Sunday, 29 December 2019

Why You Need A Side Hustle And How A Side Hustle Can Change Your Life

Side Hustle

Diversifying your revenue streams is one of the most important things that you can do to improve your financial health. And as it turns out there are far more benefits to creating a side hustle than the monetary factors and in this article, I'm going to show you the math behind why that is, as well as discuss some of my own experiences with my side hustle and how it changes my life. 

Let's Get Started

1. Side-Hustles Improve Financial Security

Most of us only have one source of income and that would be the salary from our job and that's all fine and good you can create a financially successful life based off of just that, however, there are so many unknowns when it comes to the job market and the larger economy as a whole. What happens to you when the economy tanks, if your company decides that it needs to lay people off in order to stay afloat?

Unless you've had enough time to set your financial affairs in order already you're likely going to experience a sudden and drastic change in your standard of living at least until you can find another job or your company is able to bring you back. And having a side hustle can help you limit that drop off in lifestyle or even prevent the drop off in the first place depending on how well it is doing for you.

2. Side Hustle Speed Up Path To Financial Independent

Now you'll see a lot of stuff online about creating passive sources of income and there's nothing wrong with that method, I'm a fan myself, but that's not the only way to create more sources of income. Some people get a part-time job, maybe deliver pizzas on the side, other people sell things in eBay, some people go onto Craiglist and look at the free section in their neighbor and then go grab some stuff off of that and sell it either on Craiglist, eBay or Amazon for a profit, others do a similar thing by going to the local Dollar stores and buying something for less than it's worth and then turning around and selling it at market value, still others hire property manager and get housing or apartments that they can then rent out at a profit without having the inconvenience of having to fix toilets.

Still, others start a youtube channel or blog, there are so many options out there. And it may not be as much as you're making at your current job especially in the beginning but it's a nice secondary source of income which can help you pay down your debts faster or invest more early on when you still have a lot of time for that money to compound as well as just make it mathematically much easier for you to retire early if you wish to.

So again, there are tons of ways that you can create multiple streams of Revenue, it really just comes down to what one works best for you with your skillset and your goals as well as the lifestyle you want to live. And I'm not going to go over all the various ways that you can go about making this side hustle in this article, that's not what I want to focus on today, but you can check out some of those below


Today I just want to focus on the math behind why finding something that will allow you to get another revenue stream is so important. And I'm not going to focus too much on the debt payoff because I think it's obvious to all of us that if you're throwing more money at your debts you're going to pay them off faster. The angle that I'm more interested in is mathematically what does this side hustle do for you if you wish to retire or go to part-time. 

How Much Money Do You Really Need To Retire?

One of the biggest roadblocks to early retirement for a lot of people when they're just getting started reading about the subject is that they feel they need to have a million dollars or $3 million or some huge chunk of money set aside in order to retire early, you do see this brought up with a lot of people like Suze Orman. And I'm not saying that you should take a shot at her she's just one of the people who as brought it up recently. And while it's certainly going to help you if you have a lot of extra money because it gives more wiggle room in retirement, it's not necessarily required. 

Now don't get me wrong I'm not saying don't invest, I'm not saying don't try to get a large sum of money before retiring because you definitely should still try and do that, but what I am saying is that there are other things you can do to supplement those investments and maybe speed up your time to be able to retire early if you wish to.

For those who have been reading my article, for a long time, you will probably remember me talking about the 4% rule it's also sometimes known as the safe withdrawal rate and its rule of thumb that many early retiree hopefuls use to get a guesstimate of how much they might need to invest in order to retire early. In general, you need roughly 25 times your annual expenses in order to retire and have a reasonable chance of not running out of money.

Read How Much Should You Spend Annually In Retirement? 4% Rule & Safe Withdrawal

Now some people say that 25 times your annual expenses are not going to be enough so some people do use a 3% safe withdrawal rate and have 33 times of their annual expenses but again it's a rule of thumb to give us a ballpark estimate, something to shoot for but everyone's situation is different and every one risk tolerant is going to be a little different. So always keep that in mind as you're planning your future.

But, in general, it's a good ballpark estimate and it's one I'm going to be using for the math in this article because I have to use something otherwise the equations never get started.

Let's Look At An Example:

Say if you wanted to live on $3,000 once you're in retirement which is $36,000 a year which if you are debt-free is definitely doable especially considering that you retire you can live anywhere, and that is not to mention the fact that in order to retire early at all you're probably have to be good at controlling your expenses in the first place.

  • $36,000 a year times 25 is $900,000 so that's our starting goal but what happens if we had income coming in during retirement? Through a side hustle. 

Let's say you started a blog on building your own business where you show people how you built your business what tools you used how to get through the ups and down particularly in the early stages and all that sort of stuff and you started using ads, affiliate marketing as well as selling an ebook on your blog to generate some sort of income.

Over the course of your first year, you begin to build a following and find that by the end of the year you're generating $1,000 a month on average through your blog, ads, and affiliate marketing. You enjoy writing on the blog and figure out that you could continue doing this fairly easily when you retire which means that in addition to your investments you're actually bringing in $1,000 a month on average in retirement if not more because the business might continue to grow.

To be honest, $1,000 a month is not that much money to make on a business, assuming you are consistently providing good value to your customers. but anyway, $1,000 a month is $12,000 a year. $12,000 a year in income during retirement means that every year that $12,000 you don't have to take out of your investments. This means that the investments don't actually need to cover all of your expenses. They just need to cover the extra $2,000 a month or $24,000 a year that are not covered by your business.

$24,000 a year x 25 is $600,000. So generating this side income has saved you from the need to invest an extra $300,000 for retirement. And if you do the math on the difference it can really be an eye-opening experience. Let's say if someone had already managed to invest $600,000 in retirement, but didn't have any side income.

They build their wealth over the long-haul investing roughly $1,000 a month every month for a little over 20 years at this point at an average return of 8%. At this rate, they would have to continue working for nearly another 4½ years to reach that $900,000 mark. However, if they started working on a side hustle from the beginning, generating roughly a $1,000 a month threw that into their investments then instead of retiring in 24½ years with roughly $900,000 they would be financially independent in about 13 years and 9 months with $600,000 which means they are capable of leaving their jobs almost 11 years earlier than they would've without the side-income.

Now, of course, they could continue working until they reach $900,000 shortly after the 17-year mark, nothing wrong with that, but even then it still a savings of 7 to 7½ years. Either way, it's quite a lot of time that you're saving.

Those are the top reason, at least according to me, why I think everyone should look into getting a side-hustle. 

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