Many of us are hustling for extra cash these days. Around 45% of Americans have a side hustle, according to financial technology company Self. A good chunk of people use the money to stay afloat financially, while others want to boost their investments or savings accounts.
Passive income is another popular way for people to supplement their income. Indeed, it’s hard to open social media without finding someone who says they’re earning thousands of dollars without lifting a finger. Some of those claims may be true. Sadly, they are rarely as simple as they sound.
Getting those passive income streams up and running can take considerable investments of time and/or money. In contrast, it’s often pretty easy to get started with a side hustle. The kicker is that you’ll need to keep working to keep the cash coming in. When talking about which is more lucrative, a lot comes down to how much you value your time.
How side hustles and passive income stack up, money-wise
The amount of money you get from side hustles and passive income streams can vary wildly. So much depends on what you do, your existing skills, and how much time you put in. That said, research shows that side hustles are boosting Americans’ incomes a lot more than passive investments.
How much do side hustles pay?
According to Self, people earn anything from $1 to $4,000 a month from their side hustles. Most people dedicate between five and 10 hours a week to their second jobs. On average, people earned $688 a month, but, worryingly, some side hustlers brought in less than $50.
When you’re looking at your side hustle, use a budgeting app to track your costs and factor in what your time is worth. Perhaps you’re bringing in $10 to $15 an hour, but you’re also spending money on transport, insurance, and equipment. Work out your actual hourly rate — and don’t forget about any taxes you’ll owe.
There’s another — often hidden — cost to side hustles too. Working extra hours means less time with the people you care about. You have less hours in the day for fun, exercise, hobbies, and self care. It can also impact your main job, particularly if you’re already tired or at risk of burnout.
How much does passive income pay?
Essentially, passive income is money you don’t actively work for, such as cash from things like investments and rental properties. It can also include things like royalties from books or payments from online courses. Even if there’s a lot of upfront work at the start, if you’re not having to dedicate lots of time to keep it running, it’s passive.
That broad description makes it quite hard to calculate how much people make. According to U.S. census data, 18.5% of U.S. households earn passive income from interest, dividends, or rental money. To give you an idea, on average, their investments earned them around $2,400 a year — about $200 a month.
Now, earning $200 a month with minimal work is not to be sniffed at. Still, it would take a considerable amount of investment to generate the same amount as you’d get with a side hustle.
For example, you might need over $400,000 invested in dividend-paying stocks to generate that $688 a month in dividend payments. That doesn’t include the overall appreciation in stock value. Even so, it’s not realistic for many Americans.
Transition your side hustles into passive income sources
Side hustles are more lucrative on average, but a lot of people don’t want to be doing extra jobs forever. Look for ways to get the best of both worlds. If you’re able to invest some of your side-hustle cash, you can start to build passive income streams.
Sure, that can be hard if all your funds are going toward staying afloat financially. But if you’re able to find even $50 extra each week in your budget, over time that will add up. Plus, in addition to generating passive income, investing can be a good way to build wealth for the long term.
The good news is that you don’t have to be an expert in finance to get started. Some people develop passive income sources in the stock market — for example, by focusing on dividend-paying stocks. Dividends are a way that companies share some of their profits with shareholders. Others use property investments and get extra money through rentals.
Do some research into exchange-traded funds (ETFs), which can give you exposure to a mix of assets. There are specific dividend-focused ETFs, so if you want to go this route, it is a question of understanding how they work and which one is right for your portfolio.
Bottom line
Side hustles bring in a lot more money for the average American than passive income streams. However, your time has a value, too.
If you can find a way to combine both passive income and side hustles, it will give you a stronger financial foundation and — hopefully — mean you’re not reliant on that extra job in the long term.
