A few months back on the blog, I started the Side Hustle Shuffle series. I’d like to revisit those posts today in order to answer a great question I received from a reader about how to actually run a side hustle once it’s established.
If you need a recap, here are the first four posts in this side hustle series:
- The Common Sense Guide to Your Own Side Hustle
- How to Score Paying Clients for Your Side Hustle When You’re Short on Experience
- 4 Simple Keys to Side Hustle Success
- What Should You Do with Side Hustle Income?
Here’s the smart reader question submitted by Amanda of My Life I Guess:
I’m having such a hard time finding a “guide to setting up your side hustle” from the administrative/paperwork side of things. What documentation do I need for my income taxes? Do I even have to claim this income because there’s no official contract (both gigs are with other bloggers, not companies)? Should I be tracking my hours as well as income? What is considered a business expense? How do I cut down on paying PayPal fees? I could go on and on!
Amanda, I hope this post can be your comprehensive guide that walks you through how to…
Set Up Your Side Hustle
It’s easy to get caught up on establishing a side hustle.
Discovering your sweet spot, or the intersection of what you’re good at, what you love to do, and what people are happy to pay you to do, takes a lot of thought and consideration. Doing a bit of research, even testing your idea, takes time — and so does establishing your own platform on a blog or social media channels to spread the good word about what you’re doing. Actually getting to that hustle and finding work is tough and takes a lot of effort.
But it’s all just the beginning. You still have a whole other set of important tasks to work hard on: you have to set up your side hustle to run efficiently. You need to know how to be your own “office manager” and handle administrative tasks and paperwork dealing with your income, expenses, taxes, client or account management….
Think you don’t need to worry about this stuff if your side hustle is something low-tech or straightforward like landscaping or dog walking?
Think again, my friend — and then start taking yourself more seriously.
If you’re here learning about side hustles, you’re in this to earn extra money. No, a side hustle doesn’t have to be monetized. It can be for fun. You may look for compensation beyond the financial side, like experience or self-education.
But the purpose of learning about side hustles with me is to earn more money so you can accelerate your financial goals. Creating additional income streams and boosting earnings is the name of the game here, so you can repay your debt faster, reach your savings goals sooner, or contribute more to your investments.
And when money is the top goal, you need to think of your money-making venture as a serious, legitimate business. Let’s walk through how to set up your side hustle as the successful, profitable endeavor it is!
Note: Money doesn’t have to be your only goal. But the purpose of these posts is to help you learn how to make more. Adding new experiences to your resume (or just to your life, on a personal level), developing skill sets, or learning something new are great goals for your side hustle to help you meet as well. But those would be goals 2, 3, and 4. Earning more in order to fast-track your financial success is Goal Number One.
Stay Organized and On Track with the Right Systems and Processes
When you’re running a side hustle to earn extra money, you’ll need to set up a way to track and evaluate the following:
- Income (gross earnings and net profit)
- Operating costs and expenses (check out this nice infographic for some details on expenses that often qualify as tax deductions for bloggers)
- Deductions from gross earnings (because you’ll need to manage these yourself), like taxes and retirement savings
- Documentation surrounding all side hustle finances: bank statements, PayPal statements, invoices, receipts, etc.
- Tax payments and documentation (like 1099 forms)
You must manage your side hustle’s finances carefully. Because, yes, you will be paying taxes on your side hustle if your goal is to earn money from your efforts. (We’ll take a look at taxes in more detail a separate post.)
It doesn’t matter how much money you earned from your side hustle. If you intentionally took action to make a profit, the IRS wants to know about it. That means at the very least you’ll be reporting it. You may or may not owe money.
Other aspects of your hustle that you may want to develop a system around include client and relationship management. This can be as low-tech or as high-tech as you want.
Once you set up your systems and processes, be sure to keep them updated! Check in with them once per day or once per week, depending on how many moving parts your side hustle has. The more going on, the more frequently you need to sit down with your back-office tasks and work to keep them organized and current.
My Simple Systems and the Tools I Use
Before you start feeling too overwhelmed, know that staying organized is really more a matter of habit than anything else. This stuff isn’t too complicated. They key is to stay on top of the administrative side of things, which only takes a few minutes of your day.
You can use a few tools to help you, as well. These don’t have to be complicated, either. The ones I use aren’t at all. I’m a fan of keeping it simple and straightforward.
Are these the absolute best tools and processes? Probably not. But they work for me, and that’s the key here: establish what works for you and then work it! These are just ideas to help you get going, and not by any means the only way to do this or the only “right” way.
Here’s what helped me run my hustle, and what still helps me run my business today:
For Tracking Finances: Excel Spreadsheets
Doesn’t get much simpler than Excel spreadsheets. I have a few main sheets, each of them broken down by month and annual quarter:
- Income Report
On my earnings sheet, I list out the date I received the payment, the client the payment came from, the gross total, the amount I took out for retirement (I use a SEP IRA and max out the account, so that’s 20% of the gross for me), the amount I took out for taxes (I estimate 28% based on my deductions and the state I live in), any fees associated with the transaction (for when I get paid via PayPal), and the net total (or what is left after I account for retirement, taxes, and fees).
Each transaction is listed out on a separate line, and at the bottom of that’s month’s earnings, I total up all the numbers. This gives me a detailed breakdown as well as a month-at-a-glance view. I do the same with my expense sheet, but the data I enter is a little different.
On my expense sheet, I write down the date, a note about the expense, and the total. I also make a note about whether the expense provided a paper receipt or a digital receipt, so I know where to look if I need to pull a specific record of purchase. As far as what qualifies as an expense? Anything I have to purchase or spend money on to keep my business up and running goes down on my list. That includes supplies, website hosting, payments made to contractors, courses or educational materials directly associated with my work, travel I do that is directly related to my work, etc.
I do work with a CPA come tax time, so I have a second set of eyes on my list of expenses. Because I track everything in detail, I can quickly explain any expenses if asked.
My income report is my quick look at my monthly totals for everything: gross profit, retirement contributions, expenses, taxes, and net earnings.
As for all the documentation associated with finances: statements, receipts, invoices, taxes, etc: I have a system of file folders where I scan and upload everything. I back this up externally. Make sure you always have a secure backup OR use secure cloud storage for your documents.
A good rule of thumb is to keep everything that documents financial activity related to your side hustle. Keep this information organized by category and by date. You may not need it all, and staying organized will help you quickly sort through it to find what you need.
For Banking: A Separate Checking Account!
If you’re making money with your side hustle, keep this money separate from your personal finances. This makes things much easier to track and understand, especially when it comes to taxes.
I only have one business checking account. I also have a business credit card. I don’t break down my banking any more than that, although you may want to consider opening a savings account to deposit your deductions for taxes into so that money stays separate from your net earnings.
Because I only do what my spreadsheets say I can do, I just keep the one account. For example: I may have $10,000 in my business account, but if my income report says I only had a net profit of $1,000 in a month then I only withdraw $1,000. I ignore the other sum.
That’s just how I operate. Many other side hustlers prefer having different “buckets,” or separate accounts, for each category of their earnings: gross, savings/retirement, taxes, and net. How you set up your own banking system is up to you as long as you keep it separate from your personal finances.
For Accounting: Nutcache
Nutcache allows me to quickly and easily make nice invoices — for free. This accounting program is available online and is always free to use. It has a lot of bells and whistles and features, but I really only us it to create invoices and track payments. My Excel spreadsheets do a good job of taking care of the rest.
For Payments: Snail Mail Checks or PayPal
I actually prefer accepting snail mail checks from clients in the US when I can arrange it. There’s no fee and I don’t have to transfer money around — it just goes straight into my business checking account. But I know that method doesn’t always work, so I also work with PayPal.
PayPal does charge a fee to send money for business purposes. I view this as a cost of doing business. You may want to up your side hustle rates to account for this small percentage fee if you know you’ll use PayPal for the majority of your transactions. (Or you can check out this article from Carrie at Careful Cents, who talks about another payment system to use to reduce fees.)
For Task Management: Asana
I love Asana for keeping myself on track with all hustle-related tasks. This tool was really built as a digital workspace for teams (and I now use it for that purpose with my business), but it works great for a team of one, too!
For Client Management: Old Fashioned Pen and Paper (with Help from Google Drive)
My “account management” system is a notebook. See, I told you it didn’t have to be fancy! There’s no need to invest in an actual CRM if you don’t want to, and if taking your own notes and simply writing things out by hand (or using more spreadsheets) works for you.
I keep a list of all my current clients, what price rate they’re at, and a few notes as necessary. I also keep a list of prospective clients, as well as a list of clients I’d like to try to connect with in the future. Because I work with a team now, I also break down each client’s main tasks to quickly identify if there are any elements of work that I can outsource or assign to my team to help me out with.
When it comes to content and files, I use Google Drive to manage all work for my clients. Each client gets their own folder.
See? Not complicated at all. The hard part is getting set up behind the scenes and staying on top of documentation and information as it changes. You can set up your side hustle and work as your own office manager, and you’ll be glad you did when you’re super organized and there’s no confusion about the administrative side of your work.
Do you have any questions about setting up the administrative side of your side hustle, or actually running your hustle behind-the-scenes? Did I leave something out or a question unanswered? Let me know in the comments!
Note: Here’s your disclosure for this post! I am not a financial professional. That means I’m not a CPA or a CFP or any other kind of registered individual with expertise in financial planning or accounting. These tips are shared from my personal experience, and I cannot guarantee any particular outcome or result — if you try any of these ideas, you do so understanding that I did not provide you with professional advice or recommendations.
If you have any questions, doubts, or concerns, it is always best to contact a CFP or CPA that can work with you to develop the best action plan for your situation and your personal finances. In other words, by reading this post you agree that I’m just a twentysomething with a passion for sharing my story to help others and you can’t sue the pants off me. Please and thank you.