Side hustles are all the rage these days. We live in a period of rapid technological change that has paved the way for the gig economy (think Uber) and the sharing economy (think Airbnb). While some people have turned these platforms into a full time job, others (like myself) use them to earn a little bit of extra money on the side aka a“side hustle”.
A question I see debated by some within the Financial Independence community is whether it is necessary to have a side hustle in order to reach financial independence?
Before I give my take on that question, let me start by answering an easier question, Will a side hustle help your reach Financial Independence faster? Yes.
“If you can manage to earn more money and invest it wisely, you have the potential to reach Financial Independence decades sooner.”
Let me refer you to Mr. Money Mustache Shockingly Simple Math Behind Early Retirement. The shockingly simple math aims to tell you how long it will take you to reach Financial Independence given your current savings rate. If you save 5% of your take home pay, it will take you 66 years to become financially independent. If you save 75% of your take home pay, it will take approximately 7 years for you to become financially independent. You get the idea, the more you save the faster you reach Financial Independence.
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Think of it this way; if your take home pay is $1000 and you were not saving any of it you have a savings rate of 0% and are on a path of working well into your 70’s or beyond. If you managed to increase your take home pay to $1200 and you invested the extra $200, you now have a savings rate of 17% By saving that extra $200 you would have cut your time until Financial Independence down from infinity to 30 years.
If you can manage to earn more money and invest it wisely, you have the potential to reach Financial Independence decades sooner. So yes, having a side hustle will help.
The question remains, do you need a side hustle to reach Financial Independence? I am even more confident in the answer to that question: It depends.
Have you sat down and crunched your own “Shockingly simple math”? Do you know how much of your take home pay you are saving? Do you know the return you are getting on your savings and investments? How quickly do you want to reach Financial Independence? Your answer to these questions will determine if you need a side hustle or not.
If you have a savings rate under 20% you might need a side hustle to get to Financial Independence. If you have a savings rate in the 40%-50% range, you probably don’t need a side hustle.
Side Hustle Gigs vs Side Hustle Passion Projects
Not all side hustles are created equal, some act as a seconds jobs and some are passion projects. If you drive an uber, that is a second job if you write a blog about a subject you are passionate about, that is a passion project. If you really need extra money then a second job might be exactly what you are looking for.
Thankfully, my wife and I both have above median incomes and have learned to stretch a dollar, so neither of us are in desperate need for a second job. That frees me up to write this blog. I don’t expect to ever make a substantial amount of money from this blog. I do it because I am obsessed with personal finance and hope to inspire people to take action and clean up their financial house and live happier lives.
So even if I never make a buck from this side hustle that’s okay with me because I am passionate about what I do. Afterall, the whole point of Financial Independence is to pursue your passions and not let money rule your life.
This article is for informational purposes only not all information will be accurate. This should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.