Having an additional job that you do alongside your main line of work can be one way to boost your income, or generate some additional money to put aside. And whether you call this a “side hustle” or something else, it’s a trend that’s on the rise.
According to research by the insurance company Aviva, 1 in 5 adults in the UK have started a side hustle since March 2020. One of the main reasons for this is Covid-19 and the huge impact it’s had on the way we work.
And despite things getting back to normal, there’s no sign of side hustling slowing down as 63% of people say their side hustles are still going strong more than two years later.
With almost 1 in 6 people saying they earn nearly £1,000 each month from their new venture, could starting a side hustle be financially worthwhile for you too?
Many people start a side hustle to spend more time on their favourite hobby. And, if it can boost your income as well, it’s worth considering as long as you’ve done your homework first.
To help make your decision easier, here’s a guide to the pros and cons of starting a side hustle. Read on to learn the key pitfalls to watch out for, and how you could benefit from setting up another income stream.
Pros of starting a side hustle
- You’ll have more spare cash
The first advantage of a successful side hustle is perhaps the most obvious: more money in your pocket each month.
During the current cost of living crisis, this additional income could make a valuable contribution to your day-to-day expenses.
If your side hustle is simply a hobby you love that you get paid for, the money you make might just be a nice little bonus. And with almost 2 in 5 people starting side hustles to add to their ordinary living expenses, according to Aviva’s research, you won’t be alone.
- You can start investing, or increase your investments
As well as helping to make your day-to-day life easier, money earned from a side hustle can have longer-term advantages.
You could use your additional income to boost the amount you save or invest every month. Thanks to the benefit of compound returns – essentially “interest on interest” – putting more money aside now could provide you with a significant boost to your future wealth.
We can help you to build a financial plan that focuses on your life goals, and show how boosting your savings could help you to reach those goals.
- You could boost your pension contributions
Let’s say you start a side hustle purely for fun, and in the short term you don’t really need the money you make. Could you look to the future instead?
You may already have a workplace pension through an employer or contribute to a pension you’ve set up yourself. Using the spare money you earn from your side hustle could boost your pension contributions, especially as you’ll receive tax relief on your contributions at your marginal rate of Income Tax (up to the Annual Allowance).
When trying to weigh up the advantages of contributing your side hustle money to your pension, look at the big picture. Boosting your pension pot could mean you’ll benefit from a more comfortable lifestyle in retirement – not a bad result from something that started as a hobby!
Cons of starting a side hustle
- You could end up paying more tax
No one is ever happy with a higher tax bill. But if your side hustle becomes a success, it’s something you may have to consider.
If you earn £1,000 or more from your side hustle, you’ll need to declare it to HM Revenue & Customs (HMRC) through self-assessment.
If the income you earn from your side hustle pushes you into a higher tax bracket, you may also need to keep aside 40% or 45% of your earnings for Income Tax.
- You may have to pay out additional expenses
Imagine that for your side hustle, you want to start making and selling homemade jewellery. You’ll need to get the raw materials, invest in equipment, and buy any packaging you’ll use to send orders out to customers. And that’s all before you’ve made your first penny!
Your side hustle might start out as a bit of fun but, if it grows quickly, you’ll need to treat it like any other business. That means focusing on cost control, expenses, and pricing.
The type of expenses you need to pay will depend on what your side hustle is, too. Think about the costs of any rented space if you want to start giving fitness classes, or what your postage costs will be if you start to sell online. Whichever route you take, make sure you don’t end up out of pocket.
- Your work-life balance might suffer
Managing to find a good work-life balance can be tough – even with just one job!
One of the potential disadvantages of a side hustle is that it could be time-consuming. You may be working on your second income stream around a full-time job, which could leave you with little free time to relax with your family.
It’s important to think about your own quality of life. Earning a little bit of extra money might be nice, but make sure it doesn’t come at the expense of your physical or mental health.
Summary
If you have the time and the passion, a side hustle can be really rewarding. And with Brits earning an average of £497 a month from their side hustle, according to Aviva, it can be lucrative too.
Before you begin, though, make sure you know which pitfalls to watch out for. If you’re unsure, seek professional financial advice. With the right guidance, your side hustle could make life more comfortable now and in the future.
To find out how your side hustle could help to boost your progress towards your goals, email info@blueskyifas.co.uk or call us on 01189 876655.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.