Personal finance

Should You Invest Money in a Side Hustle?

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Sometimes, it takes money to make money. Should you sink some into your second gig?


Key points

  • A side hustle can be a great way to generate extra income.
  • Some side hustles require some sort of investment, so it’s important to make sure that’s worth doing.

A few years back, I decided to get a side hustle that involved selling children’s books. I’ll cut to the chase and say that my venture was gloriously unsuccessful. In fact, technically, I lost money on that side hustle, because to kick off my business, I had to invest $80 in a starter kit of books to show potential customers and I didn’t sell a single one.

I knew going into it that there was a chance I’d never see that $80 again — namely because I had a (correct) suspicion that I’d be really bad at direct sales and give up quickly. But I was willing to make that investment for a couple of reasons.

First, I could afford to lose $80. That’s not to say that I relished the idea of throwing money away. But spending that $80 and getting none of it back did not compromise my finances in any way. Furthermore, my backup plan was to gift those books as holiday presents in the event that I didn’t sell any, so in a way, my $80 loss wasn’t such a loss after all.

If you’re thinking of getting a side hustle, you may land in a scenario where you have to invest some money up front, whether it’s to stock up on a product, buy supplies for a product you’ll be making, or acquire the right tools for the job at hand. And before you spend any money, it’s important to ask yourself these two questions.

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1. What will happen if I don’t get my money back?

It’s one thing to invest $80 in a starter kit to sell kids’ books, or to spend $100 on baking and kitchen supplies if you’re looking to sell baked goods for cash. It’s another thing to spend $800 on a starter kit for a more expensive product that may be a harder sell, or to spend $2,000 on tools to design furniture when you’re not sure you’ll manage to sell a single piece.

Before you tap your bank account to get your side gig off the ground, ask yourself what’ll happen if, in a worst case scenario, you don’t recoup a dime of your investment. Chances are, that won’t happen if you work hard at your side hustle, but it’s a reality to contemplate nonetheless.

If you can afford to spend $100 on baking supplies to potentially only sell $25 in cupcakes your first month in business, go for it. But if that $100 will add to an existing credit card balance you’re carrying, you may instead want to pursue a side hustle that won’t require you to lay out money before you make any.

2. What are my chances of recouping this money?

If you’re looking to design websites as a side gig and know you can easily command $500 per client because some have already shown interest, then buying a $1,000 laptop or a $500 monitor may be more than worth it. But should you spend $500 to $1,000 on high-end kitchen gear so you can start selling cupcakes at $3 a pop? That’s a little more iffy — especially if you have no idea where you’ll sell your products.

Sometimes, being successful at a side gig involves taking a chance. But it should be a reasonable chance. In the case of a baking gig, you may want to first try working with the equipment you have and seeing how easy it is to make money before upgrading.

You’ll often hear that it takes money to make money, and sometimes, that’s true in the context of side hustles. But before you invest in one, make sure your finances won’t be wrecked if you don’t recoup your investment. Also, make sure there’s a good chance of getting your money back and then some. If not, you can always pursue other opportunities to generate an income on top of your main job that don’t require an up-front investment, like working at a local store or babysitting.

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About the Author

Maurie Backman is a personal finance writer who covers everything from savings to retirement to healthcare. Her articles have appeared broadly on major outlets such as CNBC, MSN, and Yahoo.

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Source: https://www.fool.com/the-ascent/personal-finance/articles/should-you-invest-money-in-a-side-hustle/

Donovan Larsen

Donovan is a columnist and associate editor at the Dark News. He has written on everything from the politics to diversity issues in the workplace.

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