We are talking with individuals every day that are concerned about increases in taxes and inflation. We all know that costs have been rising. Many, for a variety of reasons, are looking for options to change their primary occupation.
You can consider a new source of income to achieve any of these goals. This could be in the form of taking on a part-time job. This could be starting your own small business – either part-time or full-time. This could be looking at sources of passive income. Each of these offers benefits – has pros of why you want to do it and has cons of why it might not be for you.
That part-time job, which at this point, could easily mean earning $15 or more per hour, has guarantees to it. If you get yourself on a set schedule of 15 hours a week, you know what you will be earning as a gross income. 15 hours times $15 per hour means an extra $225 a week. After taxes, this could net to somewhere between $150 and $200 a week.
With the holidays coming, some retail stores will offer discounts if it is a place you want to do your Christmas shopping and you work there. Some places are offering sign-on bonuses that make them more attractive. And – with the shortage of workers right now in many industries, you might even be able to negotiate what that base pay is.
Choosing a part-time job on top of your full-time job might be an action you chose as a temporary measure. Maybe, you do this job until you pay off your debt and every penny you make goes towards that. This job could be to fund your holiday spending. I had an individual I worked with who took a part-time job every year to fund her vacation and worked only as long as it took to save those dollars. Some individuals take on these part-time jobs only for the social aspect, not necessarily because of the income.
The drawbacks include being required to be somewhere at a particular time. There is not the flexibility to simply not show up. This could mean having to work nights and weekends when you want to be somewhere else. It can be hard to work an 8-hour day at one job and then go work a 4-hour day at another job.
A second option would be to start your own business. This could be choosing a Ride-Sharing option like driving for Uber, Lyft, DoorDash, or any number of other services. This could be choosing to take a skill and develop a business around that. Some teachers or graduate students develop tutoring services. Individuals who like music may become DJs. If you take good pictures, get paid for your photography by taking pictures for an event or selling art on a website selling individuals’ work like Etsy. You can use computer skills for everything from educating those needing to develop computer skills, to creating websites, to doing affiliate marketing, to selling on e-bay; there are many options for those with the right computer skills. Handyman, bakers, errand runners, and landscapers are all in high demand.
What is your hobby? What skills do you have? What is your passion? Is there an ability to turn that into either a full-time or a part-time income?
The advantage to this is the freedom. You can work as much or as little as you want. You can work this around other employment. Many of these small businesses can start up with little cash outlay.
That freedom can also be negative. If you are not a motivated person or are the type who loses motivation after a short time period, I would question if this is for you. Very, very and I will repeat again, very few individuals make money in a small business without spending some time working in the business, especially when starting.
This also creates the problem that the income may be sporadic at first and take some time to develop into a regular source of income. Can you wait through that period? Can you wait through that period if you have to spend some cash before making any income?
The other issue we often experience is individuals being unaware of the taxes related to business owners. As a self-employed individual, either part-time or full-time, you are subject to income taxes on this income. Additionally, you are subject to self-employment income tax. When you work for someone as an employee, you pay 7.65% in Social Security and Medicare taxes. Your employer matches that and also pays the same 7.65%. When you are self-employed, you get to pay both sides of that and pay the full 15.4%. It is not unusual for 33%, 50%, or more of your net income to pay taxes on that income. This means the rate per hour you are earning may tell you it is not worth it after considering the tax bill.
The 2nd issue we see with individuals starting their own business is they do not understand the recordkeeping and potentially regulatory requirements. Many occupations have license requirements. Several industries must collect sales taxes and pay them into the state, even for some services.
IRS requires you to maintain a set of books for a small business. You must understand how to keep a set of books. Do you understand all the expenses you are eligible to write off against your income and how to calculate those that might have both personal and business usage? Determining mileage, Internet, and cell phone deductions require meticulous recordkeeping to make sure you know what portion is deductible. If 50% of your net income or more is going to taxes, you want to make sure that you claim every legitimate expense.
It can take significant time to develop a steady income, and we see many individuals give up long before that happens. Think long and hard before going into business for yourself. Do you have what it takes and the time to give it the time to develop? It can certainly be rewarding. I love the business that I started and certainly do not regret it. It did take years to get where I am today.
If you do not want another job and do not want to become self-employed, you can consider the option of generating passive income. Some individuals are increasing their income through purchasing dividend-paying stocks. Other individuals are generating income through renting a property with Airbnb or renting personal property.
These types of income-generating activities do require cash up front. To receive dividends, you must purchase the stocks that pay the dividends. How much you will receive in dividends depends on what you buy and how many shares you purchase. Renting a property only works if you have a property or room that you can rent.
Having a lump sum of cash in the bank can enable you to generate this type of passive income. Caution is recommended to ensure that you do not put money into these types of activities you will need in an emergency.
There are many ways to earn extra cash or to change how you are earning your cash. It takes time and effort. It takes a willingness. If you need assistance in developing ideas for a business or making sure that you are keeping a set of books appropriately, please feel free to contact us. If you are interested in purchasing dividend-paying stocks or seeing how the Airbnb market works, we are here to help.