There have never been more easy opportunities to pick up a side hustle. Gig-economy platforms will let you sell your time, talent, stuff, rooms in your home, and rides in your car in just a few clicks.
The prospect of making more money is enticing, of course. Decades of wage stagnation coupled with soaring housing, healthcare, and other costs have made it harder to get by, even with a “decent” job.
But too many people don’t understand the sacrifices, responsibilities, and risks they’re making when they take on a side hustle, says accountant Lozelle Mathai. “It could be a financial disaster very, very fast,” she says. “Just because it’s a side gig doesn’t mean that you don’t still have to do a lot of the same structure as a real business.”
Costs and risks
One of the appealing parts of many side hustles is how easy it is to get started. But, the risks and costs can be significant if you don’t know what to look out for. Kathy Kristof was a personal finance and consumer reporter who was routinely getting pitches about the promise of various gig economy “opportunities.”
But, once she began digging into the costs and liability, she realized that many might appear to be lucrative—or, at least, provide an opportunity to make a few bucks—but few actually offered remuneration that made the time and risk work the effort. So, she started Sidehusl.com to evaluate these opportunities. The site reviews earning potential, agreements, and other important aspects of gig work in three categories: work, rent, and sell. It does not review multilevel marketing opportunities or any job where there is an upfront cost to participate.
What she has found with some so-called opportunities is jaw-dropping. One site lets you rent your car to ride-share drivers. But, when Kristof read the agreement’s fine print, she realized that the insurance the company touts only covers drivers when they’re providing ride-share service—not at other times, such as when they’re on their way to return your car. “So if that’s when they get into an accident, you’re screwed,” she says.
Indemnification clauses in agreements are also common in some lines of work, leaving the worker liable for legal and other costs in cases where a customer sues. Even frivolous lawsuits can be costly nuisances.
And you also need to be aware of the tax implications, Mathai warns. If companies and platforms pay you without withholding taxes, you need to estimate those on a quarterly basis and remit them to federal, state, and local authorities, as required by where you live. Failure to do so can result in expensive penalties and interest. And, of course, your earnings may serve to bump you into a higher tax bracket, wiping out at least some of your financial gain.
Then, there is the matter of how much money you can make. It’s almost never as much as it seems. Fast Company‘s Ruth Reader reported on findings that nearly a third of Uber drivers lose money. A 2011 report by Jon M. Taylor, of the Consumer Awareness Institute, found that 99% of multilevel marketing workers spend more on the opportunity than they make, too.
In a piece I wrote for Fast Company in 2018, I broke down some important calculations when selling your time. If you’re earning $30 per hour, you need to sell more than 1,400 hours to meet a gross income of roughly $43,000 before taxes or expenses. Of course, if you’re working a few hours on nights or weekends, you will net out far less.
And that’s assuming you’re getting paid cash for every hour you work. Kristof found one company that recruits college students to upload class notes pays 25 “points” each time they do so. The points are not even worth a penny each.
Lise Cartwright, author of Cultivate Your Hustle, says that when she was first starting out, she was working through Upwork as a freelance writer when she got stiffed entirely. She didn’t ensure that the client had submitted their payment information to the platform and moved ahead quickly with a project.
After the work was done and the client ghosted her, she had little recourse. “Unfortunately, there was nothing they could do. They said, ‘The client’s not payment-verified. We can’t even take the payment,'” she says.
The end game
Making a side hustle work for you means understanding what you need to get out of it. Do you need a little extra cash to make ends meet? Do you want to grow it into a big business? The answers to those questions will allow you to better evaluate the opportunity and its potential to serve you well.
Cartwright successfully turned her part-time freelance writing business into a career as a speaker and consultant. But doing so meant she needed to be “calendar aware” and judicious about how she spent her time, choosing to work with a small number of clients at a time.
“You want to make sure that you’re able to meet your work commitments, you don’t want your job to suffer, then you have to be realistic with time,” she says. And you also need to ensure you have time for a personal life, too, she says. You also need to be sure that your side hustle doesn’t violate any employment agreements or policies.
Beyond the risk versus reward factor, you also have to ask yourself: At what point are you selling off chunks of your life for some promise of financial security that may never be fulfilled?
That question is part of what drives Kristof to work on her site. “It’s the nature of the job that you are time-restricted. So, unfortunately, that makes you a good mark for somebody who’s dishonest,” she says. The key to successful side hustles is to do your homework, and make sure your risk is worth the potential reward.