For many South Africans, especially amidst these particularly harsh economic times, having multiple streams of income is now a way of life. Whether it is to make ends meet, earn extra income for a better future or as a passion project, side hustles are everywhere. However, having a side hustle alone won’t necessarily bring more financial security. For that you’ll need to make the right choices with the money you bring in.
Janine Horn, Financial Adviser at Momentum, explains that the number of South Africans who have turned to side hustles has increased significantly in recent years. The 2021 Momentum/Unisa Household Financial Wellness Index actually shows that around 14% of households now obtain additional income from side hustles. Of these households, about 88% have one side hustle while 12% have two or more. “This is not surprising since rising prices have affected South Africans across the board, with millennials being affected worse of all,” says Horn.
She adds that the money brought in by even a modest side hustle has the potential to change your financial wellbeing for the better. “It can help you to bulk up your emergency fund, save for a holiday, pay off debt, or boost your retirement. With that said, if you want to kick-start your financial goals, you need to know how to manage the money that you bring in.”
The good news, according to Horn, is that it isn’t difficult to turn the money from your side hustle into a valuable part of your financial future. “All you need to do is to keep a few simple points in mind.”
Horn provides a few tips to help the avid side hustler secure their financial future in the gig economy:
1. Pay off your credit cards or other loans first
The interest that you accumulate on credit cards might surprise you, and unchecked credit card spending has ruined many people’s financial plans. The same is true for most other debts like student or short-term loans. A side hustle gives you an opportunity to pay off your debts early and save yourself years of interest accumulation. An easy way to start is by paying off your smallest debts with your extra income first and putting the extra money you have into paying more than your monthly obligation into your larger debts early. Once your debts are out of the way, you can focus on saving and investing with your side business income.
2. Invest in your retirement
Compounding is a magical thing – turning even the most modest contributions into large sums of money over the right time period. No matter the amount of extra cash you bring in from your side hustle, adding that money to your retirement savings can help you to accelerate your savings plan and make for a much more comfortable retirement. Of course, good guidance can help you go even further, so take the time to see a financial adviser about how to invest your earnings.
3. Lessen financial stress for your entire family
Far from being just something that can benefit you, the income from your side hustle can make a massive difference in the lives of your loved ones. Look at options like opening an education account for your children, create a family emergency fund, or invest in tax-free savings accounts for your kids.
4. Plan ahead for tax time
With extra cash rolling in, your tax bill could also significantly increase. Prepare for tax time to avoid a surprise bill. Spend some time with your financial adviser to establish a plan for your earnings so that you don’t make the mistake of spending more freely instead of saving.
“Having a side hustle is an admirable thing, and it shows that you already have the drive to make a change in your life. Now all you need to do is to be smart with the money you make, and financial wellbeing is sure to follow,” Horn concludes.