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Diversifying your revenue streams is one of the most important things that you can do to improve your Financial Health. It turns out, there are far more benefits to creating a side hustle than just the monetary factors.
In this article, I’m going to show you the math behind why that is, as well as discuss some of my own experiences with my side hustle and how it changed my life.
Today I’m going to be going over the top 3 reasons why I think you need to have a side-hustle.
1. Added security
The first reason that I think everyone should have some sort of side-hustle is the added security that it provides. Most of us only have one source of income and that would be the salary from our jobs and that’s all fine and good you can create a financially successful life based off of just that, but there are so many unknowns when it comes to the job market and the larger economy as a whole.
What happens to you when the economy tanks, if your company decides that it needs to lay people off to stay afloat?
Unless you’ve had enough time to set your financial affairs in order already, you’re likely to experience a sudden and drastic change in your standard of living until you either find another job or your company is able to bring you back and having a side-hustle can help to limit that drop off in lifestyle or even prevent the drop off from happening in the first place depending on how well it is doing for you.
Even something as small as $500 or $1,000 a month can help delay the need to dip into your emergency fund, or heaven help us, credit cards while you try to regain your previous income.
2. Financial independence
The second reason that I think everyone should have a side-hustle is that it can help speed up your path to financial independence. Now, you’ll see a lot of stuff online about creating passive sources of income and there’s nothing wrong with that method, I’m a fan myself, but that’s not the only way to create more sources of income.
Some people get a second job, some people deliver pizzas on the weekend, some people go onto Craigslist and look at the free section and then go grab some of that stuff and sell it on Craigslist or eBay or Amazon for a profit, some people do a similar thing by going to dollar stores and buying something for less than it’s worth and then turning around and selling it at market value, others hire property managers and get housing or apartments that they can then rent out at a profit without having the inconvenience of having to fix toilets.
And it may not be as much as you’re making at your job but it’s a nice secondary source of income which can help you pay down your debts faster or invest more early on when you still have a lot of time for that money to compound on itself as well as mathematically make it easier for you to retire early if you wish to.
There are tons of ways that you can create multiple streams of revenue, it just comes down to what one works best with your skill set and your goals as well as the lifestyle you want to lead. And I’m not going to go over all the various ways that you can go about making this side income in this article, that’s not what I want to focus on here maybe in the future, but not today, today I just want to focus on the math behind why finding something that will allow you to get another revenue stream is important.
I’m not going to focus too much on the debt payoff end of things because I think it’s obvious to all of us that if you’re throwing more money at your debts you’re going to pay them off faster.
The thing that I’m more interested in is what this does mathematically for those who wish to retire early. Because one of the biggest roadblocks to early retirement for a lot of people is that they feel they need to have a million dollars or 3 million dollars or some huge chunk of money set aside to retire early, you see this brought up a lot with people like Suze Orman.
And while it’s certainly going to help if you have a lot of extra money because it gives you more wiggle room in retirement it’s not necessarily required. Don’t get me wrong, I’m not saying don’t invest, I’m not saying don’t try to get a large sum of money before retiring because you definitely should still do that, but I am saying that there are other things you can do to supplement those Investments and maybe speed up your time to be able to retire early if you wish to.
You can use the 4% rule or the safe withdrawal rate which is a rule of thumb that many early retiree hopefuls used to get a good guesstimate of how much they would need to invest to retire early.
In general, you need roughly 25 times your annual expenses to be able to retire and have a reasonable chance of not running out of money. Some people say 25 times is not enough, so some people use a 3% safe withdrawal rate and say you have to have 33 times your annual expenses but again it’s a rule of thumb to give us a ballpark estimate, to give us something to shoot for but everyone’s situation is going to be a little different.
However, in general, it’s a good ballpark estimate and it’s the one I’m going to be using for the math in this video because I have to use something otherwise the equations never get started. So say if you wanted to live on $3,000 a month in retirement or $36,000 a year which if you are debt-free is doable especially considering that you’re going to have to get pretty good at controlling your expenses if you ever hope to retire early.
$36,000 a year times 25 is $900,000, so that’s our starting goal but what happens if we had income coming in during retirement?
Let’s say you started a blog on building your own business where you show people how you built your business what tools you used, how to get through the ups and downs, particularly in the early stages and all that sort of stuff and you started using ads, affiliate marketing, as well as selling an e-book on your blog to generate some sort of income.
For your first year, you begin to build a following and find that by the end of the year you’re generating $1,000 a month on average from your blog through the sale of your book ads and affiliate marketing.
You enjoy writing on the blog and figure you could continue doing this fairly easily when you retire which means that in addition to your Investments you’re bringing in $1,000 a month on average in retirement if not more because the business might continue to grow.
If we’re being honest, $1,000 a month is not that much money to make on a business, assuming you are consistently providing good value to your customers, especially if you keep your costs low and have been working on it for years which at that point they would have been. But $1,000 a month is $12,000 a year. $12,000 a year in income during retirement means that’s $12,000 a year you don’t have to take out of your Investments. Meaning that your Investments don’t need to cover those particular expenses. They only need to cover the extra $2,000 a month or $24,000 a year that are not covered by your business.
$24,000 a year x 25 is $600,000. So generating this side income has saved you from the need to invest an extra $300,000 for retirement. And if you do the math, on the difference it can be an eye-opening experience. Say if someone had already managed to invest $600,000 in retirement, but didn’t have any side income. They have done it over the long-haul investing roughly $1,000 a month every month for a little over 20 years at an average rate of return of 8%.
At this rate, they would have to continue working for nearly another 4.5 years to reach the $900,000 mark. However, if they started working on a side hustle from the beginning, generating roughly $1,000 per month and threw that into their investments then instead of retiring in 24.5 years with roughly $900,000 they would be financially independent in about 13 years and 9 months with $600,000 which means they are capable of leaving their jobs almost 11 years earlier than they would’ve without the side-income.
Of course, they could continue working until they reach $900,000 shortly after the 17-year mark, but even then it still a savings of 7 to 7.5 years. Either way, it’s quite a lot of time that you’re saving.
3. The potential to radically change your life
The third reason that I think everyone should have a side-hustle is that it has the potential to radically change your life. For the record, this is what happened to me. My dad used to talk to me about finance quite a bit. He was always interested in the subject matter and realized how important it was to properly educate his kids about finances. I also realized that schools didn’t teach us about money, heck even the financial classes I took while in college didn’t teach me much of anything about handling my finances. And even though my dad died while I was young and before he had enough time to implement many of the ideas he taught me about I could see even then how impactful it could be on someone’s life to be properly educated about finances just by where I was in my life at the time.
Even something as seemingly small in the grand scheme of things like finding out a way to graduate from college debt-free so that you aren’t putting yourself in such a large hole so early in life can make a huge difference. So I looked at where my life was then and the trajectory I was on and a desire began growing within me to pass on what my dad taught me to as many other people as I possibly could because if I could just get 1 person, just one to really get it, to get something to click inside them with money then that is an entire life that gets changed for the better and that would make it all worthwhile.
It shifted my entire life plan, it helped me to decide to try out semi-retirement at 40 so that I could have more time to make these articles and work with people individually to achieve the same level of freedom and choice that I’ve been lucky enough to experience. So I hope that between me and others like me you can take the first, second, or last steps on your journey to reaching your dream life. So those are the top 3 reasons, at least according to me, why I think everyone should look into getting a side-hustle.