If you are starting to earn a little money from a side gig or are thinking about starting a side gig, you want to make sure you aren’t falling into this trap. Earning a little extra money hardly sounds like it is a bad thing. Who couldn’t use a little extra money in their pocket?
We all know that the current economy is struggling and earning a little extra money may be just what you need. However, when you start to bring in that extra money, make sure that you don’t make the same mistake that I made.
How Earning More Money Was a Problem For Me
A while back I started earning money from this blog. I started it as a hobby, but before I knew it, it was earning some decent money. When I realized that I was starting to make a little extra money, I began to wonder what I would do with it. I truly considered this to be extra income and as a result, I didn’t even include the income from my blog in my monthly budget.
Since my wife and I are already breaking even each month, this meant that I had extra money to spend however I wanted. The ideas started to race through my mind. Since this was extra money, I felt no obligation to put it towards any of my financial goals. As a result, I found myself more willing to splurge on unnecessary items.
I would be walking through the grocery store and see something I wanted. I would say to myself, “I am earning a few extra bucks from my blog, so I can afford to splurge a little.” Later, as my wife and I were sharing our only laptop, I found myself wanting to buy an IPAD so that we could both online at the same time. I kept thinking that I am earning a little extra money, so it really doesn’t matter if I spend a few extra dollars here and there.
Why Earning More Money Can Be a Disaster
Before I knew it, I found myself wanting to spend thousands of extra dollars in a given month even though I was only earning a few hundred from my blog. This is a problem!
Rationalizing any extra spending is never a good thing.
If you find yourself justifying an unnecessary purchase, this may be the first sign that you are spending more than you should.
Ironically enough, earning more money made me more likely to spend more money than I was making.
You should never spend more than you make in any given month. This is one of the most fundamental aspects of proper budgeting. If you are earning extra money, be careful not to commit that amount several times. This can be prevented by keeping track of your income and spending down to the penny. Not tracking it is a common mistake in budgeting.
Avoid Your Next Financial Disaster
Tracking your money coming in and out is a great way to prevent yourself from assigning the same extra income to multiple different expenses. In other words, avoid saying that you will use the extra money for this or that. If you do that, you encourage splurge spending. It is also easy to commit the same extra dollar income to several dollars in expenses. Before you know it, you have earned a hundred dollars and are spending a thousand.
The best way to avoid financial difficulties as you make more money is to keep your lifestyle the same. Don’t let increases in income push you into financial trouble. Continue to live modestly and you will have no trouble.
Better yet, commit that money to some other use. Since making this mistake, I’ve started putting all extra money towards investments. This is how I am easily able to max out my Roth IRA among other things.
Have you ever been tempted to spend extra income? What was it that you wanted to spend your money on?