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How to Manage Your Side Hustle Finances Effectively

Side hustle finances
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Are you one of the 1 in 4 UK adults juggling a side hustle alongside your regular job? Congratulations on taking the initiative to explore your entrepreneurial spirit and boost your income! But do you know how to manage your side hustle finances effectively?

When it comes to managing the financial aspect of your side hustle, things can get a little tricky. From keeping track of your earnings to understanding your tax obligations, it’s crucial to have a solid grasp of financial management to ensure your side hustle remains profitable and compliant. In this article, we’ll share useful tips to help you navigate the world of side hustle money management.

8 tips to manage your side hustle finances

Successfully managing your side hustle finances is crucial for achieving your financial goals. Whether you’re looking to maximise profits, maintain financial stability, or plan for growth, having your finances in order can make all the difference. Here are eight valuable tips to help you take control of your side hustle finances and set yourself up for long-term success.

1. Separate your personal and business finances

Firstly, maintaining a clear distinction between your personal and business finances is essential for accurate record-keeping and efficient financial management. Open a separate bank account dedicated solely to your side hustle earnings and expenses. This not only simplifies your bookkeeping but also enables you to monitor your business’s financial health more effectively. Additionally, consider obtaining a business credit card to further separate your personal and business expenses, making it easier to track deductible business costs.

For example, a Tide account is an excellent choice to maintain a clear distinction between your business and personal expenses. When opening a new business account with them, you won’t need to provide company information, making it ideal for sole traders, side hustlers, and those in the initial phases of a business venture. Using our Tide referral code R76367, you will also earn a free £50 welcome bonus. (Please note you’ll need to make valid transactions to the value of £500 within three months of opening the account to qualify for the bonus.)

How to manage side hustle money

2. Keep track of income and expenses

Accurate financial records are vital for understanding the profitability of your side hustle and ensuring compliance with tax regulations. Therefore, make sure you create a system to track your income and expenses consistently. 

In the beginning stages of your side hustle, a basic spreadsheet can do the job of tracking your income and expenses. However, as your business grows, it could be beneficial to consider using an accounting app or software like Xero. This kind of software keeps everything organized in one place, making it easy to access invoices, contacts, balances, financial details, and accounts online. Whether you choose to use spreadsheets, accounting software, or specialised apps, find a method that works best for you. 

Log all your earnings and document every business-related expense, such as equipment and marketing costs. This meticulous approach will make tax preparation smoother and provide you with valuable insights into your side hustle’s financial performance.

3. Familiarise yourself with tax obligations

As a side hustler in the UK, it’s crucial to be aware of your tax obligations to avoid unpleasant surprises when tax season rolls around. 

The Trading Allowance permits qualifying individuals to earn up to £1,000 annually from their side hustle without needing to declare or pay taxes on that income. It’s essential to understand the criteria for eligibility to ensure you can take advantage of this allowance. 

Unless your side hustle income is exempt from tax,  you’ll need to register for self-assessment with HM Revenue and Customs (HMRC). This enables you to report your income and expenses, calculate your tax liability, and submit your tax return on time.

4. Set aside money for taxes

One common pitfall for side hustlers is neglecting to set aside money for taxes. Unlike traditional employment, where taxes are automatically withheld from your salary, side income requires proactive tax planning. To avoid being caught off guard by a hefty tax bill, establish a system where you set aside a percentage of your earnings specifically for taxes. Consider consulting with a tax professional to determine the appropriate tax rate for your situation. By consistently saving for taxes, you’ll be better prepared to fulfil your tax obligations and avoid financial strain.

5. Maximise deductions for optimal tax savings

As a UK-based side hustler, you have the opportunity to optimise your tax savings by maximising available deductions. By taking advantage of these deductions, you can reduce your taxable income and keep more money in your pocket. Let’s explore some key deductions that you should consider for your side hustle:

1. Home office deduction: If you have a dedicated space in your home that you use exclusively for your side hustle, you may be eligible for a home office deduction. This allows you to deduct a portion of your rent or mortgage, council tax, utilities, and internet expenses.

2. Business supplies and equipment: Deducting expenses related to business supplies and equipment is another way to optimise your tax savings. This includes office supplies, software, tools, and any other items you purchase specifically for your side hustle.

3. Advertising and marketing costs: Promoting your side hustle is essential for attracting customers and generating revenue, and the related costs are often tax deductible. This includes costs associated with online ads, website development and maintenance, social media advertising, business cards, brochures, and other promotional materials.

4. Travel expenses: If your side hustle involves travel or transportation, you may be able to claim deductions for certain expenses. This includes mileage or fuel expenses incurred while travelling for business purposes.

5. Professional services: Seeking professional services, such as accounting, credit control service, or virtual assistant, can be essential for your side hustle’s success. The good news is that the fees you pay for these services are generally deductible.

6. Training and education: Investing in your professional development is not only beneficial for your skills but also for your tax situation. Expenses related to courses, workshops, seminars, or conferences that enhance your knowledge and skills relevant to your side hustle can be deductible.

By maximising your deductions, you can significantly reduce taxable income and optimise your financial success. Keep track of your expenses, follow the rules, and enjoy the benefits of lower tax obligations. Always consult a tax professional or refer to HMRC guidelines for accurate deduction claims and compliance.

Financial adviser

6. Seek professional financial advice

Navigating the complexities of taxes and financial management can be overwhelming, especially if you’re new to the world of side hustles. Consider seeking professional financial advice from a certified accountant or tax consultant who specialises in small businesses or self-employment. They can provide valuable insights and guidance tailored to your specific situation. They will help you optimise your financial strategies, minimise tax liabilities, and ensure compliance with regulations. Investing in expert advice can save you time, money, and stress in the long run.

If you are unsure of where to start, online platforms like Unbiased can connect you with financial experts and even offer a complimentary first consultation. Whether you’re seeking guidance for your side hustle or aid with self-assessment, they’ve got you covered.

7. Stay organised and review regularly

Maintaining financial order is key to the success of your side hustle. Regularly review and update your financial records to stay on top of your earnings, expenses, and tax obligations. Set aside dedicated time each week or month to reconcile your accounts, track invoices and receipts, and ensure all financial transactions are accurately recorded. This practice will not only help you spot any discrepancies or potential issues but also provide you with a clear overview of your side hustle’s financial performance and profitability.

8. Plan for growth and scalability

While your side hustle may currently be a part-time venture, if your goal is to expand and scale your side hustle in the future, it’s crucial to proactively plan for growth. Your financial management needs will likely become more complex as your business expands. Consider how you can streamline processes, implement scalable financial systems, and invest in professional services that can support your growth. By thinking ahead and preparing for success, you’ll be well-positioned to manage the financial aspects of your side hustle effectively.

9. Consider your legal structure

When planning for growth, it’s also good to take into account the legal structure that best suits your side hustle – whether to operate as a sole trader or establish a limited company. This decision holds significant weight as it directly impacts your financial management practices and liability considerations. For instance, if you are a higher rate taxpayer with long-term plans for your side hustle, opting for a limited company structure can offer enhanced tax efficiency.

Carefully evaluate your business needs, long-term goals, potential risks, and personal preferences before deciding on a legal structure. Consulting with a legal or financial professional can provide valuable guidance tailored to your specific circumstances.

Conclusion: How to manage your side hustle finances

To recap, learning how to manage your side hustle finances effectively is important for long-term success and growth. By implementing the strategies and tips discussed in this guide, such as maintaining accurate records, maximising deductions, and considering your legal structure, you can establish financial order and set a strong foundation for your business. Regularly reviewing your finances and seeking professional advice when needed will also help you stay on top of your financial responsibilities.

With these practices in place, you can navigate the financial aspects of your side hustle with confidence. Remember, managing your finances well is not only about the numbers but also about creating a solid financial framework that supports your overall business objectives.

Related: 19 Online Side Hustles Ideas To Make Money From Home

How to manage your side hustle finances

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