I’ve been writing about financial independence (FI) for many years now.
More recently as I’ve dived deeper into the subject (i.e. retired and started a new blog) I’ve been considering the impact of a side hustle on FI.
The bottom line: it’s pretty significant.
I thought I’d detail just how important a side hustle is so those of you out there working towards FI can think about starting one.
BTW, I actually prefer the term “side business” but most FI people seem to like “side hustle”. Anyway, I’ll use the terms interchangeably throughout this post.
Why a Side Business
Before we get into the specifics, let’s review why having a side hustle can be so powerful.
The simple reason I recommend developing a side business: it will help you reach your needed FI income MUCH sooner.
It will do this in a couple ways:
- Having an extra income will allow you to save more in a shorter period of time. If you’re trying to pay off debt or save up a big nest egg to hit financial independence, a side business will help.
- A side business will mean you’ll need to earn a lot less from your assets in FI, speeding up your freedom date by many years.
We’ll get into the numbers behind these two statements in a minute.
For now, let’s review the ways someone can reach financial independence.
Reaching FI
There are two main ways to hit FI:
- Save and invest until you have a boatload of money that you can live off completely for the rest of your life.
- Save and invest a good amount of money that along with a side business allows you to hit FI much sooner than option 1. (BTW, a part-time job would work too.)
The first takes at least a few decades for most people, while the latter is do-able for many people in 10 years or so.
But don’t take my word for it — let’s look at the numbers!!!
Reaching FI with Assets Only
Every financial independence plan begins with a number — the annual income you need to reach FI.
We’re going to use some sample numbers to illustrate the scenarios, but you can take these same principles and calculate your specific results.
Let’s say your FI goal is $40k in annual income to cover expenses. This seems reasonable because 1) the average American family earns about $50k per year and 2) FI income requirements are often lower than working income requirements.
So if you need $40k per year, at a 4% withdrawal rate you’d need $1,000,000 to reach FI.
Of course saving rate/amount varies highly depending on how much you make, what percent you can set aside, etc.
We’re going to assume you make $50k per year and that you’re a good saver who can sock away 30% of your gross annual salary. That’s $15,000 per year.
If you save that $15k every year and invest it in index funds earning 8% annually, you’d have your $1,000,000 in just about 24 years.
That’s not bad. If you start at 22 this means you’ll hit FI in your mid 40’s. It’s way better than most people by a long shot.
Of course you need to save like a fiend for 24 years to accomplish this. Certainly there are ways to make the above numbers better (like growing your income to make more), but those are for another post.
Reaching FI with a Side Hustle
Now let’s look at the same situation with a side hustle.
You still earn $50k per year, need $40k to hit FI, and save $15k of it annually.
In this scenario you also start a side hustle when you begin saving. In the first years you’ll probably not earn much and anything you do earn will be plowed back into the business.
Let’s assume that by year three you are able to earn $5,000 a year (less than $100 a week) and after that you grow it at the rate of $5,000 a year until you get to $20k annually.
This is what the income from the side business would look like:
- Year 1 — $0
- Year 2 — $0
- Year 3 — $5,000
- Year 4 — $10,000
- Year 5 — $15,000
- Year 6 and on — $20,000
You take this extra income and invest it at 8% along with the $15k you save from your salary.
With this plan you’ll have $500,000 in investments in roughly 11.5 years.
Better yet, you are now financially independent. Here’s how:
- Using the 4% rule, you can withdraw $20k from your savings each year (4% of $500k).
- Add in the $20k from your business and you’re now able to generate $40k per year — you’ve covered your spending needs.
Pretty awesome, right? 😉
You Can Hit FI Even Faster
But that’s just the starting point. I believe it can be done faster than 11.5 years.
I’m generally financially conservative and the assumptions above reflect that.
Personally, I think many reading this could develop a $20k business in three years.
In addition, the business would probably keep growing after year three, so the 11.5 years could easily be 10 years or less.
And as I said earlier, you could make more money with a better job/large raises that allow you to save even more. So ten years with a side hustle is certainly do-able for anyone with a moderate FI number (it would take a bit more work to get to $100k in annual spending!)
What Side Hustle is for You?
The side business can be anything: blogging, pet sitting, freelance writing, crafting, product sales, renting out your home, etc. You just need to find something you like to do that also earns a bit of money.
I’ll be doing an upcoming post on the side hustles I’d consider if I was starting over today. This will provide some ideas for you to consider. Until then, you may want to check out J. Money’s side hustles list at Budgets are Sexy since he’s the King of Hustling.
I had several side businesses that helped me reach financial independence:
- Freelance writing for magazines — This was a major contributor to paying off our mortgage. I worked my way up from nothing to writing for publications with multi-million circulation numbers. This was just before the Internet and magazines were much more popular then.
- Blogging — I had a blog before my current one which was quite successful.
- Refereeing — This was mostly done because my son needed the money and we did it together, but a few extra thousand dollars a year never hurts.
- Real estate — My biggest side business of all (though some would call it an investment) which allowed me to retire without having to draw down any assets.
Begin to think about what side hustles may work for you. Then pick something you enjoy with a fair earning potential and get going!
The “I Don’t Have Time” Excuse
Now someone is going to say something like, “I don’t have the time for a side hustle.”
To me, that’s a money excuse.
If you want to live like no one else, for a time period you’re going to need to live like no one else.
Or in this case, you’re going to work like no one else.
I have little sympathy for cry-babies who don’t take any action because they can’t find the time to develop a side business (especially when they watch five hours of TV a night).
Here’s what I did:
- Freelance writing for magazines — I did almost all of my writing from when my wife went to bed at 10 pm until 1 am or later. There were many nights that I got to be after 2 am.
- Blogging — I wrote multiple posts every day for many, many years. I managed comments at all hours of the day. I had technical issues that seemed to occur at the least convenient times. And much more.
- Refereeing — Every Saturday was booked for two months each spring and two months each fall. Add in tournaments and almost half a year of Saturdays each year was spent working. And we did this for many years.
- Real estate — This not only took a lot of time and effort looking at places with my mentor, but I also had to evaluate properties, decide on offers (where applicable), and so on. I looked at many more than I bid on and bid on many more than I got, so it was very time-consuming. I did this during lunches, at night, and on weekends.
All this extra work was in addition to having a pretty demanding career, attending our kids’ activities (I was the coach for the many years my son played basketball and soccer), church and volunteer activities, caring for the family and our home, taking vacations, and so forth.
Even though we were very busy, I made the time to help us get where we wanted to be.
So don’t whine to me and say it can’t be done. It can be done.
And saving 15 to 20 years of working might be worth it, right?
We have run our numbers so many times, it’s crazy. Without a side business, it will be awhile to FI. But, with one, we know it’s within easy reach. Finding the right one is the harder part for us. With 3 little kids, we have a hard juggle trying to get the time. But you’re right, if you want it, you can fit it in. I’m really interested in freelance writing though. How did you get into freelance for magazines?
I’ll give more specifics on how I got into freelance writing (and how others can as well) on my follow-up post next Wednesday.
Stay tuned! 😉
Oh man. You gotta hustle if you want it. I’m in RE, I’ve got this blog, we started a podcast and I have all manner of crafty items I want to delve into. Already I can see the acceleration happening to my FI timeline!
The best take away from your article was: If you want to live like no one else, for a time period you’re going to need to live like no one else.
I believe that so many people think that earning extra money above and beyond their base income should be easy and it’s not.
Thank you for another great read!
Aside from my 9-5, I am getting into real estate and of course blogging. I’d like to get more into real estate over the next few years. I’m a huge fan of BiggerPockets and have been following the house hack model to get up and running.
“have been following the house hack model to get up and running.”
I’d love to know how that works out! If I was younger and/or starting over again I would try this for sure.
Hi Lance,
I’m doing the 9-5 thing and adjunct teaching on the side. I’ve recently started a blog as well. I’m looking to get into renting real estate in the next couple of years after I extinguish my mortgage (hence the adjunct side job). I’ve read a lot of articles on BiggerPockets, but haven’t heard of the “house hack model”. I’ll have to look it up.
It’s basically living with room mates or buying a multifamily house to rent out the other units. Either way, your tenants pay the majority of your mortgage which greatly accelerates your repayment on your primarily residence. Following that model, it’s also really common to then take equity of the home to buy another house / multifamily and repeat the process (and now you have a rental property).
Thanks for sharing the “side hustle” piece. I’ve been using the strategy for over 30 years.
All while working a full time job, I’ve been able to make money doing the following:
1. Rentals
2. Bought and sold cars
3. Bought and sold land
4. Worked and earned as a baseball coach — independent contractor – I played baseball at Arkansas
5. Worked nights and weekends as a long – Shore man on the docks of Houston
6. Sang in weddings and funerals – to date, I’ve performed in over 100 in each arena
7. Consulting with educational leaders
8. Started a training company – leadership development for businesses and educational entities
9. Bought and sold event (sports, rodeo, etc) tickets.
10. Set up video games in local community grocery stores in the 80’s — think PAC man and Defender
11. Presenter – I’ve given 2500 performances/ speeches over my 40 year career (crowds of 40 to over 6000).
• Currently, I’m working another deal that helps build BRANDS for entrepreneurs in America.
• Also, providing educational support systems for Chinese students (in China) working on learning English. I’ve been to China 6 times, working with educators.
• Working on a new approach to enhance teacher evaluation–
So, again, I thank you for sharing the concept “side hustle” with me this morning. I’m guessing I would qualify as a member of this club. Sure would like to hear more from others in this important area. Who knows, maybe we could find the top side hustle person in America–
Have a great day. I love reading your stuff. Very helpful.
Great list!
I like 10 and 11 especially. I always was intrigued by the vending machine business (and I guess video games are like that).
Also would love to be paid to speak and even looked into it many years ago (it’s quite a process to get going).
I’m inspired, can I reach out to you for some mentoring? Im a teacher, I do tutoring and gardening on the side. Really want to get into online tutoring in China. I’m on the Facebook group on Choose FI.
We recently started renting a room in our house out on Airbnb…grossed about 3000.00 this year so far and I just started eBay about 2 months ago, grossed 2600.00 on that and I have only just begun…
My husband takes every opportunity to work overtime and travel for overtime, we bought our first rental property last year, hoping to buy one per year. I am 58 and my husband is 57…never to late to get started!
Thanks for your motivating posts!
Laura T
Love this too!
I’ll talk about using a home as an income producer in my follow-up post next week.
I agree with the side hustle. I have been fortunate to turn the blog profitable in 10 months. It is not making a ton of money, but I have made back what I put into it and any profit is a good profit.
Real estate always seems like a good side hustle, but I am hesitant of the headache.
Did you hear about the couple that just bought the most expensive private street in San Francisco for $80k. The neighborhood home owners had no idea the city was auctioning off their street. Talk about a real estate investment. I am sure they will be able to sell it back for quite a profit.
Have you written about how you got into freelance writing and were able to make it profitable? That would be interesting for sure.
I did hear about the street. I didn’t even know they sold streets!
I’ll go into freelance writing a bit on my follow-up post next week.
I completely agree with you… I’m looking to speed up my progress towards financial freedom by side hustling with my blog, real estate, a side business, anything that I can get my hands on to improve myself and position in life.
Thanks for sharing your story.
This may be outside of the scope of this blog post but its a question that is constantly on my mind. What is the thought process/framework one should go through to determine if they should start a side business or continue to grow your career?
I would do both. (And I did both.)
Many of the “grow your career” steps can be done at work as part of your normal job, so they aren’t really that time-consuming.
I would like to know how you can make 8% on your money at a time like this. It seams rather difficult
Not sure if this is a serious question or not.
There’s a big difference between making 8% on your money “at a time like this” (i.e. “now”) and making 8% on your money over a 10-15 year period.
IMO, you need to invest for the long haul to get decent returns and minimize risk. If you do that, there are several options.
What do you mean by “a time like this”? The 5 year return on The S&P 500 (SPY) is 15.05%, way above 8%. The return for 2016 was 11.8%. YTD return right now is 16.68% …
100% agree with this! I bought my first foreclosure (to use as a rental) when I was 26. I was a teacher and worked every summer – lifeguarding, bartending, writing curriculum – you name it. I bought more rentals as the years went on and we managed them ourselves to save money. We’re FI and I am freelancing, blogging, and we still have rentals. We work hard – but we now work for ourselves. It is a whole new (and wonderful) experience. We just re-finished our hard wood floors and we put a sign in the yard to sell our house – and it sold in two days. We work like others won’t – but we enjoy it, learn a lot along the way, (get a lot of exercise too) and reap the rewards. Great post!
ESI, great analysis, and impressive commitment you’ve made in your own side hustles. You lived like no one else, and now you’re living like no one else. Proof it can be done. You’ve just gotta “want it” badly enough. Great post.
I’m enjoying your posts (great ideas)! But where do you find investments that pay 8% these days? Curious.
See my response to Gene above.
Such a great post. I’ve done a variety of things on the side, currently some nutrition coaching and just a bit of freelance writing. I’m looking forward to your post next week for further insights on the writing. Thanks.
Personal observation is people just want to go to work, do there job and come home and consume entertainment. That is why they have smart phones with unlimited data, big cable bills with all the sports and movie channels or in my opinion 140 channels of nothing I want to watch. These are the same people who take more time to plan a vacation every years than plan there retirement. I know several families like this.
The other observation is some don’t want to initiate or put effort into earning extra money. If they work an hour they want to be paid for an hour. That is not how side gigs are built in some cases.
Personally I use my talents and make some income doing personal custom projects for people but yet I have not developed a steady stream of income. Part is due to marketing and these custom projects are too project specific and far between.
In the future I hope to build an inventory and open an ETSY shop. However my research on that has indicated that the average shop only brings in $200 to $400 a month. Some income but not that good nugget for FI yet.
Good stuff ESI!
Not all side hustles are going to make $15k/year, but I’m a solid believer in the old adage that “every dollar counts”.
For those who say, “I don’t have the time” or “The low hourly rate of a side hustle isn’t worth my time”, I ask the question — What are you doing with your time instead?
* Most people work salaried positions, and working additional hours does not necessarily result in significant raises at work.
* Too many people just waste their time watching TV or social media.
In my opinion, there are few things more important in life than buying our freedom.
Nice article and thank you for sharing. Out of curiosity, how many hours of sleep were you averaging per night when you were freelance writing and doing other side businesses? And how did you rest to re-energize your mind and body?
It varied by the type of business. The freelance was the hardest since it was done completely at night. Many nights I had 6 hours or less of sleep. But I was younger, used to it, and very motivated, so it wasn’t bad. This is why I’d suggest starting when you are younger since you can bear it better when late nights are called for.
BTW, if I had to do it all over again I would have gone to bed earlier and gotten up earlier instead of the opposite. But I was not yet a morning person at that time.
The ref and real estate gigs were completely on weekends, during the day (lunch to see places), or at night before it got to late, so no issues there.
The blog was mostly flexible.
While side gigs can definitely add to income, help you get out of debt, etc., just a word of caution if you work for a large company – many large companies require you, once you reach a certain level, to sign a contract stating that you won’t have outside employment because they want you to be able to devote all of your working time to the company. Some side gigs, like investing in rental real estate, are generally OK, but others, like bartending or teaching a yoga class after work (which my colleague was not able to get approval for), could get you into trouble (such as a lower year-end rating leading to a reduced raise) and potentially fired. You don’t want to jeopardize your main source of income for something that pulls in just a little extra each year.
Agreed and good point I forgot…. that is my biggest problem as if I were able to practice my profession I could make lots of side money.
However I could jeopardize my employment because of that.
That is why my side gig has nothing to do with my profession.
In our case, it doesn’t matter what the side work is. It still requires company approval. Even for a dog-walking business, shelving books at the library on Saturday morning, or in some cases, “working” for a non-profit on a volunteer basis.
I hear you, Jen! The company I work for doesn’t allow anyone, even the lowliest peon, to take on outside work without the company’s approval. And of course it’s rarely given because they want 100% of our energy focused on their work. But after a dozen years+, that does get a little old and isn’t helping the savings account either.
You definitely have a good point about how side-hustles can shorten your time to financial independence!
I work as a CPA, and get paid based off of how much I work. So, in theory, any side-hustle I start has to be more lucrative than my normal work. I do absolutely love my job, but mixing it up with side-hustles has a certain intangible benefit.
By investing in real-estate, and recently working on my new blog, I have learned a ton about both fields. Even if my pay may not be the same per an hour, I can offer practical advice to clients about real estate investing, the tax implications of side-hustles, and SEO and other topics, all of which I have learned because of my side-hustles. So even if the money isn’t always there, learning about new topics and starting side-hustles sure beats the hell out of watching a new episode of whatever is on TV at the time; and can make you more valuable at your day job at the same time!
Great post! And you’re 100% right. Saving for 15 to 20 years of working is definitely better than working 40+. Not that I don’t want to work, I just want to work on more fulfilling work. In regards to my side hustles to reach FI – I’m dividend investing, blogging and I’ve had the opportunity to do a small amount of freelance writing. I’m also trying to cut back on spending so I can save more. Thanks for sharing!
This is an excellent point. This is part of our plan as well. In addition to getting there faster, it provides a kind of flexibility you cannot obtain otherwise. It is also a great hedge in case something happens with your main income as well – you’ll have something to boost you and keep you from using up your emergency funds. So, all around, I am a fan.
You make some excellent points in this article!
My favorite is when you broke down the “I don’t have time” excuse. It is always a lazy excuse, because the majority just simply don’t want to put the extra work in. The funny thing is that they will then complain later that they don’t make enough, have to work longer in their lives, aren’t living in the dream home they imagined. Well that could ALL have been solved if you were willing to put the work in years ago, instead of sitting and doing nothing.
Life is filled with opportunities everywhere, and you have to be willing to put the work in to grasp those opportunities.
Great post!
Good post. I started a side real estate investing business in 2014. It has blossomed into an income greater than the average American household income. I invest the funds back into the business and/or into stocks, mutual funds, and 529s. I do not live or spend the income for personal living expenses.
More importantly, it’s teaching my teenage kids how to run a side business and how powerful it is. They see it’s real – the houses I own, the checks that come in. The kids even helped me rehab the last house I bought and they got paid. I walked my then 12 year old son through the entire deal from initial offer to signing the tenant’s lease. I explained and showed him how there is both cash flow plus appreciation. After all said and done he asked “Why doesn’t everyone own rental properties?”
I run a finance blog and this has been a hot topic, side hustle / side business. I advise you must find something you enjoy. If you only do it for the money, it won’t sustain. You’ll quit and/or be very frustrated.
I have a sewing business for alterations, home decor and special projects. I also sell Color Street nail polish strips.
I have begun to start some side-hustles to help reach FI, I enjoy your site and the articles.
ESI, you wrote in this post: “If you save that $15k every year and invest it in index funds earning 8% annually, you’d have your $1,000,000 in just about 24 years.” I know this financial concept was not the main issue being addressed in this post, but this analysis ignore the effect of inflation in 24 years, and that $1,000,000 won’t generate the equivalent of $40,000 in buying power 24 years from now.
I think the simple fix to your numbers is to use the “real return” rate — which is the return after inflation — instead of the “nominal return” rate. So in your example, you should have used 5.5% (8.0% nominal return, less assumed 2.5% average rate of inflation) perhaps. Vanguard, Buffet and others suggest use of a real return of 4 – 6% going forward, which seems pretty reasonable to me all things considered (and mainly that they are a lot smarter than me!).
I have a child who is a graduating senior from college, and though an analysis like this might provide a helpful, “rule of thumb” idea of what a person just starting out needs to save from their starting salary, and for how long, to reach financial independence? If you have you written any posts that address such a rule of thumb, please point me to that post. Thanks!
In that case, your FI goal wouldn’t be $40k — it would need to be higher. Since I used $40k as the goal, I used the numbers needed to hit it.
Here’s a calculator that can help you get closer to a specific FI number — and you can put in whatever numbers you like:
https://esimoney.com/esi-scale-financial-independence-calculator/
Thanks. I still think the post confuses the concept of the time value of money value, i.e., how much a current dollar is worth vs. the same dollar in the future, which is 24 years from now in your example:
We’re going to assume you make $50k per year (currently) and that you’re a good saver who can sock away 30% of your gross annual salary. That’s $15,000 per year. If you save that $15k every year and invest it in index funds earning 8% annually, you’d have your $1,000,000 in just about 24 years.
Let’s say your FI goal is $40k in annual income to cover expenses. This seems reasonable because 1) the average American family earns about $50k per year and 2) FI income requirements are often lower than working income requirements. So if you need $40k per year, at a 4% withdrawal rate you’d need $1,000,000 to reach FI.
I like the bit about time. Time is never the real excuse. Boldness, or the lack there of is the real reason. No one will hurt you if you watch excessive TV.
I know many people going for their PhDs who are also flipping houses, running tutoring businesses, and consulting businesses. If PhD students have time, so do most people.
Love these ideas! I have been blogging for almost three years and was starting to think I would never make money and now all of a sudden more pageviews and partnerships are coming in. It takes a lot of patience but can definitely be worth it