A Side Hustle Isn’t Easy Money — but This Strategy Is

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Want extra money? Read on to see why a side hustle may be more work than you bargained for. [[{“value”:”

A friend of mine works a full-time job and a second one that has him fetching food for people on the side. The amount of money his side hustle earns him can vary, but most weeks, he’s pulling in an extra $300 to $400 on top of his regular paycheck.

That’s important, because he needs his entire paycheck to cover his basic expenses. His side hustle gives him cash he can use to add to his savings account.

But while my friend appreciates having the extra money, earning it isn’t easy. To get that $300 to $400 a week, he often has to work up to 20 hours on top of a full-time job. Oh, and this friend of mine is a parent, which means he’s also quite busy shuttling his kids to activities, overseeing homework, and making sure they’re clean and fed.

The good news, though, is that my friend may not have to work his side hustle for that much longer. And if you’re plugging away at a side hustle that’s seriously eating into your spare time, you may want to plan for a similar exit strategy.

A better path to easy money

A side hustle may be an effective way of earning money, but it’s not easy. The time you spend on that second gig is time you can’t reclaim for other purposes, whether it’s social events with friends, personal downtime, or sleep.

That’s why you shouldn’t necessarily have the goal of working a side hustle indefinitely — even if you’re earning good money. Instead, you should do your best to bank as much side hustle earnings as possible and then use that money to establish a passive income stream. That could mean opening a series of CDs that pay you interest steadily, or putting together a stock portfolio that has you earning money via dividend income and/or gains.

Of course, to earn a nice amount of passive income, you need a decent chunk of cash to save or invest. You may have to work a side hustle for a solid year or two to get to that point. And that’s fine.

More so than fine, it’s smart. But you should also aim to have an endpoint to that extra hustling — for the sake of your mental and physical well-being.

Passive income could one day be yours

My friend has been working his side hustle since the start of the year. And his goal is to get to $20,000 in extra money that he can then invest or put to work in a CD while rates remain high.

Now, $20,000 in side hustle income might seem like a lofty goal. But so far, my friend is on track to get there in just over a year. The reason he’s aiming so high is that he knows it takes a fair amount of money to make a decent chunk of passive income.

Right now, for example, many CDs are still paying 5%. But if you only have $2,000 to put into a 12-month CD at a 5% APY, then you’re looking at $100 a year in passive income. That’s probably not a life-changing amount. A $20,000 CD with those same terms, however, will pay you $1,000 over 12 months.

Similarly, if you put $20,000 into a stock portfolio that grows at a rate of 10% per year, which is in line with the stock market’s average annual return over the past 50 years, then 10 years from now, your portfolio could be worth about $52,000. That amounts to about $3,200 per year in passive income when you break it down on an annual basis. And that doesn’t even include the dividend payments you might receive.

If you only have $2,000 to invest over a decade at a 10% annual return, you’re looking at $5,200 in your stock portfolio after 10 years. That’s $320 per year you’re invested, which is a nice sum, but not a ton.

That’s why it is a good idea to work a side hustle for a period. You need a decent chunk of cash to start with to earn a nice amount of passive income. But don’t resign yourself to holding down a second job indefinitely when you might be able to better your financial picture without having to put in all of that extra work.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fetch. The Motley Fool has a disclosure policy.

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