The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.
A lot of people feel stuck in jobs today. They’re plagued with small pay increases, a lack of promotions, and often a missing sense of fulfillment in their work. Though it may not be possible to shift into an entirely new career, you may be able to accomplish much the same objective by starting a side business.
There are many advantages of having a side business, and here are five of them.
1. Creating Multiple Income Streams
One of the less comfortable phenomena to develop the 21st Century is career instability. Technology and the offshoring of jobs means that the average worker will hold several jobs over a lifetime. The goal is now less about job security than it is about income security. One of the best ways to create income security for yourself is by developing multiple income streams.
Your job may represent your single most important income stream, but you can also add additional streams from your investments and from a side business. In doing so, you may not improve your job security, but you will certainly improve your income security.
A side business can be a valuable second source of income that also helps offset the relentless rise in the cost of living. Even if your salary has been largely stagnating, you can use the side business to generate your own pay raises.
2. It Creates a Retirement Funding Source
One of the best dedicated purposes of a side business is earmarking it for retirement savings. You can do this by using the additional income to fund a traditional or Roth IRA. If your side business earns at least $5,500, you can fully fund an IRA account, without touching the income from your primary job.
If your income from the business is higher, you can consider setting up a dedicated self-employment retirement plan. There are several choices here, but one of the best is a solo 401(k) plan. Under this plan, you can save up to $18,000 per year ($24,000 if you’re 50 or older) as an “employee” of your business. And that can be the first $18,000 that you earn, there is no percentage limitation.
But since you’re also the employer in your business, you can contribute up to 25% of your compensation (as defined by the solo 401(k) plan rules). This gives you the ability to contribute up to $53,000 ($59,000 if you’re 50 or older) into the plan (but less any contributions made to any other retirement plans). Under this scenario, if your side business earns $30,000, you can contribute $18,000 as an employee, plus $7,500 ($30,000 X 25%) for a total of $25,500.
That will certainly supercharge your retirement savings, and you can do it by having a side business, and creating a retirement plan specifically for the business.
3. A Getting Out of Debt Plan
One of the main reasons why it’s so difficult to get out of debt is a lack of income. This is particularly true since pay increases are seldom more than 2% per year. And that usually gets eaten up by income taxes and higher health insurance premiums.
But having a side business can provide you with the extra income that you need in order to get out of debt once and for all.
For example, let’s say you owe $20,000 in student loans, which you will be paying for the next 15 years. But if you can generate an annual income from your side business of $10,000, you could pay the debt off in just two years. And you can do it without disturbing your regular paycheck from your job.
4. A Chance to Advance if Your Regular Career is Stagnating
Not only are pay raises smaller than they have been in the past, but promotions are often more difficult to come by as well. If you feel that you are stagnating in your main job – whatever the reason – a side business will give you an opportunity to find advancement outside of your job.
For example, the additional income from your side business will represent a form of a pay increase. And you can increase your income each year that you have the business. And just as important, the side business can represent work that you find fulfilling in a way that your primary job is not, or is no longer.
5. It Could Develop Into Your Main Occupation
One of the most under-appreciated benefits to having a side business is that it can create an opportunity to create a full-time business. The side business is a way to test the waters on a part-time basis, and while you still have the security of a paycheck from a full-time job.
Once you have proven to yourself that your business is successful, it will mostly be a matter of scaling it up from part-time to full-time. That would be a lot less risky than if you were to quit your job to start a new business. The side business would be proof that your business works, and will provide you with a continuing cash flow as you move forward and increase the business to full-time status.
There are probably other advantages to having a side business. But it’s clear that a side business represents a real opportunity to move forward in terms of both income and your career. Give it some serious consideration, if you haven’t already.
How about you all? What other advantages have you found with your side business? Any disadvantages?
Share your experiences by commenting below!
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