I went through my usual weekly perusal of personal finance blogs when I came across a post written by Backpack Finance about what he perceives to the downside of having a side hustle.
He presents reasons why he thinks focusing on only one thing such as your career can produce a better financial outcome in the future.
I’ve been meaning to write a post about side hustle for a while now.
It isn’t a bad approach just to focus on one job and do that job well. After all, that was what I primarily did throughout my career.
Income from my corporate job was basically 100% of my income for the first few years after college. While I did spend time on a few side hustle ventures, they never really took off and did not provide a significant contribution to my income.
Therefore, I didn’t spend a lot of my time on managing or growing those side hustle ventures.
I did, however, spend a lot of time building my real estate portfolio after a few years of work. And now rental income is a significant contributor to my overall income.
The bulk of my time spent on earning money was spent on advancing at my corporate job.
But having spent 20 years working, I am not so sure focusing only on one’s career and forgoing side hustle opportunities is the best money move.
If I have to do it all over again, I would probably take a different approach. I would spend less time focused only on my professional career and more time on building a substantial side hustle business.
I would recommend that approach to most young people today.
Why My Change Of Heart
By some measures, I have built a decent career working for someone else.
I live in New York City and work in the financial services industry. It takes over $700,000 in income to crack the top 1% of New York City earners. I can count myself in that group.
But even with some level of success, I still see a lot of negatives with only focusing and relying on one’s primary job to maintain a livelihood and to build wealth.
I’ve been through 3 massive economic disruptions over the past 20 years of my working life.
First was the dot com bubble burst that happened in the early 2000’s coupled with the 9/11 attacks. The stock market took a nosedive. The NASDAQ was hit particularly hard dropping by more than three-quarters from its peak.
I’ve seen job offers rescinded during this period for new college graduates heading into the workforce. Many technology companies went under during this time period, and along with those companies many jobs were lost.
Then came the Great Recession in 2008. 8.8 million jobs were lost in America during this time.
I still remember seeing pictures of people leaving Lehman Brothers carrying boxes with their personal items in tow. Lehman Brothers, a global financial services firm with over 150 years of history, declared bankruptcy in September 2008.
Many of my colleagues across the financial services industry either lost their jobs or were in constant fear of losing their jobs. Year-end bonuses, which a lot of financial services employees rely on as a significant part of their total compensation, disappeared.
And now we are going through COVID-19, affecting the entire globe. Tens of millions of people lost their jobs because businesses were required to shutter their doors to stop the spread of this deadly virus.
I was fortunate that during these 3 big economic disruptions, my job was secured and my pay didn’t go down.
It is often said that history doesn’t repeat itself but it often rhymes. If that is the case and one anticipates a few major economic disruptions in the next 20 years, then it would be insanity to only rely on your employer for income.
That is one of the major reasons why I believe diversification in income sources is so important. And why I am a big supporter now of starting a side hustle income as soon as possible.
Who Shouldn’t Focus On Side Hustles
Even though I believe in side hustle income, I do believe it is not a good course of action for everyone.
There are situations where it is better to just focus on one job and be singular in the approach.
The first one is when the job itself is in an ultra-high paying profession with tremendous payoff potential. Take an over-the-top example for instance – the National Basketball Association (NBA).
The minimum pay for an NBA player is $898,310. Just getting to the NBA level as a benchwarmer gets you close to $900,000 in pay for one year. The average NBA salary is $7.7 million, with the top 50 players making over $20 million a year.
In this case, the benchwarmer should work hard only on his craft because the payoff is so large. Just getting to the middle of the pack results in a pay increase of close to $7 million. It is highly unlikely a side hustle can produce this type of income.
Venture capital is another profession that comes to mine. The payout of being a venture capital firm partner and being able to hit homeruns with venture investing is too big to not be singular in focus.
The other scenario I can see where side hustles don’t make sense is if the person is a rockstar at work with an enormous potential of being a future leader at say a Fortune 100 company. If you know that you have all the ingredients and are dead set on making the C-Suite in 20 years, then I think it makes absolute sense to just focus on that.
Making the C-Suite might come with an 8-figure payday and is highly competitive. Distractions from a side hustle can hurt the progress. The payout is large enough to compensate for any potential loss of side hustle income.
Most People Should Start A Side Hustle
Now you know who I don’t believe should start a side hustle, let’s look at the rest.
You should know if you are in a high payout profession where the top people get $10+ million a year.
You should also ask yourself if you see yourself as a C-Suite or part of upper management in a company in your industry.
I think most people are not in those two categories. And there is nothing wrong with that.
That is why I believe most people should start a side hustle.
The Best Side Hustle To Start Is An Online Business
No one says starting a side hustle would be easy. It will involve more work and effort on your part. Determination and adaptability will also be needed to be successful.
The goal is to create another significant income stream. The best way of achieving this is to create an online business.
An online business is scalable with a global customer base.
There is also a low cost of entry to a number of online businesses. You don’t need to invest a lot to start a business.
And obviously, there is good money to be made online with the sky being the limit.
You can also work anywhere with an online business and during any time. This allows you the greatest flexibility to be able to juggle both your primary job and a side hustle.
There are 6 monetary reasons why a side hustle makes sense to pursue in addition to working a full time job.
Reason #1: There Is Unlimited Upside To A Side Hustle But Limited Upside To Your Job
The support for working on a side hustle business even while at a full time job is quite simple for me.
What are you giving up versus what you will get back in return?
There is unlimited upside potential to what you can earn with an online business.
The same cannot be said to what you can make at your current job, even for someone in a relatively high income job sector such as investment banking. There is a band as to how much an Associate can make or a VP.
Additionally, there is usually a tradition defined career path for a job. After being a first–year Associate in an investment bank, you move to being a second-year Associate, then a couple of more years before making VP. You might spend a few years at VP before making Director.
With each step of the career progression, there is an income band.
But we know that an online business can be scalable. Income is unlimited.
Additionally, you can experience exponential growth. While getting a 10% raise is considered a great pay increase at a job, your online revenue can grow 1000% in a year.
In my mind, the income potential is what makes an online side hustle business so attractive and why it makes sense to start one.
Reason #2: For Salaried Workers, Correlation Between Pay And Hours Worked Is Not Linear
One of the benefits of a salaried job is that the pay is not one-to-one correlated to the number of hours worked.
Even in industries like finance where the year-end bonus is a significant portion of total compensation, there isn’t a direct correlation between the hours worked and the pay.
Someone more efficient can have the same output as someone who is less efficient even while working 20% less.
Also, an extra 5 to 10 hours of work each week doesn’t necessarily translate into more pay.
On the flip side, if you were to take 5 to 10 hours of your work week to focus on a side hustle, your pay might not necessarily decrease.
Also, the economic payoff might be worth it even if you move from being a top tier A level employee to a satisfactory B level employee.
Let’s say an A level employee is compensated 20% more than a B level employee ($100,000 versus $120,000). But in order to move from operating at level B to level A, the time needed would be an increase of 20% as well (from 40 hours to 48 hours).
Why not put the extra 8 hours plus some more incremental time on starting a side hustle business. There is only a $20,000 revenue loss in a year. Over three years, the loss of income amounts to $60,000 (plus some minor compounding).
But within 3 years, an online business can yield far greater than $60,000 per year if the focus is there.
Reason #3: With Income Diversification, There Is Lower Fear Of A Job Loss
The fear of a job loss is real. I’ve gone through it a number of times during my close to 20 years in the finance industry.
There are the 3 macroeconomic disruptions which caused me at the time to worry about my job and my compensation.
In addition to those 3, I also worried about my job security when the company isn’t performing well even though the overall economy or industry might be doing well.
So in addition to macro risks, I also face company specific risks.
To top it all off, I also face cost cutting risks. The company might be performing well but I might still be on the cutting block because the company wants to save some money on headcount.
There is just so much risk with only depending on a job for my livelihood. This dependency can cause a lot of stress and sleepless nights.
I sleep a lot better at nights now that I have another revenue stream from my rental portfolio. I know I can still pay the bills even without the income from my corporate job.
It is best to diversify the income stream. That is why it is smart to start a side hustle online business.
Reason #4: Your Pay Is Not Dependent On The Decision Of One Or Two People
Focusing only on your career doesn’t only make you susceptible to losing 100% of your income due to a job loss, there is also a high dependency on one or two people which have an outsized influence on total compensation.
It might only take the opinion of your direct manager to lower your pay substantially. The opinion of one person can have a profound impact on your livelihood. Talk about putting your eggs in one basket.
Downside in pay might only require the opinion of one person. Interestingly, I find that when trying to compensate higher, a lot more people in a company need to sign off.
The manager would need to jump through hoops to get internal sign off on an outsized compensation package for a star performer.
It is an easy ask for your manager to save the company money by reducing the pay of an employee but quite a different story when wanting to take money from the company’s coffer to pay a well-deserved employee.
With an online side hustle business, you just don’t have the exposure to the whims of one or two people making compensation decisions.
Reason #5: Being Less Financially Dependent On Your Job Can Make You More Successful At The Job
I believe being less financially dependent on your job makes you perform better at your job. A side hustle income can go a long way for severing financial dependency on your job.
I attribute this to a few reasons. The first one is that people who are more financially independent are less stressed.
Obviously, there are benefits to an employee being less stressed such as higher productivity, a more positive attitude, and more calm. Who doesn’t want to work with a person like that? You become better liked.
Also, when you are not beholden to your job to make the mortgage payment or put food on the table, you tend to speak your mind more often and more freely. That means supporting or making hard, but right, decisions. That also can mean being a voice for positive change.
When you need the company more than it needs you, it becomes hard to say no to tasks or projects assigned to you. But being FI, you feel embolden to reject work that doesn’t excite you and focus only on those that do. This will undoubtedly produce better quality work from you.
Lastly, when you know you need to be productive at work in order to free up more time to work on your side hustle business results in being more efficient at work.
It might sound counter-intuitive, but having a side hustle might actually make you better at your primary job.
Reason #6: Excess Money Produces A Significant Increase In Savings Because Expenses Are Fixed
This one is a very important benefit of having a second income stream.
I don’t measure a second income stream as only a percentage of total income. I also look at a second income stream as a percentage of annual savings to see how valuable that income stream is to me.
For instance, if I make $200,000 a year after-tax and have household expenses of $150,000. I save $50,000 a year.
Now, how valuable would a $50,000 side hustle income be to me? While it is only 25% of my primary income, it represents 100% of my savings.
In order to achieve financial independence, I need my passive income to be greater than my spending. A second income source can go a long way in multiplying the savings.
Final Thoughts
I think it makes economic sense to start a side hustle business while working a full time job. In my mind, it is best to start an online business as soon as possible. The earlier the better.
There is just less downside when starting a side hustle business right out of college. The income band between a top performer and a middle tier performer is usually nominal the first few years out of school.
Why not spend less time at work to be a B level employee instead of an A level employer and dedicate the time instead to building a successful online business?
There are just too many monetary reasons to support why building a side hustle income stream is the better route than just solely focusing on your job.
To the audience: Do you believe starting a side hustle business is a good idea? Or do you think one should only focus on their job? Can you see any other reasons for starting a side hustle business?
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I truly believe anyone can get to strong financial health. Hopefully, this blog can help you on your financial journey to greater wealth and financial independence.
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Thanks for taking the time to read my post. Appreciate the mention as well. I think it’s really great that different opinions can be expressed in this space. There are many roads that lead to financial independence. All you have to do is just choose the right one for you and go with it.
You do have some great points in this article. In my opinion the best one is that there is unlimited potential to a side hustle. No one is going to tell you that 100K is the max you can make in your position. The sky is literally the limit if you are in the right business.
You know what I would do differently if I was 20 years old again? I would skip the whole corporate world completely and give myself 3-5 years to create an online business. I would go all out and either make it big time or fail miserably. But again, this goes back to my original thesis. I would most likely focus 100% of my effort on this business 🙂
Cheers and thanks again for the mention.
I would be nervous to put my egg in one basket without the “stability” of receiving a regular paycheck. I’ve seen people do it with success where they were able to walk away from a corporate job cold turkey to start a new business. I think there is some benefits to working a full time job in addition to starting a business.
Money is one that comes to mind. The money from the full time job can be invested in the side business to help accelerate the growth of the side business.
Agreed.. But what online business to start when your comp is above $250k per annum to make it worthwhile. I fear starting because it might make like $20k a year and a lot of effort that I could spend on other important things like family, health or just a bit of downtime. Should you rather buy or start? And in what sectors/models?
I think there is always trade-off and sacrifices. Hustling and the level of the hustle is a personal decision. But I think a side business helps to accelerate the path to FI and wealth building tremendously. I also think it is a no-brainer for someone in their 20’s.
As for what online businesses – there are resources online for that. Sam at FinancialSamurai is big on blogging for an obvious reason. How Much Do Bloggers Make? A Lot More Than You Think! I must say it takes time to generate any sort of revenue for a blogger and it needs to be run like a business.
WallStreetPlayboys also have some interesting articles on starting an online business such as this one.
As with any business, there can be failure. On the flip side, “you miss 100% of the shots you don’t take.”
Agreed. That is one of the many reasons I started a blog. It helps that it turned out to be more fun and rewarding than I expected.
I absolutely concur that most people should have a side hustle. Most of the skills I learned in parallel to my corporate career ended up be very valuable in climbing the corporate ladder.
I was one of those you mentioned in the post that thought they had the chops to make the C-Suite and I even set a goal to do it by 30. I accomplished that goal nine months before my 31st birthday. I would have never made it in that time frame if not for my experience from the side hustles that augmented the experience from my “day job.”
That said, I have always had a greater desire to go off on my own. I decided to continue “playing the game” until I found the right side hustle that could not only replace but out earn the potential I had on the corporate path.
Dom
It’s great to hear one can both be successful in their full-time job and also be able to work on a side hustle. You raise a good point that a side hustle can actual augment your skill set to help you advance in your full-time job quicker. That’s a nice win-win.