In a post called Is It Time To Quit Your Day Job?, Sierra Black warned freelancers about the danger of lifestyle inflation.
Being a freelancer usually requires that you have a fulltime job while you continue to build your freelance business. Thus, each month your side income should continue to increase. However, for any of you who have done a fulltime job and a side business, you know it is a lot of work. When you work harder, something tells you that you deserve more rewards. So rather than saving that extra $1000, you really spend it on yourself as a reward for all your effort.
The only danger is that this will make it very hard to transition into a fulltime gig. If you make $3000 per month at your fulltime job and $1000 from your side business, you can very easily get used to living on $4,000 instead of $3,000.
However, if you keep your lifestyle at the $3,000 level, you will reach your goal much more quickly, and you will also have some back up money to cover you for low months when you are able to work fulltime on your side business.
Still, what you choose to do with your extra income will depend on your goals and your answer to some important questions.
Why are you working?
Some side businesses start with a very clear purpose – to generate an income to help pay off debt.
If someone is in debt, then all extra income should be used only for that initial goal. If your side job brings in $200 this month, then you have an extra $200 to pay towards debt. You cannot adjust your living because that would completely defeat the initial purpose of your side job.
No matter how much you start earning, keep your focus clear.
Remember, extra income can be spent on growing the business, special luxuries, cost of living, and giving.
Over the last two years, I’ve worked a fulltime job and I’ve run a part time blogging business.
After six months, I decided it was time to ‘reward myself’. My family had made sacrifices along the way, so we decided to use some months of income to pay for a family vacation. In May 2010, we spent 10 days in Australia together. After redeeming free hotel stays, the rest of the vacation was funded by income from the business.
While I’m glad we took that time and I was able to reward myself, it also points out the reality that when our income increases, our lifestyle often follows.
Far too many people who are self employed part time (trying to transition into full time) reward themselves too often. Their lifestyle increases.
You must resist that urge and maintain a simple lifestyle even in the midst of increasing income.
On a side note, it’s a great spiritual goal to learn to live on less than you make so that you can be a blessing to others. I believe in the idea of limiting our standard of living so we have more to give. For this reason, I’m not convinced that the standard percentage budget is always the best way to manage our money.
Ultimately, the question is …
What are your long term goals?
Most freelance writers and small business owners would love to transition to full-time work. Others, however, just like having a side business. If you want to transition into fulltime work, more discipline is involved.
Like everything, if you know your goals, you can make the appropriate choices today. If, however, you earn a side income and spend it however you wish, then you will be the next victim of lifestyle inflation. Before you know it, you’ll become dependent on that income.
Any other tips, ideas, or advice for people earning a side income?