income for savings or debt repayment.
6. Review and adjust your budget regularly to stay on track with your financial goals.

Allocate income for needs, wants, and savings/debt repayment

When budgeting your side hustle earnings, it’s important to allocate your income wisely. Here are some key ways to allocate your income:

• Identify your needs: Start by prioritizing your essential expenses such as groceries, housing, utilities, transportation, insurance, and minimum loan payments.
• Allocate for wants: Set aside a portion of your income for non-essential expenses like dining out, gifts, travel, and entertainment. This allows you to enjoy the fruits of your labor without neglecting your financial responsibilities.
• Save for the future: Make saving a priority by setting aside a portion of your income for emergency savings or long-term goals. Having savings can provide peace of mind and help you achieve financial stability.
• Repay debt: If you have any existing debts, allocate a portion of your income towards paying them off. Focus on high-interest debts first to minimize interest charges and accelerate your debt repayment journey.

Key Tax Considerations for Side Hustlers

Understanding tax implications is crucial for side hustlers. It’s important to know the filing thresholds, keep accurate records, and determine whether your side hustle qualifies as a hobby or a business for tax purposes.

Understanding filing thresholds

If you earn $400 or more in net income from your side hustle, you need to file a tax return. This means that if your earnings exceed this amount in a calendar year, you are required by law to report and pay taxes on that income. It’s important to keep accurate records of all your side-hustle earnings that meet or exceed the $400 threshold. By doing so, you can ensure compliance with tax regulations and avoid penalties for late payment. Remember, the filing thresholds for side hustlers work the same as they do for any other business. So be sure to stay organized and stay on top of your tax obligations throughout the year.

Keeping accurate records

To effectively manage your side hustle finances, it’s crucial to keep accurate records. This means keeping track of all your income, expenses, and deductions related to your side gig. Make sure to record any income you receive from your side hustle, including any payments over $400 in a calendar year. It’s also important to track all your business-related expenses, such as supplies or equipment purchases. By keeping detailed records of your income and expenses, you’ll have a clear picture of the financial health of your side hustle. This will help you make informed decisions when budgeting and planning for the future. Additionally, accurate records are essential for tax purposes. Keep track of estimated tax payments and any receipts or documentation that support these transactions.

Determining hobby or business classification

To determine whether your side hustle is classified as a hobby or a business, you need to consider how the IRS views your activity. The IRS looks at factors like the time and effort you put into it, whether you expect to make a profit, and your level of expertise. They want to see if you are treating your side hustle like a business or just pursuing it for fun. It’s important to consult with a tax professional or accountant who can help you understand the classification and its impact on your taxes. Remember that deductions for business expenses are usually more advantageous than deductions for hobby expenses. So, knowing how your side hustle is classified can have significant tax implications.

Tips for Managing Side Hustle Finances

To effectively manage your side hustle finances, consider using expense tracking apps to keep a record of all income and expenses. Additionally, be sure to file and pay quarterly estimated taxes on time, and consider opening dedicated bank accounts for your side hustle to help separate business and personal finances.

Using expense tracking apps

Expense tracking apps are a helpful tool for managing side hustle finances and budgeting earnings. They can make it easier to track expenses, stay on budget, and avoid overspending. Here are some benefits of using expense tracking apps:

1. Organize your expenses: Expense tracking apps allow you to categorize your expenses, making it easier to see where your money is going.
2. Track your income: These apps also let you record your side hustle earnings, helping you keep track of how much money you’re making.
3. Set spending limits: Many expense tracking apps allow you to set spending limits for different categories. This helps you stay within your budget and avoid overspending.
4. Automatic expense categorization: Some apps automatically categorize your expenses based on past transactions, making it quick and easy to see how much you’re spending in different areas.
5. Real-time updates: With an expense tracking app, you can see your updated financial picture in real-time. This helps you make informed decisions about where your money should go.
6. Budget reminders: Some apps send reminders when you’re close to exceeding a certain budget category or have irregular spending patterns. This keeps you accountable and helps prevent overspending.

Filing and paying quarterly estimated taxes

When you have a side hustle, it’s important to stay on top of your taxes. Here are the steps for filing and paying quarterly estimated taxes:

1. Determine if you need to pay quarterly taxes: If you expect to owe $1,000 or more in taxes from your side hustle, you’ll need to make quarterly tax payments.
2. Calculate your estimated tax due: Use Form 1040-ES to calculate how much you owe in quarterly taxes. Consider any deductions or credits that apply to your situation.
3. Set aside money for taxes: It’s a good idea to set aside a portion of each side hustle payment for taxes. This way, you won’t be caught off guard when it’s time to make your quarterly tax payment.
4. Choose a payment method: You can pay your quarterly estimated taxes online through the IRS website or by mail using Form 1040-ES. Make sure to include the correct payment voucher for the quarter you’re paying.
5. Mark the due dates on your calendar: Quarterly tax payments are due on April 15th, June 15th, September 15th, and January 15th of the following year. Be sure to mark these dates so you don’t miss any deadlines.
6. Keep accurate records: It’s crucial to keep track of all income and expenses related to your side hustle. This will make it easier when it comes time to file your annual tax return and claim any deductions.

Opening dedicated bank accounts for side hustle

Opening a dedicated bank account for your side hustle can make managing your finances easier. Here are some benefits:

• Create a paper trail: Having a separate account for your side hustle helps keep your personal and business transactions separate, making it easier to track income and expenses.
• Automate expense tracking: By linking this account to accounting software or expense tracking apps, you can automatically categorize and record your business expenses.
• Simplify tax preparation: Having a dedicated bank account makes it easier to calculate and report your business income and expenses when it’s time to file taxes.
• Professional appearance: Having a separate account adds credibility to your side hustle, showing that you take it seriously as a business venture.
• Simplify saving for goals: With a separate account, you can allocate funds specifically for savings or future investments related to your side hustle.

What are the Recommended Tools and Apps for Budgeting Earnings from a Side Hustle?

Looking to budget your earnings from a side hustle? Look no further! Countless tools for side hustles are available to help you streamline your finance management. Popular options include budgeting apps like Mint and PocketGuard, which offer easy-to-use interfaces and helpful features such as expense tracking and goal setting. Additionally, tools like Toggl and Harvest can assist with tracking billable hours and optimizing your workflow. Stay on top of your finances and make the most of your side hustle with these recommended tools.

Conclusion

In conclusion, budgeting your earnings from a side hustle is essential for financial success. By understanding your income and expenses, creating a budget, and making adjustments as needed, you can effectively manage your money. Remember to track your expenses and stick to your budget throughout the month. With careful planning and smart strategies, you can make the most of your side hustle earnings and achieve your financial goals.