So you wanna be a baller? Frugality vs. Side Hustle- only one clear winner

“You can’t be a baller on a budget.”  These were the words a friend of mine, who sells Audis,  uses to sell luxury cars to people who want to haggle the price of a car down and, consequently, cut into his commissions.  I can assure you that, in order to achieve financial independence at a reasonable or early age, you absolutely can not spend like a baller.

Financial Independence requires building up your net worth quickly, but how?

If you are like I was, you have a vague idea that you should be saving as much as you can, pre-tax, and as fast as you can, to build up your net worth.  Someday, you realize, this work stuff is for the young and you’ll want to pass the torch to someone else in order to sleep in during the week.  In order to get to this large net worth, your main source of income and retirement funding is likely your full-time day job. In addition to your day job, you may engage in additional income generating activities.  Such activities may include being a land lord, driving for Uber, brokerage hacking, working a second job, babysitting, or reselling goods on E-Bay.

The goal of having a side income, presumably, is to speed up your march towards early retirement.  You can do this by investing those funds into investments that will one day be able to draw down upon.  However, if you have a demanding job for your primary income, you may be exhausted by the end of the day and wish to work out or binge Netflix instead.  This is only natural.  Human beings weren’t built to be creatures of endless endurance.  In addition, if you have a spouse and children, you will likely have a strong desire to spend most of your spare hours with them.

Harnessing the superhuman powers of frugality

This little guy knows about super human powers

Now that we have discussed reasons why you might want to have a side hustle, and obstacles to obtaining one, let’s talk about the most valuable dollar you will ever earn.  The most valuable dollar you will ever have is the one you never spent in the first place.  Another term for not spending your earned dollars, frivolously, is commonly referred to as frugality.

The internet defines frugal as:

sparing or economical with regard to money or food.

Most wage slaves, such as myself, have a defined amount of dollars they will receive each paycheck.  Those dollars can go to pre-tax savings (401k or IRA), post tax savings (brokerage investments) or they can be spent.  The only way to save more money, with a defined income, is to spend less or earn more.  As stated above, earning a second income is not always easy and may require more effort than it’s worth, depending upon the activity and income received.  However, you may just have money lying all over the place to invest, that you never knew you had, because you haven’t focused on fixing your inefficient spending habits.

Last year, for example, I decided to shave my face every other day instead of shaving it daily.  A friend of mine had suggested he had done this for years.  As it turns out, a side benefit of this frugal change is I am actually more attractive on those days in between because I don’t have a baby face or an overgrown grizzly beard.  (I’d like to give a mad shout out to the Amish, who really know how to grow beards and save money by not shaving.)

This guy doesn’t spend any money shaving.

Now let’s review all the ways I saved money by making this one innocuous change.  For starters, I only buy half as much shaving cream as I used to.  In addition, I am also one of those users of Gillette disposable razor blades.  As anyone who buys razor blades knows, these can easily run $1.50-$2.00 each, and need to be changed out every few weeks.  By switching to an every other day shaving schedule, I now switch out razor blades once per month, cutting this expense in half.  Instead of running water daily to groom, I only use half as much water as I used to, and this will add to a small reduction in our water/sewage bill.  The sum of this one measure saves us about $3 per month, every month, for each month I do this.  While you may be laughing that $3 won’t get you to the FIRE promised land, it’s the sum of all of your frugal measures that will allow you to amass the net worth you need to, one day, tell your unappreciative boss, “take this job and shove it.”


Now let’s look at this $3 that I save each month.  I can now go ahead and invest those funds and add to our net worth pile of investments.  Alternatively, say, I wanted to side hustle my way to earn this each month, I would have added extra effort and time to my days, and would have needed to earn about $4, just to net this amount after taxes each month.  Instead, I have created a frugal habit that will pay dividends indefinitely.  My frugal change actually requires less time and effort than what I had been doing prior to the change.

The mindless routine of frugal habits

The amount of effort required to maintain frugal habits

Have you ever had a habit that, no matter how hard you tried, seemed impossible to break?  Is it possible that, once you committed to changing your behavior, that the behavior change happened in a few days?  That’s what it’s like with frugality.  Once you change over from a high spending behavior to a frugal behavior, you can turn on the cruise control switch.

As I hold my head down in shame, I sheepishly admit that I used to go out and buy a lunch near work, as opposed to bringing or making my lunch.  I rationalized this high spending behavior by choosing less expensive options, such as a “meal deal” from Subway’s daily value menu.  I figured since I wasn’t spending as much on my lunch “as the others” in my office, that it was OK to buy a lunch.  To cure myself of this deranged disorder, my wife downloaded our credit card spending and, much to my dismay, my daily lunches were a big part of what we determined were discretionary areas of spending that would be fairly easy to cut.  My spending on daily lunches was higher than I had conservatively anticipated.

Switching from a paid hot lunch to a homemade lunch did take some time.  However, I estimate this change saves us $50-$60 per month.  Best of all, not only is what I eat generally healthier, but this habit is now routine and the savings repeat again, and again, and again.

Analyzing a common side hustle: driving for Uber and Lyft

Most people saving for early retirement have a day job.  Among those with a day job, there is a portion that wish to expedite their financial independence by taking on an easy side hustle.  I have thought about driving for Uber and Lyft AFTER I retire.  As of today, I have zero experience doing this.

Luckily for me, driving for Uber and Lyft are incredibly ubiquitous.  The rideshare guy has thoroughly analyzed the compensation for this common side hustle.  On a Wednesday night during March 2017, his experience was the following:

On the night, I ended up working for just over three hours and made $54.60 before expenses or gross earnings of $17.43 per hour.  After taking into account my expenses, those numbers dropped to $37 and $11.81 per hour.

Let’s say he has a fairly decent job earning $25/hour at his white collar “day job.”  For one hour of effort, he’s now getting paid less than half, after expenses, as he does for simply showing up each hour to his day job.  In addition, it is entirely possible that his day job is no better, worse, or less stressful than this side hustle.

What about taxes?

Sadly, our $11.81 per hour isn’t what we’ll actually take home.  Let’s pretend that the person doing the driving is not married.  Let’s also pretend that he’s yet to set up a solo 401(k) or simple IRA for his side gig.  We’ll put him in the 15% federal income tax bracket, which is taxed on every dollar of income above and beyond the income from his day job.  In addition, he files his business as a sole proprietorship, so he also has to pay both sides of the employer FICA (social security) tax.  That’s an additional 15.3% hit to his “side hustle” earnings.

Let’s now review the math, after taxes, for interrupting his otherwise peaceful Wednesday night.

Income, before taxes:                                $37.00                                                                                                   Self Employed FICA taxes (15.3%):              (5.66)                                                                                                 Federal Income Tax bracket (15%):            (5.55)                                                                                              Net take home pay:                                    $25.79

After 3 hours of additional work, on top of his 8 hour day job, he is only netting $8.60, after taxes, per hour of effort.  Let that sink in for a moment.  That is valuable time he could be binging Season 3 of Halt and Catch Fire on Netflix (not the FIRE you are thinking of).

Ridesharing Tip:  I do actually believe it’s worthwhile to drive for Uber and Lyft in certain situations. However, the only time I think it’s worthwhile is when you sign up for their initial promotions.  Your pay will be much higher when you sign on, vs. later on when you have achieved those promotional thresholds.  If you would like to get a large sign up bonus for driving for Lyft, please use my link.  If you would like to get a sign up bonus for Uber, please click here.  

Instead of signing up for the above side hustle, he could simply cut out his cable TV package, and save $50 per month, forever.  If he does a few DIY projects around his house each month, he could save another $50 per month, forever, and improve his skill set for future projects.    The beauty of frugal savings is the lack of taxation on these savings.

As an alternative to a low paying side hustle such as driving for Uber or Lyft, consider brokerage hacking, or itemizing your taxes every other year, both of which have much higher hourly pay rates.

When should you take on a side hustle?

As we have seen above, it’s not uncommon to get a very low pay rate when you have a side hustle.  However, there are situations where I think it’s worthwhile to do a side hustle.

  1. You do it as a hobby and don’t care about the pay.  Some people love driving for Uber, my hats off to you.  I write this blog, which so far has a negative income to it.  However, I love writing so it’s a labor of love at this point.
  2. You plan on building a day job out of it.  Say, for example, you run a side hustle where you purchase items at estate sales, and resell them for a profit on Ebay.  If you are looking to do this full-time, but are just waiting to get enough business before you quit your day job, then by all means please do a side hustle.
  3. The incentive to sign up is incredibly high, such as I stated above for sign up bonuses.  In such cases, it may be worth while to hustle to meet the minimum requirements of the inflated, and temporary, bonus period.
  4. You wish to learn a new skill that you can use elsewhere in your life.  Perhaps you are afraid of public speaking, like I am.  You sign up to give a Ted talk in order to improve your confidence and skill level in this area.  You can then use this skill later on to market your business.

The Final Word

While a side hustle can be incredibly fun and even lead to a new way to make a living, I think most people should focus, instead, like a laser beam on cutting unnecessary expenses out of their lives.  They can do this by developing frugal routines, before focusing on a profitable side hustle.  Once those routines are in place, it is easy to repeat again and again.  Since frugality saves money each time it’s practiced, those nearly effortless savings recur again, and again, and again.  It is frugality, combined with a healthy income and a hefty savings rate, that may just allow you to retire at 33 (even with a family of 5), like this guy did.  However, if you wish to past time and make a little income on the side, I listed 4 ways above that are good reasons to engage in a side hustle.

What kind of frugal routines have you recently developed?  Have you ever had a side hustle?  If so, what is it?  

23 comments

  1. Great post – agree that for most people, there’s a ton of money to be saved each month simply by NOT mindlessly spending, and by looking for those little savings that add up to a decent total amount by the end of the month. I’ve been “recalibrating” my thinking big time on this in the aftermath of a portfolio-decimating divorce. In the effort to rebuild, I’ve been considering side hustle opportunities also – but as you point out, having a full time job + still making time for your kids after work (I got joint 50/50 custody of my 2 kids in the divorce) – that all makes for long tiring days and the ROI on a side hustle may not be worth it. Still looking tho.

    But in the meantime, I’m using “aggressive frugality” to cut expenses, freeing up that money to invest instead. I’m taking a mindset of “increase the monthly contribution to my investments until it hurts, then keep on raising it”. It forces me to deliberately consider the opportunity cost of each little mindless expenditure I make – or, used to make. 🙂

    Final thought – you want to save even more from your shaving budget? Try Dollar Shave Club instead of using those expensive Gillette razors. I spend $3 a month on blades, maximum. Every little bit of savings helps!

    If you sign up for Dollar Shave Club using my sharing link, I get a $5 credit on my account. So click this and save us both some money! 🙂

    http://shaved.by/fjynq

    1. I agree, I think if I were single and bored without kids, driving for Uber might just be an OK part time gig. As is, I’d rather spend time with my little ones before they grow up to be too big. I am not particularly frugal like more extreme bloggers, but we are frugal enough that I can retire at 41 with a fairly decent lifestyle. Thanks for the dollar shave club link.

      1. Yup. Your kids are only little once. Sure, you can spend more time on the hamster wheel (either by working more hours at your primary job, or at a side hustle) and that may or may not bring in significantly more money. But it will definitely take time away from your family. Gotta find that right balance, and be honest about opportunity cost and ROI with your most precious resource – your time.

  2. We relocated to cut expenses and that jump started our road to FIRE. If you have a highly paid skill that you can do as a side-hustle, by all means go for it. But I think it’s hard to justify 10 bucks an hour to spend time away from home on top of a 40 hour a week job – unless it’s very short term.

    Another part of the equation is to change jobs frequently if you can swing a promotion each time. We didn’t have much going on by way of career advancement so living on less and upping our savings rate was key.

  3. I definitely liked that you highlighted that not all side hustles are worthwhile. We tend to lose site of that in the search of that extra buck. This has been Athens on my blog recently.

  4. Excellent points, especially on the value of a side hustle. If I need more cash than my 40 hours will give, I have access to overtime. I can’t get a side gig which pays more than that! Anything else is comparatively a waste of time.

    Now that frugality on the other hand, that is the secret winning tactic for sure!

  5. Not really a side hustle, but I do have my own business. Doing so requires frugality because I reinvest all of my earnings back into the business. I definitely believe in delayed gratification. Every $1 now will be turned into $10 in a few years, so why spend now?

    1. That’s a great benefit. I don’t have overtime available, but my work does let us cash out PTO, up to 80 hours per year. That is one of my sources of potential income and I do cash some out each year.

  6. Hi there. Nice blog you got there. I am just saying going to say that as an accountant, this is about the hottest post i have ever read. I once had a coworker who use to routinely take out $20 from the ATM at work, which was not her bank ATM but a random one so that it charges you $2.00 per withdrawal. She would take out $20 at a time to buy lunch so one day i did the math for her on how much she was spending anually on ATM fees every time she bought lunch, not to mention, what she spent on the lunch itself. She saw the light. Small changes here and there can make a huge difference to your eventual retirement baller status.

  7. What about doing both haha Just kidding, just kidding. Managing expenses and living frugally is a guaranteed way to push yourself closer to financial freedom. Finding the most affordable way to do things will easily increase your savings rate and in turn, your investment portfolio or freedom fund (whatever you want to call it) . As you said, ti takes no effort. Gotta admirer the commenter above that said they moved somewhere to reduce expenses!

    I also like how you note that all side hustles are not worth it. Uber is an interesting case and one I have ocnsidered. But I crunched similar numbers and came to a same conclusion. I’ve experimented with flipping goods, ultimately to learn that my time was better spent trying to grow and promote our blog. You have to make sure your side hustle is a positive action versus a time sucking one.

    I think an added benefit of a side hustle also is that you do not spend money while you are doing it. Sure you spend on goods at an estate sale that you will flip one day. But during that time, you are busy hustling and will not be spending money on the various temptations of society.

    Thanks for the read!

    Bert

  8. Rome wasn’t built in a day, nor will my retirement. It’s hard in an instant gratification world to believe that $36/year can lead to big results, but it’s not $36/year for this, it’s an additional $40 for that, $60 for this thing $20 for that thing. All of a sudden you’re looking at hundreds of dollars saved per year. Compounded over 20 years, that’s a lotta dollah.

    1. I completely agree. You need to watch the dollars if you want to go from a 20-30% savings rate to a 50% savings rate or more. If you invest more, and decrease your budget concurrently, you vastly speed up how fast you will be able to retire.

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