How to Use a Side Hustle to Easily Unlock Your Budget
By: Ben Le Fort
Tags: Jobs, Work, Personal Finance, Money, Personal Development

As I’ve talked about many times in the past, nearly every problem in personal finance can be solved by pulling one of the two levers of personal finance.

1. The income lever

2. The saving lever

99% of money problems can be solved through some combination of making more money (the income lever) and saving more of the money you already have (the saving lever). The perfect financial plan will allow you to find the sweet spot between these two levers. If your primary objective is to give yourself as much room for error as possible or if you are trying to climb out of a financial hole, you’ll need to focus on pulling both levers as hard as possible.

However, most people won’t pull the saving lever as hard as they should. It has been my experience that it is easier to convince people that they need to make more money than it is to convince them that they need to save more of the money they already make.

Holding all other factors constant, saving more money implies spending less money. Spending less money means that people will have to reduce their current standard of living. Most people struggle with reducing their standard of living. Once someone gets used to living a certain lifestyle, it’s difficult for them to move backward.

While I firmly believe most people need to do a better job managing the money they already have, today, I will focus on pulling the income lever specifically, how side hustles can unlock your budget and help you achieve your financial goals.

Meet Amanda

To illustrate how a side hustle can unlock your budget, let’s consider a hypothetical example. Amanda is a 32-year-old account manager at a local bank. She would like to be debt-free by age 36 and be able to retire by age 59

Amanda’s income & assets

Amanda makes $45,000 per year in salary.

Her employer also offers a Defined Contribution retirement plan where Amanda and her employer each contribute 5% of her salary into a retirement account.

The current value of Amanda’s retirement savings is $20,000

Amanda owns a car; this is currently worth $15,000.

After all taxes and deductions are accounted for, Amanda’s monthly takes home pay is $2,626.

Amanda’s debts

Credit card with a $3,500 balance and a 19.99% interest rate.

Student loans with a remaining balance of $28,000 and a 5% interest rate.

A car loan with a $13,000 remaining balance and an 8% interest rate.

Amanda’s current monthly budget

Amanda decides to create a monthly budget that locks in her financial goals of being able to retire by 59 and being debt-free by 36.

Current take-home pay: $2,626.

Additional savings required to retire by 59: $631

Monthly payments required to be debt-free by 36: $1,055

Remaining income to budget: $940

With only $940 left to budget with, Amanda will not have enough money to pay for her rent ($750), other expenses related to her car ($200), and cover her other monthly living expenses ($500).

Amanda is $910 short of being able to achieve her financial goals and cover her other monthly living expenses. In this type of situation, someone has three options.

1. Cut their spending

2. Lower their goals

3. Make more money

Amanda is not spending excessively, so cutting her spending won’t be of much use in this situation.

She could free up more monthly cash by pushing back her retirement age or deciding to pay her debt off over a longer period. While lowering your financial goals is always an option to free up more cash, I like to think of that as a measure of last resort.

That leaves Amanda with one clear option. Make more money. This is where the side hustle comes into play.