7 Best Ways To Use All That Money Made From Side Gigs and Passive Income
Many people who have a side gig use it to earn supplemental income to support their lifestyle or financial goals, while some primarily use the extra cash for leisure or fun. According to Self, the average person spends about five to 10 hours a week on their side hustle and earns $688 a month, though amounts vary widely based on industry, experience and the like.
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If you have a side gig, how you use that money is ultimately up to you. But if you’re looking for some ideas for spending, saving, investing and so on, here are a few of your best options.
Build an Emergency Fund
Whatever else, you should definitely have an emergency savings fund to cover any unexpected expenses that come your way. Most financial experts suggest having between three and six months’ worth of expenses set aside in your emergency fund just in case.
For example, if you need $4,000 a month to support all of your basic needs, you should have $12,000 to $24,000 for emergencies. When calculating this amount, be sure to factor in things like credit card payments, insurance premiums and other fixed and variable expenses.
An emergency fund would cover things like a lost job, car repair, small but necessary home repairs or medical bills you didn’t account for in your day-to-day budget. Keep in mind that an emergency fund is fundamentally different from general savings. It’s not meant for planned expenses — like a down payment on a house — but rather things that truly don’t fit into your budget.
It’s also OK if you don’t have the full six months to start. Even having $1,000 or $2,000 can provide some peace of mind and financial stability as you live your life and continue to contribute money from your side gigs or passive income sources.
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Prioritize Your Personal Growth
Even if your side hustle only brings in a few hundred dollars a month, that’s enough money to invest in your own personal — and professional — growth.
“By investing in courses, certifications, or workshops related to one’s field or interests, individuals can enhance their skills and knowledge, ultimately leading to increased earning potential and career advancement,” said Jared Stern, managing member of Uplift Legal Funding.
It never hurts to have a competitive edge when it comes to your career. If you know that you’re going to want to pursue a certain job or career path, you might as well take this time — and the extra money — to get you there sooner. You never know, you might even be able to learn more about your own extra endeavors and reinvest your earnings to make even more.
If you’re not making a lot from your side hustles, that’s OK too. Start small and invest in books or more affordable webinars or workshops.
Keep Building Your Side Gigs or Passive Income Sources
You can also funnel some of the money you make from your passive income streams and side gigs back into them. Doing this could allow you to earn even more money and, depending on the gig, turn it into more of a full-time endeavor if you want.
“I recommend considering the option of using side gig and passive income earnings to start or expand a small business,” Stern said. “Whether it’s launching an online store, freelancing services or investing in a franchise, entrepreneurship can offer opportunities for additional income streams and greater control over one’s financial future. Moreover, reinvesting profits back into the business can fuel growth and sustainability.”
Pay Off Your Debts
High-interest debt, or any debt at all, can eat into your income. Whether it’s credit cards, student loans or auto loans, you’re generally better off paying down your debts as soon as you can. And with the extra money you make from your passive income or side hustle, you can do just that.
The more aggressively you can pay off your debts, the less money you’ll spend in interest or other charges over time. As you get rid of each debt and tackle the next, you’ll get closer to being debt-free. That’s when you’ll start really seeing the fruits of your labors — when all that extra money that was being spent on monthly payments is suddenly freed up for other things.
You can pay off your debts using a number of repayment strategies. For example, you could start with the smallest amount due and pay that off first before moving on to the next. Or you could focus on the highest interest rate first and get rid of that. As long as you’re making at least the minimum payments on any other debts, you’ll start seeing progress as you go.
Start Investing (Or Invest More Aggressively)
If you earn extra money passively or through side work, another smart option is to invest.
“Strategic investments in assets such as stocks, real estate or retirement accounts can also help grow wealth over time,” Stern said. This can create long-term financial stability and give you greater peace of mind knowing you have the money you need when you need it.
Investing carries some level of risk, so keep that in mind. If you want something low-risk, start with bonds or your retirement accounts — that is, your 401(k) or IRA. If you’re willing to take on a little more risk, consider investing in alternative assets or the stock market.
Since this is money from your side gigs and not your primary income, you might want to go with slightly higher-risk assets that have higher returns. It’s up to you, however, and you can try out different options until you find what works best for you.
Whatever the case, the best thing you can do is get started sooner as opposed to later. Due to the power of time and compounding interest, starting now will pay off.
Invest In Experiences and Recreation
Saving, investing and paying off debt are all financially sound options, but what if you want to splurge a little? Well, that’s OK too.
“In my opinion, individuals should also prioritize enjoying life and indulging in experiences that bring joy and fulfillment,” Stern said. “Whether it’s traveling, pursuing hobbies, or spending quality time with loved ones, allocating a portion of side gig and passive income towards experiences can enhance overall well-being and satisfaction.”
You can always split your side income earnings across several categories. For instance, you could set aside 10% or 25% for experiences, recreational activities and other things you enjoy but that don’t necessarily have monetary returns. The rest could go toward the more strategic options.
Give Freely
If you have a side gig or passive income but don’t really need the money, you could always donate some of it. This could mean helping out friends and family members, or it could mean giving back to your local community or favorite cause.
You’ll still want to consider your own needs and goals and make sure you have enough for you and your household, of course. But if you’ve got that covered, then making charitable donations or financially helping out others you care about could be worthwhile.
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