Turning a side hustle into a full-time career may be tempting. But given the start-up costs and fluctuating earnings that go hand-in-hand with launching a business, expanding your side gig requires detailed planning.
Before taking the leap, you'll want to make sure you're pulling in enough from the side hustle to cover your expenses as you scale up to a 40-hour work week. But how much is enough?
The "magic number" could be at least $43,862 a year, according to a 2019 Side Hustle to Small Business Study conducted by Hiscox, a global specialist insurer. That's how much money respondents, on average, said they needed to make from their side hustle before they felt comfortable turning those gigs into full-time jobs.
What you need to earn, though, depends on your specific financial needs and spending priorities. Here are four tips to help you calculate your own "magic number" and figure out if you're ready to make the change.
Richard Stumpf, a certified financial planner with Financial Benefits Inc. in Wichita, Kansas, says the first step is looking at your budget to figure out how much you need to bring in each month: "The biggest thing is, can you survive long enough to finally get to the point where you can make a working living?"
Start by detailing your everyday expenses. Make a list of essentials like rent/mortgage, utilities, food, and, if applicable, child-care costs. Then look at variable expenses like dining out, entertainment, and other treats.
"The key, for both personal and business budgeting, is to differentiate between fixed and variable expenses," says Stumpf. "You can't belt-tighten on your mortgage, [but] you can belt-tighten on your cable bill. " Consider spending less on entertainment or cooking at home more, for instance.
Stumpf says to focus on building an emergency fund while you have a full-time job to offset any unexpected costs that come with leaving to focus on your side hustle. Financial advisors often suggest saving enough to cover at least three to six months' worth of living expenses.
Be aware of the upfront or hidden costs of starting a new business, says Stumpf. Consider if you want a brick-and-mortar shop or online marketplace, and how much you want to invest in expenses like advertising, supplies, and employees.
Alissa Quart, executive director of the Economic Hardship Reporting Project and author of the book "Squeezed: Why Our Families Can't Afford America," told Grow earlier this year that consumers often underestimate those start-up costs, partly because such expenses aren't always obvious. If you drive for a ride-share company, for example, you may end up paying a lot more for car maintenance and repairs.
When you go out on your own, you don't just need to replicate your salary, or some portion of it: The company benefits you're losing can be worth thousands of dollars, too, and you may need to end up covering at least some of those costs yourself.
Take health insurance, for example. The average annual single person premium to an employee-sponsored health-care plan is $1,427, with the employer covering another $5,288, according to 2019 data from the Kaiser Family Foundation. If you're buying your own coverage through the marketplace, average monthly premiums range from $339 on a bronze plan to $519 on a gold plan, which works out to $4,068 to $6,228 out-of-pocket costs annually.
"Once you know what your expenses are going to be, then you can determine if you can make enough to cover those expenses," says Stumpf.
If there's a gap, consider two things: how much more you might need to work, and whether it's feasible to increase your rates while remaining competitive.
Stumpf says, "The biggest piece of actionable advice is to sit down with a business person, put down the numbers, make reason reasonable projections, and see what it's going to take in preparation of it before your first day."
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