6 ways to manage the extra income you make

It is important to properly manage a side hustle. (Rawpixel pic)

To those who have just started their first side hustle (or two) – congratulations! It’s a great feeling to have extra cash rolling in every month. But that side gig will also require cash flow management.

Here are some helpful hints to create a game plan to manage side hustle finances and reach one’s financial goals more quickly.

1. Never stop tracking

All the extra money coming in (against expenses) must be tracked, otherwise there will be no clear sense of whether all the effort is paying off.

The good news is: A fancy bookkeeping system is not necessary. Use digital accounting apps such as Quickbooks to track income and expenses.

And do not forget, whether an extra RM500 or RM5,000 a month is coming in from side gigs, the individual is officially an entrepreneur with an obligation to file income taxes.

It is also important to keep track of expenses month to month as well. For example, office supplies, petrol mileage, internet services and more may be deductible.

A spreadsheet will make it easy to calculate how much needs to be set aside for taxes, otherwise, one could be in for a shock when tax time rolls around.

By estimating the taxes throughout the year and putting money aside, one is prepared to handle the payment when the time comes.

2. File your income tax

Filing income tax when freelancing might be different from being employed. For example, employees receive an EA form with information about their total salary earnings as well as total EPF and Socso contributions for the year. But freelancers must calculate earnings by tabulating profits through invoices and expenses.

Employees may fall under the monthly tax deduction scheme, where the company calculates and makes tax deductions for them on a monthly basis.

When the time comes, they may pay only a small amount or even receive a refund if they have paid too much. Other than that, both freelancers and employees follow the same process to file taxes.

When in doubt, contact the Income Tax Department to ensure the filing is correctly done.

Keep the finances from the side gig separate from those of the regular job. (Rawpixel pic)

3. Budget carefully 

Some side hustles are inconsistent in nature, so it is important to adjust the budget accordingly. Usually a budget is based only on one’s salary.

As income increases through side hustles, add it to the income section of the budget and add how much must be set aside for taxes, if needed.

At the end of the month, once the final numbers are in, the side hustle income can be allocated. This usually involves putting extra payments towards student loans, an emergency fund or property loan.

4. Keep your extra income separate

In this case, out of sight, out of mind is actually a good thing. One of the best ways to manage side hustle finances is to keep the extra income in a separate bank account so it is not mixed with earnings from the regular job.

This makes it a lot less tempting to blow through those extra earnings.

5. Be cautious when taking on debt

It would be ideal to start a side hustle with savings or, better yet, virtually no start-up money.

Those looking to scale their side gig into a full-blown business should consider debt only if there is no other choice. Or use it in small increments with a plan to pay it back quickly.

Those investing in five-figure web design, fancy editing or full-blown photoshoots must do some basic market research and make a clear plan on how to avoid racking up debt.

Debt can be leveraged incrementally to avoid overextending oneself.

6. Outsource to grow the business

Outsourcing usually comes into play once the side gig starts to grow. Business-wise, get started with things that can be automated. This includes email marketing or scheduling social media posts.

Eventually, start outsourcing tasks one has less knowledge of or skills in, such as graphic design, social media management and video production.

Look at other obligations that take up free time and prevent one from working more and start outsourcing those as well.

For example, hire a cleaning service to save time on house cleaning and start using a grocery delivery service to save time spent shopping.

Conclusion

With these money management tips in mind, now is the perfect time to start earning extra cash with a side gig.

A side income would help to improve cash flow and give a bit of a breather in financial planning.

This article first appeared in MyPF. Follow MyPF to simplify and grow your personal finances on Facebook and Instagram.