A lot of people ask me why I waste my time with all of these silly side hustles. To most people, it doesn’t make much sense that someone like me – a lawyer with a perfectly good job – would spend my free time doing things like delivering food to people, renting out a room on Airbnb, or selling trash that I find in the street. It makes even less sense that I do this stuff when you consider the fact that my wife is a dentist. People with my background just aren’t supposed to be doing work like this.
Admittedly, these side hustles don’t make me a ton of money – at least not in the traditional sense. Sure, I can make an extra couple thousand dollars in a year. In fact, last year I made over $14,000 doing a bunch of different side hustles that pretty much anyone can do. An extra $14,000 in a year is nice, but it isn’t going to be enough for me to live on. In the grand scheme of things, it seems pretty small.
But, like with most things in the personal finance world, there’s much more than meets the eye. We already know about the impact of a “dumb” side hustle over the long term. As I’ve discussed before, someone making just a few extra hundred bucks per month (which ANYONE can do in today’s economy) can turn that side income into a huge, six-figure sum later down the line. Not bad for a “dumb” side hustle.
For those of you in the financial independence/early retirement camp, these dumb or silly side hustles are worth significantly more than you think. You don’t even need to give it 30 years to grow. Depending on how much you can make in a year, your dumb side hustle – the one that all of your friends make fun of you for doing – could be worth six-figures right now! How can this be?
The secret lies in the 4% rule and the amount that you need to have saved in your nest egg. Let’s take a closer look.
The 4% Rule
Before we jump into the underrated value of the side hustle, we need to talk a little bit about the most famous rule in the financial independence/early retirement community – the 4% rule.
Broken down, the 4% rule is pretty simple. It basically says that you can spend 4% of your nest egg each year and, in theory, it should last you for the rest of your life. Thus, if you have $1 million dollars saved up, you can pay yourself a $40,000 per year salary for the rest of your life (4% of $1 million dollars equals $40,000).
This figure isn’t made up either. It comes from the Trinity Study, which is basically a study by a bunch of professors that determined this safe withdrawal rate. In almost all instances, withdrawing 4% over 30 or more years should result in you never running out of money. As explained in the study, with a 3% or 4% withdrawal rate, “portfolio success seems close to being assured.”
There’s obviously more nuance to it than that, but the point is pretty simple in the financial independence/early retirement world. Figure out what you spend every year and multiply that number by 25. That’ll give you the number that you need to have saved so that you can withdraw 4% from your nest egg every year.
If you spend $40,000 per year, you’ll need $1 million dollars in order to be financially independent. If you spend $80,000 per year, you’ll need $2 million dollars. And so on, and so on. Obviously, the more you need to spend each year, the more you’ll need to have saved.
How Much Is Your Side Hustle Actually Worth?
The 4% rule is a great way to figure out how much you need to have saved before you’re financially independent, but what’s interesting about the rule is that it also tells us exactly how much a silly side hustle of ours might be worth.
For example, I talk pretty often about how I made $14,000 last year using sharing economy apps. (If you haven’t already, check out my side hustle reports so that you can see all of the weird ways I’ve been able to earn money on the side). Using the 4% rule, it would take me $350,000 in order to generate that same $14,000. In other words, if I can figure out how to earn a mere $14,000 per year, I can forego saving $350,000 in my nest egg! That’s pretty incredible.
Just take a look at how much less you need in your nest egg if you can pull in just a few thousand dollars of income in a year through a dumb side hustle.
|Side Hustle Income Per Year||Value To Your Nest Egg|
The numbers are pretty astounding on close inspection. Every $1,000 that you can earn in a year is worth $25,000 of retirement savings. Someone who can figure out a way to make a measly $5,000 per year on the side can get away with having $125,000 less saved up.
$5,000 in a year is just $96 per week. That’s it. You only have to figure out how to make $96 per week and as a result, you won’t have to save an extra $125,000! I promise you that anyone can figure out a way to make an extra $96 per week if they really think about it.
For the super Mustachian folks out there who can spend just $25,000 or so per year, it could theoretically be possible to live a perfectly fine life by saving up $250,000 and making an extra $15,000 per year delivering food on your bike or hosting people in a spare room in your house. I know a bartender who’s currently 30 years old that could easily do this. Maybe it’s not financial independence in the traditional sense, but knowing that you only need to make an extra $10,000 or $15,000 in a year in order to survive is a pretty good position to be in.
If you think making an extra $10,000 or $15,000 in a year is hard, I have to tell you, it’s really not. I made over $14,000 last year from renting out a spare room in my house, dog sitting, delivering food on my bike, and flipping trash that I found in the street. And that was while I was working a full-time job and trying to get this blog off the ground!
Imagine how easy it would be to earn $10,000 or $15,000 in a year if I didn’t have to work all day too.
As for ways you can make a few extra bucks in a year, here are just a few of the things I do that literally anyone can do:
- Host people in a spare room in your house on Airbnb. Even if you love your privacy, most people could probably host someone for six days per month. That’s it. If you rent out a room in your house for 50 bucks a night for 6 nights per month, you’re looking at making $300 per month. Total income in a year = $3,600.
- Watch dogs on Rover. A few days of dog sitting per month should be good for at least $100 per month. Total income in a year = $1,200.
- Deliver food using your bike with Postmates, DoorDash, Caviar, and Uber Eats. It’s not hard to make $200 per month doing this. That’s only about $50 per week, which in most cases, comes out to just a few hours per week. You should definitely be exercising at least a few hours per week. Why not get paid while you do it? Total income in a year = $2,400.
Right there, without even trying, you’re looking at a total of $7,200 of income in a year. That $7,200 is worth $180,000 of your nest egg. And that’s if you’re super lazy and barely even trying.
With all this of information, maybe that silly side hustle isn’t so silly after all.