Never mind just having one job, these days many people have two or three as they work in their free time to earn extra cash. In a poll conducted last year by the Henley Business School in Johannesburg, 27% of respondents revealed that they had a side hustle.
With the Covid-19 pandemic, this percentage will likely increase as people work doubly hard to supplement their incomes and make up for what they may have lost while not being able to work during lockdown. Popular money-spinners include professional business services (such as bookkeeping), renting out a property, teaching extra classes or selling products. Here’s what you need to know and do to make sure your side hustle pays off.
Keep track of your money
You don’t need a fancy bookkeeping system – a simple spreadsheet will allow you to monitor your income and expenses. But you need to be painfully honest. Don’t just round off amounts or leave out certain expenses. The benefit is you’ll see exactly what your expenses are and whether the extra income is worth the effort. (If your expenses are continually more than your income, it’s probably not.)
If you have more than one source of income, keep the budget for each one separate. You can have one spreadsheet on which the total income and expenses from the different sources are listed. You need to set aside a percentage of your monthly income for income tax.
How to invoice
If you sell a product or provide a service for which you receive payment, you must issue an invoice. It’s a handy way to keep a record of the products or services you provide. And it’s a reminder to your clients to pay you. There are many free apps that allow you to issue invoices from your smartphone. Check out the App Store or Google Play for apps such as PayPal, Square and Zoho. Alternatively, you can make your own invoices, either on your computer or in an invoice book. Your invoices should include the following:
- The word “invoice” must be used to distinguish it from a quotation or receipt.
- An invoice number – each invoice must have its own unique number to make it easy to keep a record. It can consist of numbers and letters.
- The date, your name and address.
- The client’s name and address.
- The date on which the product or service was provided.
- List the products or services rendered and the amount payable for each.
- The total amount payable for products or services rendered.
- Payment conditions, for example within 30 days of invoicing.
- How the invoice must be paid, for example into your bank account (provide your banking details) and what reference must be used.
When you earn a steady income from your extra work, it’s a good idea to speak to a tax consultant or accountant about how much and how you’ll be taxed. For example, some expenses are tax deductible, but you must be sure you’re paying the taxman his due.
Tax processes are explained in fairly simple terms on Sars’ website (sars.gov.za), as well as other websites such as taxtim.com. At the very least, you need to understand the following:
If you’re under 65 and earn more than R83 100 a year, you must pay income tax. This limit applies to your total income – you can’t only consider one income stream. If you’re 65 or older, the tax limit (the amount above which income tax becomes payable) increases to R128 650 a year.
This is how you pay your income tax if you have more than one income source. It’s not a separate tax payable above and beyond the usual income tax. It’s meant for people whose tax isn’t automatically deducted from their monthly salary, thereby spreading it over a year.
Provisional tax is paid twice a year, so you don’t end up paying a huge lump sum at the end of the tax year.
You can’t levy VAT on your sales or services if your business isn’t registered for it.
Make it worthwhile
Your side hustle should be part of a long-term strategy. In other words, you must decide beforehand what your goal with it is. If it’s to earn an extra income, the money you make from it must justify your time and input costs. Otherwise it needs to be something that’s meaningful to you. For example, it’s something you could add to your CV to help you land a better job. Or you could just be doing it for charity
Decide beforehand which expenses your extra income must cover, or what you want to save towards. You can open a separate bank account too. That way, you can prevent your extra income from being whittled away by mundane expenses.