Puzzle Finance Blog
It's a handy little top-up
Feeling the pinch? Getting a bit on the side could be exactly the boost your bank account needs.
If you are constantly struggling to stay ahead of the bills, cutting expenses is not the only way to make the budget balance. Sometimes what you really need is to give your income a lift.
Extra money from a second job, a part-time business or a few shifts here and there can all help bridge the gap between incoming and outgoing.
Examples are the ski instructor who spends part of his day hunting for graphic design jobs, the fireman who runs a retro furniture business on eBay (see breakout), and the photographer who generates affiliate income via several websites.
For some, extra income means luxuries. For others, it is a matter of survival.
ME Bank's latest Financial Comfort report showed 40 per cent of the 1500 households surveyed were breaking even and spending all that they earned in a typical month. One-quarter of households reported they could not afford the essentials, or could only just afford the essentials (see table below).
Dominique Bergel-Grant, founder of the financial site Leapfrog Women & Money, says sometimes lifting your income just means making a different decision, even for a short time.
It might be in a family's best interests, for instance, for a non-working spouse to get a part-time job for six months or return to full-time work sooner.
''Perhaps that's a conversation that needs to be had not only for their career, but to put the family in a more comfortable position,'' she says.
Others get serious about increasing their income when they set their heart on buying a house, starting a family or travelling.
''I've seen some people who are definitely on lower incomes, but they work two, sometimes three jobs, seven days a week for 12 to 18 months just to save up to get their house deposit,'' Bergel-Grant says.
If there is a way to make some extra cash, Kylie Ofiu has probably given it a go: child-minding, hairdressing, freelance writing, selling on eBay, taking in a boarder. She has even written a book on the subject, 365 Ways to Make Money.
Ofiu's extra income-earning experiments took off when she and her then husband had two small children, and it was difficult making do on a single wage.
While she is willing to try most things once, she says some things are not worth the effort. ''Online surveys, mystery shopping, letterbox drops, selling things that you've made at markets, party plans, busking - now, people are too stingy,'' she says.
Her favourite financial boost has been her blog. Within a few months, her musings on becoming a millionaire by the age of 30 got advertising support and within 12 months won her a book deal. It has opened the way to international public-speaking engagements and a financial mentoring business.
She advises others to find extra earners that are enjoyable, synch with their skills and work with their lifestyle.
''One of my friends does cleaning during school hours and the money she makes she puts towards a holiday. They have nine kids, so it costs them quite a bit,'' she says.
Each year, her stepmother cooks up a storm and makes a tidy sum selling baked goodies at markets in the four weeks before Christmas.
Earning a bit on the side can be handy when additional costs crop up. By day, Meryl Whiteside works full time at a software company. By night, she makes extra money helping others save on their phone, internet and utility bills.
The reason? ''I have a very sporty child who plays baseball and there are lots of opportunities to travel overseas, so it's to supplement that,'' she says.
She paid $500 to become an independent contractor for ACN, a direct seller of telecommunications and other services, and it supplied a website. Whiteside covered her set-up costs quite quickly, so now any money she makes goes towards her savings goal.
''I might not make enough to pay for the whole overseas trip, but it might pay for his pants or the bat. You think of it as an added bonus. It's something that you don't have there to start with.''
For anyone who sees dollar signs in their hobby, it is important to stay on the right side of the Australian Tax Office (ATO).
That means being able to spot the difference between a hobby and a business.
According to ATO figures, about 465,000 individuals had salary and wages as well as business income in 2010-11.
Sometimes an extra-income earner starts as a hobby, then someone realises they can make some money by selling online or at markets, says Peter Bembrick, partner, taxation services at accounting firm HLB Mann Judd.
''You cross a line,'' he says, and that line affects whether you should be declaring your income on tax returns. If your GST turnover is more than $75,000, you must register for GST as well.
A 2010 court case deemed that a person who raised and sold more than 1200 turtles was in business.
''The turtles were sold after they were purchased from an interstate supplier and advertised on the internet. Payments were received in both cash and direct deposit to a bank account,'' according to the ATO.
For three years, gross sales of more than $100,000 were not reported on income tax returns. The turtle seller was convicted and fined.
On the upside, a business can claim tax deductions for allowable expenses and you might be able to offset losses against other income now or in the future.
However, Bembrick warns the ATO can be sceptical about a business recording large losses. ''It's not unreasonable to spend a lot of money upfront and maybe not make a profit initially, but you've got to be able to show that it is going to turn a profit.''
Having a business plan can show an intention to do more than dabble at the edges of a money-making venture, he says. It will also help to clarify whether the outlay in money and time is worth the income it is likely to produce.
Tax considerations can also arise if you take on a second job. Sometimes it seems that income from a second job is taxed to the hilt. Bembrick explains this is because someone earning money from a second job already has the benefit of the tax-free threshold on earnings from their first job. However, people are better off indicating that on their employment declaration form for the second job. The alternative can be a nasty bill at tax time. ''It's always a bit of a shock to the system if you lodge your tax return and find you've got a whole lot to pay.''
If your time is stretched to the maximum by work and family commitments, your best option might be to start investing, with a focus on earning income from managed fund distributions, dividends or rent.
''Becoming wealthy as an employee is actually quite difficult,'' says Bergel-Grant. ''Often it involves looking at what other things you can do. It might be having a second job, so you can put that money into an investment. That might be an investment property that over time pays for itself and then it will give you rent.'' For the love of it
Julian Simmons is a Sydney firefighter who runs a retro furniture business, Retro Funk and Junk, on eBay.
His work as a fireman - two nights and two days a week - is what pays his bills. Then he is free to spend his downtime making some extra money for socialising from his passion for mid-century modern furniture.
The 42-year-old says the business started quite organically about three years ago when he found his house was beginning to overflow with vintage furniture as he upgraded. ''It started to accumulate and I thought I'd better start selling off some of the excess pieces. There's only so much you can have around the house.''
Now, he admits that between his two money-makers, there isn't much time left for sleeping and even weekends away turn into an opportunity to check out some garage sales.
''It's pretty much become my life,'' he says, but he does not mind when he is doing what he loves.
Business or hobby? Spotting the difference
The ATO suggests asking these questions:
- Did you set up your online sales with the intention of being a business?
- Do you pay for your online-selling
- Is your main intention to make a profit?
- Do you make repeated or regular sales?
- Do you sell your online items for more than cost price?
- Do you manage your online selling as if it were a business?
- Is what you are selling online similar or the same as what might be sold in a bricks-and-mortar business?
13 per cent Can afford the essentials and extras, as well as save or make extra loan repayments
21 per cent Can afford the essentials and extras, such as travel for holidays
41 per cent Can afford the essentials and have money left over for eating out occasionally, entertaining at home and other items
21 per cent Can only afford the essentials
4 per cent Can only afford the essentials
Source: ME Bank Financial Comfort Report December 2013
Posted by Money Manager - Fairfax Digital on 12th March, 2014 | Comments | Trackbacks
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