Starting a side hustle gives you more income you can use for just about anything, including investing. There are virtually endless ways to make money these days, so play to your interests and talents. You could drive for a ridesharing company, help businesses build websites, or create and sell your own handmade goods.
Just don’t forget about taxes. Side hustles usually don’t have steady paychecks the government can withhold taxes from. So you must remember to set aside money for taxes yourself and pay it to the government quarterly, or you could face a surprise bill come tax time. Use this worksheet to estimate what you might owe.
One way around taxes is to invest your side-hustle income in tax-deferred retirement accounts, like traditional IRAs. Contributions to these accounts reduce your taxable income for the year, so the government won’t count it when calculating how much you owe. But you’ll have to pay taxes on your withdrawals in retirement.
Which type of account you pick, though, depends on your financial situation. If you believe you’re earning less than or about the same amount as you’ll spend annually in retirement, a Roth account may make more sense. You don’t get a tax break on these contributions, but retirement withdrawals are tax-free. Or you may prefer a taxable brokerage account. These don’t offer the same tax breaks, but you can withdraw your funds penalty-free at any time, unlike retirement accounts.