If you have a side hustle, How much money does it bring in compared to your job? Have you considered the possibility that you could one day quit working for others and instead work for yourself? It can be hard to imagine moving from employment to making money solely off of things you create, especially when you consider some of the salaries that developers rake in.
I hope to prevent you from taking that and moving towards this thought: If I can’t replace my income, why bother trying? That’s a limiting belief that kills projects before they even begin. I don’t want you to get discouraged and deprive the world of something valuable you can build.
This article starts to delve into finances and investment, so I would like to say:
DISCLAIMER: I am not a financial advisor of any kind. Ideas presented here may not be suitable for everyone. If you have any doubts as to the merits of any of this advice, you should seek advice from an independent financial advisor, and refrain from @‘ing me on Twitter.
Now with that out of the way…
People tend to play conversation when taking risks revolving around their primary source of income, and rightly so. It may be the only way you pay your mortgage, put food on the table, or take care of your children. Besides, building up income from your own products or services takes a long time. People could work for years and only build a few thousand dollars in revenue.
While everyone doesn’t recognize it, we are all trying to bridge that gap — not just side hustlers.
Many people call the time when they make money from assets that own instead of trading time for money “retirement.” In many cases, people plan to save, then survive using those savings plus returns from investments.
There’s one glaring flaw with this plan: The retirement doesn’t kick in until 65 if you’re lucky. A lot can go wrong between now and then, and even if you make it there in a stable financial position, you are too old to enjoy much of life.
Enter the financial independence / retire early community, or “fire” for short. Fire, as preached by its evangelist Mr. Money Mustache, focuses on using frugality to shorten the journey to retirement.
In short, you can define retirement as the moment when you have enough non-work income rolling in to cover your expenses. The safest way to generate that income is by investing in index funds, mutual funds, and bonds. You can calculate how much money you need by using the 4% rule: the amount of your savings you can withdraw annually without ever running out in your lifetime. There are some criticisms of this rule, but it works well enough for the points I’m trying to illustrate here.
To get the amount you would need to invest at that rate, take your minimum monthly spending, and multiply it by 300. Some example outcomes:
Spending | Required Investment
$500 | $150,000
$1,000 | $300,000
$2,500 | $750,000
$5,000 | $1,500,000
$10,000 | $3,000,000
The Fire philosophy is all about shifting the numbers in this equation via frugality. Cutting spending helps on both sides. Your monthly costs go down, plus the amount you can invest goes up. You can crunch some numbers here and see how long it would take you to retire under this model.
Recently I discovered a splinter group within the fire community. They refer to themselves as “fat fire” and people following Mr. Mustache’s principles as “lean fire.” Lean fire is about bridging the work/retirement gap by spending less and saving more. Fat fire pursues the same goal, but by increasing revenue and return. I jived with some of the ideas I found in this community, and a lot of them were software developers! As a software developer, you have unique leverage you can use to generate revenue and build your portfolio.
When investing, index funds and stocks are only one type of asset class. In short, you can keep your pile of money in a mix of four asset classes:
- Stocks, bonds, and index funds, aka paper assets.
- Real estate
- Equity or income-generating assets, known as *business assets. *
- Straight cash, homie
Each comes with unique risks and rewards. Getting into that is far beyond the scope of this post, but as a general principle: any asset has more of a return than cash, and business and real estate assets tend to have more leverage and return than paper assets.
A side hustle that generates income is a business asset. Instead of buying one, you can build one.
Let’s consider two ways you generate an additional $1,000/month in revenue.
- Option 1: You work, save, and eventually invest $300,000. Based on the 4% rule, you can peel $1,000/month off of that.
- Option 2: Create and sell something that brings in $1,000/month.
Which one sounds more accessible to you? Which could you achieve more quickly? What does each of these options look like in year 2?
It’s unlikely that a side hustle is going to replace your income in the way that you think. However, it can accelerate your path to retirement. That’s why software development is so valuable; you can create business assets out of nothing! You probably have ways you can invest your time and energy to create assets that generate income. Instead of trying to replace your salary, you could think of your side hustle as adding a new asset to your portfolio.