They used to call it “moonlighting,” and it had a serious negative connotation. Just a few generations ago workers were expected to show unwavering loyalty to their employers, and the idea of someone taking on a second job seemed suspicious, if not sinister.
But times have changed, and gone are the days when one could reasonably expect to work their entire career within one company. One study suggests that Canadians can expect to hold 15 different jobs over the course of their careers. People are more likely to find themselves working seasonally, as a paid contractor, or without guaranteed hours. There’s evidence that people who stay loyal to a single employer will make less money in the long run. And the side hustle – a second source of income in addition to traditional employment – has changed from shady to savvy.
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The side hustle can take many forms. It can be a part-time job, renting a room on Airbnb, driving for Uber, freelance consulting, running a blog, selling crafts in an Etsy shop, running an online store or shovelling snow. The best side hustle is one that’s both flexible and enjoyable. And done right, side hustling can give a huge leg-up when it comes to financial goals.
Squash the debt
The average Canadian owes $29,312 in non-mortgage debt, and a side hustle is a great way to get that number down. Assuming an average interest rate of 12% and a monthly payment of $500, it will take 7.5 years to become debt free (and that’s without any additional borrowing). Using a side hustle to double that monthly payment cuts the time it will take to eliminate the debt to just three years, and saves $9,302 in interest in the process.
The key to success is treating side hustle income as if it were never there. Continue to budget and spend based on regular employment income alone, and send every dime generated by the side hustle directly to the debt.
Build retirement savings
A recent poll says Canadians will need $756,000 for retirement, but only have $184,000 saved in their RRSP on average.
A secondary source of income can help close that gap in a hurry. A 30-year-old who starts saving $500 per month for retirement will have $696,000 when they turn 65 assuming a 6% rate of return. The same person who uses a side hustle to double their monthly investment to $1,000 will retire with almost $1.4-million in the bank. That’s enough for an extremely comfortable retirement.
Buy a home
House prices across Canada have skyrocketed over the last 5 years, and even markets that are starting to cool off are still widely unaffordable for first-time homebuyers.
Not every side hustle will count as income in the calculation that makes up mortgage affordability, because lenders value self-employment income much differently than income generated by salaried employment. However, savings from a side hustle can help make up a down payment.
An Ontario first-time homebuyer faces an average home price of $553,285, which requires a minimum down payment of $30,329. It will take almost five years to reach that amount saving $500 per month in a high-interest savings account that pays 2.3% interest. An extra $500 per month from a side hustle can drop that timeline to just 30 months, making homeownership a reality much sooner.
Ride out unemployment
Especially in large companies that are constantly restructuring, no job is 100% safe. With precarious employment a fact of life for many, a side hustle is an important safety net.
What’s more, new employment insurance (EI) rules make provisions for working while on claim. As of August 2018, EI benefits are only reduced by 50¢ for every dollar made while receiving EI. A new pilot program is available to some claimants until August 2021 which allows them to earn up to 40% of their EI benefits before any deductions occur.
Transition to self-employment
For those who want to work for themselves full-time, a side hustle is a good place to start.
The model for entrepreneurship shown in the media and reinforced by a few huge successes is dramatic and scary: the lead strikes out on their own to pursue a grand idea, finds investors to take a chance on them, works tirelessly for months and years to get their business off the ground and is rewarded handsomely for their effort.
That model is also not realistic. A much more common (and less risky) path to take is to start out with a side hustle and slowly grow it into a full-time business. The founders of companies like Spanx, Twitter, and Salesforce all had traditional employment when they started out. Though the chances of someone growing a side hustle to an IPO after reading this article are slim (call me if you do), it’s entirely possible that a side hustle could turn into a full-time job.
Take care of yourself
The challenge and reward of a side hustle can do wonders for mental health, too. Having a personal project can bring a sense of freedom when employers punish creativity. An extra source of income can turn the threat of being laid off from a potential catastrophe to a lesser setback.
Whether the goal is to pay down debt, buy a home or launch the next Amazon, having a side hustle is an important step toward financial independence. Even just a few hundred dollars a month extra can make a huge difference over the course of a lifetime.
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