A side hustle is becoming an increasingly popular way to earn additional income on top of your main job, we asked our Financial Services experts to look at this and give us 5 ways how this benefits your overall financial plan.
According to Intelligent SME, 31% of workers have a side hustle, and 42% hope to start one. For 71% of those who already have a side hustle or are considering starting one, the reason was to earn extra income.
The income that Brits are earning from their side hustles can be significant. Aviva reports that the average monthly income from a side hustle is £497, with 16% of people earning more than £1,000.
With so many opportunities to boost your monthly income, this can be a vital part of achieving your long-term goals. Read on to discover five ways to include your side hustle in your financial plan.
1. Understand how your side hustle income affects your overall financial plan, net worth and income
If you have recently started your side hustle, you may not know exactly how the income could affect your overall finances. A little bit of extra pocket money is always helpful, but what if your side hustle could help to fund bigger goals?
A cashflow forecast can help you to visualise how your income and assets are likely to grow and change over time. It can model different scenarios, such as a career break, receiving an inheritance, and your retirement, to predict how your income and assets could support you at any given year in your life.
Your financial planner can create a cashflow forecast that includes all your income streams to predict how your net worth might change over time. By including your side hustle income in the model, you can start to understand how you can use the extra income to work towards your long-term financial goals.
2. Build up your savings and how this benefits your financial plan
Your side hustle income could be a helpful way to build up your savings further than you might have been able to with your main income.
Additionally, if you are supporting a child or grandchild financially, you could use your supplementary income to add to their pots – a Junior ISA can be a great way to give your child or grandchild a head start on saving for the future.
There are lots of different types of savings accounts to choose from, whether you are saving for yourself or your children. The most suitable wrapper will depend on your circumstances and goals, so it is important to consult with a financial planner who can advise you on the most suitable course of action for you.
3. Make additional pension contributions
The more you can set aside for your retirement, the more likely you are to be able to achieve your financial goals so that you can enjoy your dream lifestyle. You may already be contributing to a pension from your main income, but making additional contributions from supplementary income can be extremely beneficial.
Provided you have not exceeded the Annual Allowance (the lower of £60,000 or 100% of your earnings in the 2023/24 tax year), making pension contributions usually means you are eligible for tax relief at your marginal rate of Income Tax. This can be a great way to make your side hustle income go even further.
If you are a basic-rate taxpayer, you will receive 20% tax relief on pension contributions, so a £100 deposit into your pension will only “cost” you £80. If you are a higher- or additional-rate taxpayer, a £100 deposit will only cost you £60 or £55, respectively.
The first 20% of tax relief will usually be added to your pension pot automatically by your provider, but if you are a higher- or additional-rate taxpayer, you will need to claim the additional tax relief. You can do this on your self-assessment tax return or by contacting HMRC directly.
4. Expand your investment portfolio
Your investment portfolio is a key pillar of your financial plan.
When you invest in your portfolio, you give your money the opportunity to beat inflation and grow in value. Of course, there is an element of risk involved, and you could get back less than you put in.
Historically, though, the stock market has typically delivered superior returns to cash over the long term, as you can see from the graph below.
Historical returns in excess of inflation since 1926
Source: Schroders. Please note that past performance is not a guide to the future and may not be repeated.
So, using your side hustle income to further expand your investment portfolio could be a great way to maximise the impact that your earnings can have on your long-term financial wellbeing.
It is important to balance your portfolio so that your investments are diversified according to your personal risk profile. This can help to spread out the risk that your money is exposed to.
Your independent financial adviser can help you to choose an allocation that is most suited to your circumstances and goals.
5. Make sure you have the right level of protection in place
As you can see, your side hustle might prove to be a vital part of your financial plan. So, how might you or your family cope financially if you were unable to work on your side hustle due to illness or injury?
When putting financial protection in place, you might initially think solely about your main job. Yet, if you rely on your side hustle income and would be financially vulnerable without it, it is important to include this in your calculations.
In doing so, you can ensure that any insurance policies you take out, such as income protection, critical illness, or life insurance, provide adequate financial protection for you and your family.
Get in touch
If you would like to learn more about how your side hustle income can help you to achieve your goals as part of your financial plan, we can help.
To arrange an initial meeting with one of our financial services team with no fee or obligation, please contact us at firstname.lastname@example.org or call 0203 697 7147 to speak to us. Or you can visit our web chat in the bottom right corner, which we respond to personally during office hours and you can leave a message out of hours.
The RPGCC team is always just a click or call away.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate cashflow planning. Note that protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.