Whether you started your PhD side hustle to fund your basic monthly budget, pay for lifestyle upgrades, or further your career, you must put in place a few foundational financial practices to ensure that you use your money effectively and stay on the IRS’s good side. These steps are simple, easy and take only a short time once the habits are in place.
Further reading: Side Income
This post assumes that your PhD side hustle income is much less than your stipend from your grad student position or your salary from your postdoc/Real Job. If your side hustle income becomes quite regular and compares with your primary income, you should extend your financial and business planning beyond the steps outlined in this post. Regardless, this is a great place to start!
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Today’s post is about general financial best practices, and next week’s post is all about taxes: how much tax you’ll pay, how to pay tax, and the extra tax benefits such as retirement account contributions. The next section of this post is US-specific, but the rest of the sections are widely applicable.
Determine Your PhD Side Hustle Categorization
Your PhD side hustle will fall into one of three categories: employment, self-employment, or neither. The category will affect your tax rate and eligibility for certain tax benefits.
If you are an employee, that relationship should be made quite clear by your employer. Foremost, you’ll receive a W-2 at tax time, so when you start your position you can simply ask, “Will my income be reported on a W-2?” At this type of side hustle you would probably have regular hours, even if they are only part-time. Examples include a retail job, nannying, or an on-campus work-study job.
More likely, your PhD side hustle will qualify as self-employment. Performing similar services for multiple clients, determining when and how you work for a single client, or selling a product directly to customers are all indications of self-employment. Examples include freelance work, babysitting, and tutoring.
Further reading: Am I Considered Self-Employed?
Finally, you might on occasion receive income that is neither employee nor self-employment income, such as from a one-off activity like participating in a clinical trial. In this case, the activity wouldn’t really rise to the level of being considered a PhD side hustle and it’s not necessary to put the following practices in place (aside from paying income tax).
Further reading: Self-Employment or Other Income?
Track Your Time
It may be hard to believe if you’re in the training stage of your career, but your time is valuable. It may not be valued monetarily by your university, but you should value it. While it may be a bit depressing to calculate the hourly rate you are paid for your work as a grad student or postdoc, it’s still a useful baseline. You should look for a PhD side hustle that pays you a much better hourly rate than what you receive at your primary job. But be sure to include all the travel and administrative time it takes to perform your side hustle, not just your “billable hours.”
One of the best reasons to keep track of the time you devote to your primary job vs. your PhD side hustle is to make sure that your side hustle does not encroach upon your primary work time. The benefits of pursuing a PhD side hustle dramatically diminish if it prolongs the time you spend in training.
Further reading: Can a Graduate Student Have a Side Income?
When you track your time and know definitively what you are earning per hour, it makes decisions about how to use your time that much easier, whether it’s on your research, PhD side hustle, or personal pursuits.
Give Your PhD Side Hustle Earnings a Job
If you mix your PhD side hustle earnings (net of taxes) in with the rest of your money, it very well might disappear into the ether like unbudgeted money tends to do. A better practice is to link a financial goal directly to your side income. That way, every time you work on your PhD side hustle, you know exactly what the money you earn will do for you.
For example, if your side hustle money is going toward lifestyle upgrades, you could funnel it into a savings account dedicated to travel, entertainment, or shopping. You could withdraw it as cash and make it your “blow” money for the month to be spend on anything. Assigning it to a necessary budget category like food would also work well if you have a good degree of control over how much you earn and are just trying to motivate yourself to work more/faster. Another common issue that a PhD side hustle can help with is un-/under-funded summers; the more you earn during the academic year and summer, the less stress you’ll experience when you’re drawing down your savings. Finally, assigning your PhD side hustle money to debt repayment is a great way to accelerate your debt payoff.
Maintain Separate Business and Personal Accounts
Creating a separate business checking account is just about the first step you should take when you become self-employed. If you are a sole proprietor, your PhD side hustle earnings will be reported on your personal tax return on a Schedule C, so at the end of the day it’s all really your money. However, keeping a separate business checking account that you use for only business transactions helps tremendously with bookkeeping and tax records. It’s also advantageous when you want to save up your income for a business investment, such as a piece of equipment or professional development.
Maintaining separate personal and business accounts is also a reasonable step for anyone with an irregular income to take, even if it’s not self-employment income. Instead of receiving variable amounts of income directly to your personal checking account, you can create a degree of separation with a business checking account. If you let a balance build up for a couple months, you can set up an auto-transfer of a regular amount of money from your business account to your personal account that is less than your average income – just like a paycheck – which is easier to incorporate into your budget than a variable income.
What financial best practices have you put in place for your PhD side hustle?
Video Series: How to Increase Your Income as a Graduate Student
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[…] you haven’t yet, read last week’s post on the best financial practices for PhD side hustles, and pay particular attention to how to categorize your side hustle (employment, self-employment, […]