The path to financial freedom is found in a simple equation: income less spending equals savings. To increase your savings, you can work on either piece of the equation. You can increase your income or you can decrease your spending. Of course, the smartest option is to do both and really supercharge your savings! Today though, I am going to focus on increasing your side income.
I have had side income coming in ever since college, which is close to 12 years now and it has really helped me get ahead financially. How did I do it? Here are my tips.
Tips For Making The Most of Side Income
Find Something Enjoyable
The first and arguably most important tip when it comes to side income is to find a way to bring in money doing something you enjoy. This makes perfect sense when you think about it. Even if I offered you $100 an hour to clean out porta potties, many people would opt out. It’s something that isn’t enjoyable.
You have to find enjoyment in the activity otherwise you will never do it and therefore will never make any money. Therefore, be sure to take the time to list the things you enjoy doing and then see if there is a way or ways to earn an income from it.
Ignore The Money
This is the second most important tip – ignore the money you make from the activity. When you do this, it ensures you save 100% of it. This makes a huge difference. In all of the years that I’ve brought in side income, I never budget for it. It all goes into savings.
I make it a point to figure out the income I earn from my full-time job and budget that in a way that allows me to live off of it. In fact, I still factor in normal savings with my full-time income. This means I still invest 10% into my 401k plan and put some money aside for emergencies and vacations rom my regular income.
Create A Plan For Your Money
The next step is to create a plan for your side income. Now this doesn’t mean you should ignore the point above. What I mean here is what are you going to do with the money you earn on the side? In the beginning, it is perfectly fine to put the money into a savings account and watch that grow.
But eventually you are going to want to do more with the money:
- Maybe you want to buy a house
- Maybe you want to take a nice vacation
- Maybe you want to save more for retirement
You have to figure out what you want most and then use the money to supercharge your savings for that. For me, it is all about retiring early. So I use my side income money to max out my 401k plan and my IRA. Recently though, my wife and I are looking to buy a house. I am still putting a nice chunk of this income towards retirement, but I am also now putting some into a house down payment fund.
Wherever you save your side income money doesn’t matter, as long as you save it. Do not use the money for spending! While a vacation could be considered an expense, I see them as getting away to recharge and relax, so to me, a vacation is perfectly fine – within reason of course.
Why Save Your Side Income
So why save all of your side income? It’s simple really. If you make an additional $250 a month for 10 years, that comes to an extra $30,000 you earned. If you spend that money, you are in the exact same place financially that you were in 10 years ago. But if you save that money, you are at the very least $30,000 richer. If you were to invest that money and earn a decent return you would have another $15,000 on top of that!
I hope you can see that saving your side income makes a huge difference in your financial life down the road. If you were to freely spend it, you might have a lot of “stuff” but financially you will be in the same boat or even worse. With the goal being to get yourself in to a better financial situation, saving your side income makes the most sense.