Side hustles are all the rage right now among millennials trying to escape their traditional jobs and find financial freedom. For the uninitiated, side hustles are any type of activity besides a person’s full-time job that generates extra income. The purpose of the side hustle is to generate additional income while offering you the flexibility to work outside of your traditional job hours. Today, I am going to discuss whether you should use your extra time and energy on a side hustle or just focus on adding more value at your job.
Most side hustles are just trading your time for a few extra dollars
A lot of personal finance blogs are dedicated to loving and advocating the side hustle. They provide examples of side hustles that can regularly make you a few extra dollars each week, including:
- Making food deliveries;
- Taking online surveys;
- Walking dogs;
- Starting a blog;
- Mowing lawns;
- Being an Uber driver;
- Babysitting; and
- Shoveling snow.
Side hustle proponents advocate using your extra time in the evenings or weekends to get your side hustle going. One blog talks about how two millennials with three kids found a few hours each night to work on their side hustle and generate income selling products they find at thrift stores or auctions for a profit. The story goes on to say the couple sacrifices now to make extra money to get closer to financial independence. Sounds good, right?
It sounds good to me if you have a job that has no potential to generate increased financial upside. Otherwise, I think most side hustles are for people that are willing to trade their time for some extra money (and probably not at a great hourly rate). A side hustle is definitely better than wasting your time on TV shows if you are trying to get free of your financial burdens, and I commend people who are willing to put in the extra effort to reach their financial goals, but you should probably think about what is the best way to apply that extra time and effort to achieve financial independence. I recommend a little different approach.
Should you focus on becoming more valuable at your job and reaping the rewards from that extra value?
Many careers or jobs offer a chance for a person to increase the financial benefits they receive from their job if they perform above expectations and increase their value to the company. These increased financial benefits can be in the form of annual salary increases, bonuses, promotions, stock grants, and commissions. Possible ways to increase your value at work and participate in these additional financial benefits include becoming:
- The Hard Worker – This is the person that does the extra work no one else wants to do and puts in the extra effort to get things done in a professional and timely manner. This person often does more than he/she would be expected to do in his/her current position. With the right boss this person is rewarded over time.
- The Salesperson – I did sales for about five years and the potential is there to make some good money if the company has a good sales incentive structure in place. A good salesperson, with the right incentive structure and in the right field, can pile up commissions over the course of a very short period of time. Any good salesperson learns how to maximize their company’s sales incentive structure.
- The Expert – There are some fields where you can become an expert and make increasing amounts of money over time. The doctor or lawyer that specializes in a field, the business consultant that is an expert in a certain industry, and the scientist or technician that is an invaluable member of a team in a cutting-edge area. These people were not born experts but put in the extra time to build this expertise and become more valuable in their roles.
- The Manager – There are individual contributors and there are individual contributors that have or develop the potential to manage others and optimize the performance of their teams/groups. This is a skill that may take time to develop but a good manager is typically paid more to lead his/her people.
I have personally seen the benefit of focusing on adding value to your career/job. I have always been a hard worker and willing to put in the extra time. I received a handful of promotions that increased my salary, gave me additional stock grants, or both.
I spent several years doing sales because I wanted to have first-hand experience and I wanted to try to make some more money from commissions. I was successful in bringing in new clients which over time led to larger quarterly commissions that I used to invest.
Over a 10-15 year period I grew my business acumen to include a background in finance, law, sales, and operations, and it led to higher-paying job opportunities and over time an increase in my salary, my bonuses, and my stock rewards.
I learned how to manage people and that eventually led to greater financial rewards as well.
There is no way I could have made the money I did in my career by focusing on any of the side hustles mentioned by most bloggers.
I recommend that you evaluate these three things to see if focusing on your job to increase your overall income is the way to go:
- If you develop your skills and increase the value you offer to your employer then can you expect, over time, to receive increased financial benefits? Remember, financial benefits can mean a higher salary, a bigger bonus, growing commissions, larger stock grants, etc. Try to separate your career opportunities in general from a current bad situation or manager that does not appear to recognize your contributions.
- Do you have the right mindset and are you willing to spend the time to develop the skills you need to increase your value to an employer? Developing skills takes time and effort and is not just something that happens through the passage of time. I would assume if you are willing to spend extra time and effort on a side hustle then you would be willing to spend that same time and effort on improving your skills.
- Are you at the right company and do you have the right manager to financially recognize your increasing value to the company? If you are not working for the right company or manager to have your value recognized ask yourself if you were working for someone else would that change. Ask this question every time you have a change in employers or managers and think about how you can improve this situation if you are not with the right company or under a good manager.
If the answers are “yes” to these three basic questions then you really should consider focusing on growing your income through your job. I would hesitate spending your extra time on a side hustle that probably makes a few extra dollars per week.
If you have a job with limited upside then certain side hustles might be the way to go
So many of the side hustles that I have read about have very limited potential. You can only walk so many dogs in a week. You can only babysit so many kids on the weekends. There are only so many lawns to mow and driveways to shovel in your neighborhood before your back gives out.
However, a side hustle might be the way to go if you cannot see any real potential to grow your job income and the side hustle you want to do has the potential to scale over time.
When I say scale, think about whether you can increase the income from a side hustle by adding more customers without directly doing more of the work on your own. As an example, if you start a side hustle by mowing lawns you are going to be very limited in its growth potential unless you learn how to do it efficiently and then hire people and manage them to mow the lawns. You still have to oversee the work and manage the client relationships but you can see how there is some potential to increase the income from this side hustle. The side hustle needs to become a side business to make it worth the time over the long run. There are some limits to how scalable a lawn mowing business can become but you get the idea – there is a way to generate income with this side hustle beyond just using your own physical labor to mow the lawns.
A side hustle can also make sense if over time your side hustle creates a platform that can make money for you independent of your weekly effort. For example, good video bloggers put in a lot of initial work to develop a library of videos that people can watch. At first, these video bloggers are making very little money but if they create hundreds of quality videos over time then eventually the ad income from each video aggregates and the total income grows as the hundreds of videos continue to be watched over time.
I recommend thinking about the following when considering a side hustle:
- What is my hourly rate from this side hustle – is it the best earn extra money?
- Is the side hustle scalable over time if I think about it the right way?
- Is the side hustle something that, over time, can generate income independent of the time I directly put into it?
If the answer to question 1 is miserably low with no upside in sight and the answer to questions 2 and 3 are “no” then I would think about finding another side hustle. If the answers to questions 2 and 3 are a “yes” or “possibly” I would think about how to make the side hustle a more profitable activity over time by scaling it or developing a platform that eventually generates a form of passive income.
Invest your extra income to generate that passive income while you sleep
Regardless of whether you focus on improving your financial status through your job or a side hustle you need to take that extra money and invest it so that you can build an investment portfolio that as it gets big enough spins off meaningful passive income. Passive income will help you get financially free.