One of the best ways to guard against a potential job loss is to create an emergency fund. But perhaps an even better thing you can do is to set things up so that if something does happen to your job, you have other jobs still waiting for you. That way, no matter what happens, your income generating power can never be taken away.
To do this, I recommend creating what I call a “side hustle emergency fund.” A side hustle emergency fund consists of all the income generating things you can do outside of your full-time job. If something happens to your day job, rather than having to live on your cash savings, you’ll be able to fall back of your side hustles and continue to create an income to cover some or all of your expenses. What’s important is that you’ve spent time doing them, to the point where you can generate income with your side hustles anytime you want – no ramp-up period needed.
I’ve got a pretty good side hustle emergency fund that has taken me years to build up. It includes hundreds of reviews on Airbnb, dozens of reviews on Rover, over a hundred reviews on Wag, and somewhere between 600 and 700 deliveries on Postmates, DoorDash, and Uber Eats, not to mention all of the other sharing economy and gig economy apps I’ve got sitting on my phone. When the time comes, rather than desperately scrambling to figure out how to make ends meet, I can just lean on all of these side hustles that I’ve spent years building up and learning how to do efficiently. In all honesty, I think I could survive on just these side hustles, perhaps indefinitely.
Cash in the bank is good to have if you lose your job. But perhaps the best way to guard against a job loss is to have a bunch of backup jobs ready to go – in other words, building up a strong side hustle emergency fund.
The Rationale For The Traditional Emergency Fund
Before I jump into more details about the side hustle emergency fund, I want to talk a little bit about the rationale behind the traditional emergency fund advice. Most experts will tell you that you should create an emergency fund that can cover 3-6 months of your living expenses. The rationale behind this advice is to have a cash buffer on hand to cover you in the event of an “emergency.”
There’s nothing wrong with this advice (although folks like Big ERN would beg to differ), and indeed, I tend to keep a decent emergency fund on hand. What has always bothered me though is what the emergency fund is really used for. Most emergencies aren’t really emergencies – they’re routine maintenance things that should really be planned for in advance (think of things like a broken down car or a busted furnace – these are things that you know will happen one day and that should be planned for accordingly).
In reality, the primary purpose of the emergency fund is to serve as an income replacement tool in the event of a job loss. If the point of the emergency fund is to serve as a source of income during a job loss, then it seems like the better option is to create a different kind of emergency fund entirely – one that isn’t based on saving up cash to cover your monthly expenses, but instead is based on building up backup ways to cover your monthly expenses. That’s where the side hustle emergency fund comes into play.
The Side Hustle Emergency Fund As An Alternative To The Emergency Fund
One of the issues I have with the emergency fund is that it works under the assumption that during periods of job loss, you’ll live solely off your emergency fund (after all, we’re taught to think of our emergency fund in terms of monthly expenses).
The idea that you’ll live solely off your emergency fund has never really made much sense to me. If you lose your job, you suddenly have another 40 hours per week to work with that you otherwise didn’t have. Sure, some of that time will be spent applying for jobs, but I don’t believe for a second that anyone is spending 40 hours per week applying and interviewing for jobs. And even if you are, you’re unemployed now. So you better be working more than 40 hours per week to make ends meet.
So what do you do with all of this extra time on your hands? The answer is, go out there and start making some money. If you can make $100 per day, you’re looking at about $3,000 in a month. For a lot of people, that’s enough to cover all of your expenses. And $100 per day isn’t hard to do – at $20 per hour, you’re only looking at working 5 hours per day, or about 35 hours per week. That’s probably fewer hours than you’re working right now.
Obviously, my favorite way to generate income outside of normal work is by taking advantage of sharing economy and gig economy apps. You can think of all of these sharing economy and gig economy apps as a portfolio of backup jobs for you. Sign up for them before others have done so, spend some time building yourself up on these different platforms, then leave them on your phone for when you need them.
If you end up losing your job or have an extended period of job loss, it won’t be hard for you to just turn on these apps and make a few thousand bucks a month. Instead of having to dig into your cash savings, you’ll be able to dig into your side hustles and make ends meet.
How To Set Up Your Side Hustle Emergency Fund
These sharing economy and gig economy apps are a great way to set up a side hustle emergency fund, but there’s a problem with them too. They still take time to get started.
An Airbnb property takes time to build up reviews. Dogsitting on Rover is slow going at the beginning when you have no reviews and no repeat clients. Doing deliveries with Postmates, DoorDash, and Uber Eats takes time to sign up for and learn how to do correctly. Wag is a slow process to get started with – it took me a month before I started getting consistent walks. When your back is against the wall, you’re not going to have time to sit around waiting to get the ball rolling on all of these side gigs. That’s why it’s worth taking the time to set up these side gigs now when you don’t need them. That way, when you do need them, you’ll already have them on your phone ready to go.
Here’s how I’ve set up my side hustle emergency fund over the years:
- Airbnb. I started hosting on Airbnb over two years ago and have built up hundreds of reviews. I know that I can rent my guest room out and generate $500 to $1,000 per month. If I wasn’t working, I could rent it out every single night since I’d now have the time to flip the room each day between guests. This one room could cover my mortgage most months. And getting guests to book isn’t a problem because I have so many reviews, built up over three years of hosting.
- Rover. I’ve been dogsitting on Rover for so long that I now have a good base of repeat clients that I can count on to book with me each year. I should always bring in somewhere between $100 and $200 per month, and presumably, I could increase that amount if I was willing to watch more dogs at once (which I’d probably do if I had to). And with so many five star reviews, I usually have no problem finding new clients.
- Postmates, DoorDash, and Uber Eats. If I wasn’t working, I could easily work on all of these apps and generate $100 per day. Since I’ve done all of these apps for so long, my efficiency on them is very high.
- Wag. With over 170 five star reviews, I’m now in a position where I can get a steady amount of Wag walks. I also have preferred status with a lot of dogs and depending on how often I wanted to do walks, I could probably make enough to cover a lot of expenses just with Wag.
- Bird & Lime. Depending on when in the year we’re in, I can easily bring in an extra $500 to $1,000 per month from charging scooters in my house. And my efficiency level has gotten much better as I’ve spent the time learning the ins and outs of this gig.
The important thing is that, because I’ve put in a lot of the groundwork already, I can turn to any of these sharing economy and gig economy apps and start earning income immediately. When the next downturn happens, a lot of people are going to turn towards these gig economy apps to try to make ends meet. But if you’ve been spending time creating your side hustle emergency fund, you’ll already be ready to go! All you have to do is just turn on your phone.
Benefits Of The Side Hustle Emergency Fund
1. You Don’t Have To Dig Into Your Cash Savings. The biggest benefit of the side hustle emergency fund is that it makes it so that you don’t have to dig into your savings. Instead of pulling out money to cover your expenses, you can stretch your savings longer by simply earning most of the income to pay for your expenses. This has the added benefit of making it so that you might not need to keep as much money in your emergency fund – a 3-month emergency fund might last 6 months or indefinitely if you have a side hustle emergency fund covering some or all of your expenses.
2. Diversifies Your Income. One of the odd things I’ve noticed is that a lot of people will tell you that you shouldn’t put all of your eggs in one basket. Yet, those same people will only have one source of income, all earned from their 9-5 day job. Just like diversifying when it comes to investing, it makes sense to diversify your income sources as well. If you lose one income source, you’ll at least have some other income sources to hold you over so that you don’t lose 100% of your income generating power.
3. No Wait Time To Start Earning Income. While these sharing economy and gig economy apps do allow you to earn money basically immediately, they still require a ramp-up period. If you’re just starting out on Airbnb or Rover, you’ll start off slow because you need to take some time to build up your reviews. When you start doing deliveries or charging scooters, you’ll be worse at it early on just because you’re still learning how to do these gigs efficiently. But when you’ve been doing these sort of things for years, there’s no ramp-up time. It’s just a matter of turning on some apps and doing it.
4. The Side Hustle Emergency Fund Keeps You Busy. I haven’t personally had any extended period of job loss yet, but I know one thing – if I were to lose my job and had nothing else to do, I’d be bored out of my mind. Worse yet, I’d start feeling bad for myself if all I was doing was sitting at home for 8 hours a day while all of my friends were at work. It’s important to keep yourself productive and having a side hustle emergency fund is one way to do that.
5. Keeps You Mentally Healthy. One of the issues a lot of people have is that their big-time job is their identity. There’s an idea that some things are beneath you when you get wrapped up into your identity, so if you’re forced to do them, you can start having problems. But if you’ve spent time building your side hustle emergency fund, you’ve been working at these “low level” jobs for a while now. When you’re forced to lean on them more, it won’t feel like you’re taking a step down (or at least it’ll seem less so). If anything, it’ll help you build up that sense of humbleness that’s always good to have.
Keep The Side Hustle Emergency Fund In Your Back Pocket
When you think about it, being able to generate $1,000 to $3,000 of income outside of your day job is a big deal. Depending on your lifestyle, it’s possible to cover most or even all of your monthly expenses purely through all of the side hustles that you’ve been building up in your side hustle emergency fund. This becomes even more likely when you consider that during periods of job loss, you’re probably going to naturally cut back on things (i.e. fewer steak dinners, more ramen and PB&J sandwiches).
When everyone else is scrambling to figure out how to make ends meet, you’ll already be in good shape because you spent some of your spare time building up your side hustling skills. Even better, you probably made yourself more humble by working in the trenches, so you won’t feel bad for yourself now that you’re out in the trenches with the regular people.
So keep that side hustle emergency fund in your back pocket (literally, since all of these side hustles use your phone). Treat it like an investment – something that you’re building up over time. It might do wonders for you when you need it.
Can you add some time components? I would be interested in how much time you need to spend to earn the amounts specified for all the side jobs.
For example, you wrote “If I wasn’t working, I could easily work on all of these apps and generate $100 per day.” How many hours per days would you need to work to generate $100 per day?
As for AirBnB, are you sure the demand is there for 100% occupancy? I find that hard to believe.
Financial Panther says
So Airbnb and Rover, at least the way I do it, aren’t really time for money gigs, so it’s hard to calculate an “hourly” rate for those. I incorporate those into the tasks I’m already doing anyway (like keeping my own house clean or taking care of my own dog).
The gig apps are about $20 per hour when done at the right times, so most people should be able to make $100 a day with a combination of food deliveries plus doing Wag for five to six hours per day. No, not getting rich on them. but if you do it right, you’re getting exercise and maybe covering your bills if you’re living lean during an unemployed period.
Airbnb will always vary based on your location. For my listing, demand is always high and I can rent out the spare room anytime I want. I usually have to block days off just to give myself some time off from hosting. I live next to the 6th largest University in the United States, so naturally, that draws a lot of traffic from conference goers, interviewees, and other students.
I like you Dan – you always keep me on my toes.
Todd at Invested Wallet says
I like the term “side hustle emergency fund.” It’s one reason I’ve been big with networking in my field, getting some contract and freelance work, as well as building my blog while I’m comfortable in my job. Having contract work saved my butt a few years back when I was unexpectedly let go from my job before Christmas. I was able to up those contract work hours and make some more money to stay afloat. So many people don’t think about this or want to put in some extra work, but it can save you from a world of financial hurt.
Financial Panther says
Exactly. And see, what you’ve done is set up all of these side hustles so that they provide a nice little safety net for you. Instead of scrambling to find something, you already had it in your back pocket.