The Value of a Side Gig

You’re already too busy. Either your primary career demands more than the old standard 40 hours (how long ago was that!) or your so-called freelance life leaves you free to work 24-7. Or you’re out of work and the ennui is killing you.

Get a side gig! A side gig is something you’ve always wanted to do, or a brilliant business idea you’ve had but never tried out, or something you think might make money and be fun, too. Maybe it’s producing a food product, or writing articles, or dog training, or some craft product, or consulting. Here are 10 reasons why:

  1. It stretches your brain. Even if you’re a busy, successful professional you can get stale by only concentrating on one thing. A side gig potentially introduces you to a whole different group of people, ideas, and ways of looking at the world, and gives you an opportunity for cross fertilization.
  2. It gives you new contacts. Instead of the same old colleagues doing the same old things, you can meet people from worlds you never encounter in your main job, and perhaps friends you never would have met in your primary circle. When people are unhappy in retirement, one of the reasons why is that they lose their “friends” along with their job. A side gig can widen your circle of friends, and they won’t all be based on shop talk.
  3. The extra money can be important. A good side gig makes at least $500-$1,000 per month. For some, that can be the difference between the basics and the luxuries; for others, it’s chump change or, better, fun money. But for most people, saving an extra $1,000 per month wouldn’t be a bad thing for either their emergency fund or their retirement. Even if you don’t need the money, setting a goal to actually make money forces you to test your great idea or refine it, all good. Or just give it away—I can think of one or two charities that would welcome a $12,000 yearly donation.
  4. You can laugh a little more at the boss. You know you have at least a little money coming in on the side.
  5. It gives you something else, hopefully fun, to think about. Even if you are the boss.
  6. You can employ your kids. This has the benefit of transferring cash for college to them in a potentially tax advantaged way, as well as teaching them a lot about entrepreneurship, another good thing.
  7. It can be very successful. More than one side gig has morphed into at least as good or better business than the main one. Think Paul Newman or Scott Turow.
  8. It can tide you over in an emergency. It’s a lot easier to cope with a job change or loss if you have a little coming in on the side, and something else to think about.
  9. You can test a new business on the side, with far less risk than quitting and starting from scratch. Similarly, you can dump a bum idea and try another one. You’re less likely to waste time and effort, and even if it’s a bust, you haven’t invested everything in it.
  10. It’s an excellent retirement plan. If you pick a side gig that doesn’t require a great deal of physical labor, it can go on as long as you wish, and promote your engagement with the world—you’ll have to keep your “edge”. Also, it can be financially significant in retirement. To generate a $12,000 per year withdrawal from investments, you need an extra $300,000 in principal.

Obviously, I’m not talking about bagging at the grocery store or delivering pizza, although I admire people who make those efforts, too. Go out and create something new and useful—we’ll all be better for it.

College savings: Why bother with a Coverdell?

Say college savings and most people will think of 529 plans. (Okay, if you’re thinking  “what savings?” keep reading anyway.) But what about the lonely and unloved Coverdell? Might it be worth incorporating  in a savings plan?

Neither the Coverdell (which used to be known as an Education IRA) nor 529 plans give you any tax deduction when you put the money in. The advantage of both of them is that, as long as the money is used for qualified educational expenses, the principal you deposited and any money you’ve managed to make on it comes out tax free.

Most planners, including me, will extol the benefits of a 529 plan: you can sock away a great chunk of money (maybe even enough to actually pay for the college expenses) and if you start early enough and we don’t have another market like 2008-2009, you might actually see significant gains in the account. If you live in a state that gives you a deduction on state income taxes, you might want to give some thought to the quality of that state’s plan and the worth of the deduction to you. However, there are at least one, and possibly two drawbacks to 529s: your investment choices are limited, and some management fees are excessively high.

If you’re used to wrestling with the investment choices in a 401(k) plan, you might be unfazed by the limited range of choices in some 529s. Before choosing a specific plan, be sure you know the range of investments offered. I’d advocate plans that offer a large variety of mutual funds with a company known for low costs (for example, Vanguard or TIAA-Creff), and, consistent with my investment philosophy, I’d choose index funds or ETFs in almost all cases.

So when might you look at a Coverdell? Well, the sad truth is that many people don’t save at all. If you are over 40, I strongly encourage you not to save ONE DIME for college costs unless you are already maxing out your 401(k), 403(b), Roth, SEP-IRA, traditional IRA and any other retirement savings open to you, are saving at least 10% of your income and have at least 3 months of living expenses (6 would be better) squirreled away. Actually, I’d say to do this even if you’re 25, but I know you won’t be scared enough until you’re waving at 40.

If and only if you’ve done that, then start a college savings program. A Coverdell has a limit of $2,000 in contributions for the year, and there’s an income ceiling as well, beyond which you cannot contribute. But for many people, $2,000 might be a do-able amount, an achievable goal, or even a palatable amount to touch the grandparents for.  Two other advantages—a Coverdell can be invested in individual securities, so if you already have a good core portfolio of index mutual funds in a 529, the money segregated in a Coverdell might be used to play “casino”. Note that I would still advise that an index mutual fund portfolio is a far better and more prudent choice, but there’s always a few of you who like to take a gamble. Also, unless Congress changes things in two years, Coverdell funds can still be used to pay K-12 expenses, so if junior ends up at an expensive private school, you might already have funds saved.

Is it worth it to sock any money away if your little angel is already in high school? Probably—if you stagger withdrawals, the money might still be parked for 4 or more years, and can grow during that time. And if he or she decides to get a graduate degree in English or art history, well, you still may need it after that B.A. is in the leatherette case.

Is a Coverdell right for your family? Contact us for information on how an individualized college plan can give you answers.

 

Debt Reduction—10 ideas on finding money to pay

1. Take any opportunity to generate cash.  Best if part-time or “on-demand” so that a main business can be developed or employment maintained.  Ideas include:

  • household services—lawn mowing, pet sitting, pet walking, newspaper   delivery, house-sitting, babysitting
  • substitute teaching & tutoring
  • retail (evening)
  • sell stuff on ebay

2. Build your local business or search for a job by obtaining and calling a set number/goal of potential clients or employers per day. 10 can be called within 2 hours. Follow up with email, then another phone call. Use a prepared script—one if you reach them, one if you reach voice mail, one for follow up. Always ask if they know anyone else who might use your services.

3. Develop a side business.  Make a goal of how much you want to earn in a month then focus your efforts on finding a way to do so. $500-$1000 is doable even with a regular job. Good websites: www.iwillteachyoutoberich.com, www.theabundantartist.com, www.ducttapemarketing.com For sales of craft products: www.etsy.com

4. Cut living expenses. The biggest expense that most people can cut is their rent or mortgage. Get a roommate, rent out a garage (check with your insurance first), and get a house-sitting gig for a while (perhaps realtors would know of a place that can be house-sat). Rent or buy a cheaper place.

5. See whether credit card balances can be transferred to “no interest for first x days” deals. Then DO NOT use that new card AT ALL. Be sure you understand all the terms before you do this. Alternatively, see if you can negotiate a lower interest rate on current cards.

6. I recommend the Dave Ramsay “debt snowball” method. Here it is:

  • Put some portion of the “new” money in emergency savings. If you put everything toward debt repayment, you will never get out of debt because every time there’s an emergency, you’ll charge it again. Try to build to an emergency fund of at least 6 months of bare bones living expenses. Don’t start paying any extra on debt until you have $1,000 in emergency cash.
  • Take most of whatever money you generate by #1-4 above and put it toward the SMALLEST debt
  • Pay the minimum balances on all the others
  • As soon as you pay off the smallest debt, take the money you were paying and add it to your minimum payment on the next smallest debt.

7. Apply for any state or federal benefit you might qualify for—food stamps, Veterans Disability programs, Social Security disability (hard to get) immediately. Your doctor should be able to help you with this. These programs are designed to help the needy, and if you are needy, they’re for you.

8. Don’t touch your retirement funds. These are essentially immune to creditors, even in bankruptcy, except for debts to the IRS. If you have no other assets, you are essentially “judgment proof” and most creditors will not be able to collect against you, although liens can be placed on bank accounts, wages, cars and homes. People are often tempted to clean out retirement funds to pay off debts and relieve the stress. Then what? Unless you are on the verge of being homeless, don’t do it.

9.  Consider whether you should investigate bankruptcy. One indicator: figure out whether you can meet living expenses + pay off the debt within 5 years. If not, at least talk to a reputable bankruptcy attorney. Bankruptcy exists to give people a fresh start. If you have already thought through a plan to change your financial situation (better job, side job, change in spending), then you deserve a fresh start.

10. Seek professional help, but be very aware of how your advisors are being paid. Make sure any non-profit credit services are reputable. A fee-only planner can take a comprehensive look at your situation. A bankruptcy attorney who is also a CPA or can work with a CPA might be very helpful.

When you’re in such a stressful situation, it’s very difficult to think strategically and not be depressed. Nevertheless, the best way to start over is to focus on a problem solving (rather than self-blaming) approach. This situation is an opportunity for some real life transformation.

These ideas will not work for everyone in every situation and should be regarded as ideas only, not specific advice. It is very important to get advice that is specific to you and your situation.