SoFi

To make homeownership more affordable, the federal government offers programs for first-time homebuyers and buyers with low to moderate incomes. The mortgage credit certificate (MCC) program is one option that helps eligible first-time homebuyers save money on their mortgage.

This guide will unpack how a mortgage credit certificate works, the pros and cons, and claiming it on your taxes.

What Is an MCC?

A mortgage credit certificate, sometimes called a mortgage certificate credit, is designed to help homebuyers recoup a portion of the interest paid on their home mortgage loan. An MCC is a dollar-for-dollar federal tax credit of up to $2,000 on the mortgage interest paid annually. It’s a nonrefundable credit, which just means that the amount of your credit can’t exceed the amount of income tax owed for that filing year.

If you take out a mortgage to buy a home, your monthly payment has four components: principal, interest, taxes, and insurance. State and local housing finance agencies issue MCCs, and if you receive one you can claim the dollar equivalent as a tax deduction to reduce the amount you owe in federal taxes. (Not all states offer MCCs, however. Michigan offers one, for example, while Massachusetts does not.) Eligible homeowners can take advantage of an MCC even if they take the standard deduction rather than itemize deductions. If you are one of the few homeowners who itemizes, any remaining mortgage interest not accounted for in an MCC may qualify for the mortgage interest deduction.

Eligibility for this program is based on income and is generally only available for first-time homebuyers who qualify, though others may be able to buy a home in a “targeted area” designated by the state or Department of Housing and Urban Development and claim a mortgage tax credit.

Keep in mind that different mortgage types may have fixed or variable interest rates. Most fixed-rate loans are eligible for an MCC.

Recommended: First-Time Homebuyer Guide

How Does It Work?

Getting a handle on tax credits and deductions can be confusing as a new homeowner, and that’s OK.

To reiterate, an MCC lets you claim a tax credit for a portion of the mortgage interest paid in a year. This lowers your tax liability, which is the amount you owe to the federal government.

The portion of the mortgage interest you can claim with an MCC, known as the tax credit percentage, depends on the state you live in. Generally, the tax credit percentage ranges from 10% to 50% of a homeowner’s total annual mortgage interest.

The tax credit percentage, the mortgage amount, and interest rate are needed to calculate the total MCC. Note, however, that an annual MCC deduction is capped at $2,000 and can’t exceed a recipient’s total federal income tax liability after factoring in other deductions and credits.

It’s helpful to show how claiming an MCC works in practice. You’ll need to know some mortgage basics, like the interest rate, before getting started.

For instance, a homeowner with a $250,000 mortgage, 3.5% interest rate, and tax credit percentage of 20% could receive a first-year MCC tax credit of $1,750.

Here’s how to break this calculation down by steps:

1.    Determine the mortgage loan balance ($250,000), interest rate (3.5%), and tax credit percentage (20%)

2.    Multiply the loan balance and interest rate to calculate the total interest paid ($250,000 x 0.035 = $8,750)

3.    Multiply the total interest paid by the tax credit percentage to calculate the MCC tax credit ($8,750 x 0.2 = $1,750)

The $1,750 would be applied to your total federal tax bill, rather than deducted from your income. Let’s take a closer look at how claiming an MCC in this example would affect your federal income taxes.

In this example, a mortgage credit certificate could lower the amount owed in federal income taxes by $1,365. If you don’t have a mortgage yet, use this mortgage calculator to estimate your interest rate, loan amount, and, on the amortization chart, interest paid.

Mortgage Credit Certificate Pros and Cons

The mortgage credit certificate program was established by the Deficit Reduction Act of 1984 to make homeownership more affordable for low- and moderate-income first-time homebuyers. While an MCC tax credit can provide financial benefits, there are some potential drawbacks to consider, too.

Here’s a side-by-side comparison of MCC pros and cons to help you figure out if an MCC is right for you if you’re a first-time buyer.

How to Get a Mortgage Credit Certificate

Borrowers are issued an MCC through their lender before closing. Thus, it’s important to discuss options early in the process and when shopping for a mortgage.

Eligibility for an MCC varies by location. State housing finance agencies (HFAs) have established requirements for obtaining an MCC, if one is offered. These include limits on household income, loan amount, and home purchase price.

Other criteria to get an MCC include the following:

•   HFA-approved lender: The HFA may require borrowing from an approved list of lenders.

•   First-time homebuyer status: Borrowers must not have owned a principal resident in the past three years.

•   Primary residence: Only owner-occupied homes are eligible for an MCC.

•   Homebuyer education: HFAs may require borrowers to participate in education courses during the purchase process.

Claiming a Mortgage Credit Certificate on Your Taxes

To claim the MCC each year on your taxes, fill out IRS Form 8396. You’ll need to know the amount of interest you paid on the mortgage that year and the tax credit percentage set for the MCC.

Once complete, you’ll also know if any credit can be carried over for the following tax year.

The Takeaway

What is a MCC? A mortgage credit certificate is a federal income tax credit on a portion of the mortgage interest paid annually for low- to moderate-income first-time homebuyers or people purchasing a home in a targeted area.

The home buying process is a serious undertaking, especially for first-time homebuyers. To get up to speed, SoFi’s mortgage help center is a useful place to start and have your mortgage questions answered.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Who gives you the mortgage credit certificate?

A mortgage credit certificate program is administered by state-level housing finance agencies and issued by mortgage brokers or lenders.

Does everyone get a mortgage credit certificate?

No, mortgage credit certificates have borrower income limits and other eligibility requirements. For context, only 10,836 MCCs were issued in 2022, down from 22,298 issued in 2019, likely due to the fact that some states have discontinued their MCC program.

Can I refinance with a mortgage credit certificate?

A mortgage credit certificate does not prevent you from refinancing, but you’ll lose the MCC on your current loan. Many programs, though, allow borrowers to apply to receive a new MCC issued with their refinanced mortgage.

How do I know if I have an MCC?

Borrowers apply for an MCC prior to closing and receive a physical copy with a unique certificate number from their local or state government.

Do I lose my mortgage credit certificate if I refinance?

The original mortgage credit certificate becomes void if you refinance, but you may be able to have the MCC reissued if the principal balance on the refinanced loan is lower than the original.

Photo credit: iStock/Morsa Images

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL-Q224-1839866-V1

The number of people living paycheck to paycheck is rising, and not just among low-income workers. One-third of Americans with an annual income of $150,000 or more are struggling to pay their bills and have no money left over for savings. Reasons for this include high housing costs, a lack of financial literacy, and lifestyle creep.

So how do high earners end up living paycheck to paycheck, and what can you do to break the cycle?

What Does Living Paycheck to Paycheck Mean?

Most people expect to earn a “living wage.” The term refers to an income sufficient to afford life’s necessities, including housing, food, healthcare, and child care. That level of income should also allow you to save for an emergency, retirement and other goals to some degree.

When a person lives paycheck to paycheck, they can barely pay basic bills and have nothing left over to save for a rainy day. In the event of a pricey emergency — like a big medical bill or major car repairs — low-income families are financially wiped out.

High earners have more wiggle room. They have the ability to downsize their home or car and find other ways to cut back on expenses.

Understanding the Paycheck-to-Paycheck Situation

According to a 2023 survey conducted by Payroll.org, 72% of Americans are living paycheck to paycheck, with Baby Boomers the hardest hit. When you are living paycheck to paycheck, as noted above, you have no ability to save. If you go into debt, you may not be able to afford to pay down the debt in a meaningful way.

According to research from MIT, the average living wage for a family of four (two working adults with two children) in the U.S. in 2022 was $25.02 per hour before taxes, or $104,077.70 per year. Compare that to the federal minimum wage of $7.25. Even in Washington, D.C., which has the highest minimum wage at $17, families make well below what is considered an adequate income.

But even households bringing in $200,000 or more say they feel the crunch. According to a Forbes study, 39% of those earning at least $200K described themselves as running out of money and not having anything left over after covering expenses. While they have the freedom to downsize their lifestyle, many people may not realize the precariousness of their financial situation until they’re locked into a mortgage and car payments they cannot afford.

Why Do Some Americans Live Paycheck to Paycheck?

The reasons why Americans live paycheck to paycheck vary. For lower-income workers, you can point to a higher cost of living and wages that have not kept up with inflation. For those with higher incomes, the issue is more about a lack of financial literacy and living beyond one’s means.

Rising Cost of Living

According to the Federal Reserve, 40% of adults spent more in 2022 than they did in 2021. They spent more because monthly expenses, such as rent, mortgage payments, food, and utilities had all increased.

Low Income

Low incomes are another reason some people live paycheck to paycheck. This is particularly the case for people who earn minimum wage or live in areas with a high cost of living.

Poor Budgeting

Another reason some people are living paycheck to paycheck is that they lack basic financial knowledge and budgeting skills. It’s easy to overspend and accumulate credit card debt, but difficult to pay down the principal and interest.


💡 Quick Tip: When you have questions about what you can and can’t afford, a free budget app can show you the answer. With no guilt trip or hourly fee.

Lifestyle Creep

Also known as lifestyle inflation, lifestyle creep happens when discretionary expenses increase as disposable income increases. In plain English: You get a raise and treat yourself to a new ’fit. And a fancy haircut. And a weekend at a charming B&B in the countryside.

Whether you can afford it is debatable. On one hand, you may be paying your credit card bill in full each month. On the other, you’re not saving or investing that money.

Factors Driving Financial Insecurity for Six-Figure Earners

Because of inflation, it is increasingly hard to buy a home, car, and other nice-to-haves. However, people may still expect and try to afford these things once they earn a certain amount. And if they have a taste for luxury items, they may struggle to maintain that standard of living and pay their bills.

It’s common for people to buy things on credit and then find that they cannot make the payments. Soon, they find themselves mired in high-interest debt.

How to Stop Living Paycheck to Paycheck

You can stop living paycheck to paycheck by living below your means rather than beyond your means. That requires earning more than you spend and saving the difference. The obvious steps to take are to increase your income and to live more frugally.

Once you have downsized your lifestyle, you can find relief quicker than you might think. And some changes may only be temporary. For example, you might have to work a part-time job for a short time until your debt is paid off.

Tips for Those Living Paycheck to Paycheck

Here are some changes you can make to get on the path to living below your means.

1. Create a Budget

You have to know where your money is going before you can cut back. By tracking your expenses, you can see what you are spending where. There are lots of ways to automate your finances and make it much easier to stay on top of things.

Then, create a budget where you subtract your non-negotiable expenses, or needs, from your net income. Non-negotiables are your housing costs, utilities, food, and transportation. Hopefully, you have some money left over to allocate to savings. If not, it’s time to look at how you can make your life more affordable.

Here are a few budget strategies to try:

•   Line-item budget

•   50/30/20 method

•   Envelope method

2. Cut Back on Nonessentials

Budgeting will help you find expenses that you can eliminate or reduce. For example, look closely at things that might seem insignificant. You are not necessarily bad with money just because you lose track of subscription services that you have forgotten about.

Be aware that a large cold brew on your way to work every morning can add up, and eating out or spending $30 on takeout each week adds up to over $1,500 annually. More consequential changes are downsizing your home, accepting a roommate temporarily, or finding a part-time gig to supplement your income.

3. Pay Off Your Debt

Debt is expensive. High-interest credit card debt and buy-now-pay-later (BNPL) schemes can eat up your income as you struggle to pay the minimum while the interest mounts up. Consider using a personal loan to consolidate debt and reduce the interest you’re paying.

4. Save for Emergencies

If you are living paycheck to paycheck, just one unexpected expense can cause you to spiral into debt. It’s important to have enough cash on hand. Once you have paid off your debt, start an emergency fund so that you don’t have to rely on credit if you experience an unexpected financial emergency. A rule of thumb is to have three to six months’ worth of expenses saved up.


💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

5. Hold Off on Big Purchases

While you are trying to reduce expenses and pay off debt, hold off on buying big ticket items. For example, forgo an expensive vacation for a year and start saving toward next year instead. As much as you might like new furniture or a new car, try to economize for a while until you are in a better place financially.

6. Ask for a Raise

Asking for a raise is not an easy thing to do when money is tight. However, it could be well worth it. According to Payscale.com, 70% of survey respondents who asked for a raise got one. You are in a particularly strong position if your skills are in demand and your employer values you.

The Takeaway

Many Americans are living paycheck to paycheck, even high earners. The reasons why are linked to inflation, lifestyle expectations, and the ease with which people fall into debt. The remedy is to live below your means, and that often means making sacrifices.

If debt is a concern, temporary steps such as downsizing while you pay off your debt or finding additional sources of income are options. Identify where your money goes and stick to a budget to reduce unnecessary spending. Also, getting rid of high-interest debt and cutting back on eating out and other nonessentials can free up a significant amount of cash each month.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Does living paycheck to paycheck mean you’re poor?

Living paycheck to paycheck does not necessarily mean that you are poor, but it does mean that you are living beyond your means. Even high earners can find themselves in a position where they are living paycheck to paycheck, often due to mounting debt and lifestyle creep.

Lifestyle creep is when people spend more whenever their income increases. According to a Forbes study, 39% of those earning $200,000 or more described themselves as running out of money and not having enough leftover to save after covering expenses.

Is living paycheck to paycheck stressful?

Yes. When you live paycheck to paycheck, you may constantly worry how you will afford to pay for an emergency. It’s important to have an emergency fund, so that you do not have to use a loan or high-interest credit card to pay for something unexpected.

How many americans are living paycheck to paycheck?

Close to 80% of Americans are living paycheck to paycheck and are struggling to meet their monthly bills, according to a 2023 survey by Payroll.org. That’s an increase of 6% from the previous year.

Photo credit: iStock/Jacob Wackerhausen

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL0324009

Despite the obvious appeal of side hustles — more money! — they’re not for everyone. If your side hustle makes you stress out, neglect relationships, or miss opportunities at your day job, then consider it a bad idea. Side hustles are only beneficial when they help you accomplish goals without sacrificing what matters most.

Side hustles are often promoted as a simple way to generate extra cash or fulfill your passions. However, the often-ignored price tag is physical and mental strain. Not to mention the time requirement and potential financial commitment necessary to get a gig going.

Read on to find out how to evaluate your options and goals before taking on a side hustle.

What Is a Side Hustle?

A side hustle refers to a second job or source of income that people pursue outside their primary employment. The purpose may be to earn extra money, pursue a pet project, or develop skills in a different area.

A side hustle can take various forms, from freelance work or consulting to selling handmade crafts or driving for a rideshare service. Renting out property and offering tutoring services also qualify. The point is leveraging your time and skills to pad your budget or explore a wider field than your day job allows.


💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. A free budget app can give you the same insight into your budgeting and spending at a glance, without the extra effort.

Pros and Cons of a Side Hustle

Browse the pros and cons below, and make a mental note of how many of each apply to your situation. If one side of the scales is considerably heavier, your decision may be obvious.

Pros of a Side Hustle

Here’s a breakdown of the benefits of a side hustle:

•   Develop Your Career: Side hustles can provide a valuable opportunity to develop skills, gain experience, and broaden your professional horizons. By taking on projects or roles outside your main job, you may acquire new competencies to help advance your career or get a promotion. Additionally, side hustles can demonstrate initiative, entrepreneurial spirit, and versatility to potential employers, enhancing your marketability and opening up new opportunities.

•   Switch Up the Norm: A side hustle allows you to break away from the routine of your primary job. This variety can be refreshing and stimulating, helping to prevent boredom and burnout. Whether you’re pursuing a different passion, exploring a new industry, or experimenting with creative projects, having a side hustle can inject excitement and fulfillment into your life outside work.

•   Build Your Network: Side hustles often involve interacting with different people and communities, which can expand your professional network. Whether you’re collaborating with clients, partners, or fellow freelancers, each connection presents an opportunity to exchange ideas, learn from others, and potentially uncover new career prospects. Building a diverse network through your side hustle can provide valuable support, mentorship, and referrals in your professional journey.

•   Channel Creativity: Side hustles offer a platform for expressing your creativity, passions, and interests outside your primary job. Whether it’s writing, photography, crafting, or any other form of expression, a side hustle can bring more meaning and fulfillment than your 9-to-5. This outlet can serve as a source of inspiration, relaxation, and personal growth, enriching your life beyond the confines of your main occupation.

•   Increase Income: One of the most practical benefits of a side hustle is the extra money. Whether saving for a major purchase, paying off debt, or simply seeking financial security, the income from your side hustle can provide greater financial flexibility and stability. Likewise, having multiple streams of income can be a buffer against economic uncertainty and provide a safety net in case of job loss or another hardship.

Cons of a Side Hustle

On the other hand, these are the potential drawbacks of a side hustle:

•   Less Time to Relax: Side hustles require time and effort, eroding your leisure time. Working 60+ hour weeks can lead to fatigue and even burnout. When juggling your day job, side hustle, and personal commitments causes you to lose sleep, your quality of life can become unsustainably low.

•   Distraction from Work: A side hustle can encroach on your attention and focus during work hours. Constantly thinking about your other gig, responding to email, or taking calls while at your main job can detract from your performance. If colleagues or supervisors perceive your divided attention, this can also strain your professional relationships and undermine your credibility.

•   Managing the Stress of Two Jobs: Managing the demands of a side hustle on top of your primary job and personal responsibilities can significantly increase stress. Deadlines, client expectations, financial pressures, and the need to constantly switch between different roles and tasks can elevate anxiety. Chronic stress associated with balancing multiple commitments can affect your mental and physical health over time.

•   Sustainable Prices Can Be Elusive: Setting prices or negotiating rates for your side hustle services can be challenging, especially if you’re just getting started or dealing with imposter syndrome. Striking the right balance between competitiveness and fair compensation can be tricky, and you may encounter situations where clients or customers undervalue your work. Plus, breaking into a competitive market may require setting prices so low that you work at a loss for the first few months or even years. As a result, your side hustle may ding your budget instead of adding to it.

💡 Quick Tip: An online money tracker makes monitoring your spending a breeze: You can easily set up budgets, then get instant updates on your progress, spot upcoming bills, analyze your spending habits, and more.

When Does a Side Hustle Make Sense?

Several ingredients are key for a side hustle to make sense for your situation. First, it’s essential to have a clearly defined reason for pursuing a side hustle. For example, you may want to generate income, follow a creative impulse, or pave a path to a new career. This clarity of purpose will guide your efforts and motivate you throughout your side hustle journey.

Second thorough research is crucial to understanding the market, demand, competition, and potential challenges associated with your chosen side hustle. This is significant even if you don’t have financial aspirations for your other gig.

For example, if you’re interested in fitness, is your specific angle better suited for a blog or a YouTube channel? Will you create a social media presence to drive more traffic? What kind of value are you delivering to your audience?

In a different vein, if you want to become a rideshare driver, which company offers the best pay? Do you have a presentable vehicle that you’re willing to put miles on? Answering these kinds of questions will help you make informed decisions and set realistic expectations. Not doing your homework will likely bring a lack of results, monetary loss, and frustration.

Next, understand the time commitment your side hustle will require. For instance, a few hours of woodworking on the weekend is less demanding than taking a constant flow of orders on Etsy. If your schedule is already full to the brim from your primary job, family responsibilities, and personal pursuits, incorporating a side hustle can do more harm than good. Even if you work a side gig with your significant other, it’s not the same as spending quality time together.

Finally, your side hustle should fit into the larger picture of your goals and values. For instance, you might start a side hustle in order to build a $5,000 emergency fund. Or you could take a software engineering course in the evenings that will help you eventually switch careers. In any case, your side hustle should have specific benefits and point toward a defined objective. Otherwise, you’ll burn time without accomplishing much.

The Opportunity Cost of a Side Hustle

The “opportunity cost” of a side hustle depends upon the resources you invest. When you dedicate yourself to anything, you lose opportunities to engage in leisure activities, spend time with family and friends, and take vacations. In essence, the opportunity cost of a side hustle equals the value you place on other aspects of life that matter most.

Also ask yourself what is the financial cost of your side hustle? You might have to invest money to purchase materials or pay for marketing. You might also give up overtime at your primary job. That’s cash that could go into savings, investments, or paying off debt.

Likewise, your time could be going into skill development for your day job, leading to promotions or raises. Plus, your employer might sponsor specific types of professional development, resulting in free training that moves your career forward and increases your salary.

Ultimately, the opportunity cost of a side hustle varies depending on individual circumstances, goals, and priorities. It’s essential to carefully consider these factors and assess how the benefits of the side hustle compare to the time and money.

Examples of Side Hustles

While there are unusual ways to make money, side hustles are typically more accessible. Here are some side hustles that match with a range of backgrounds and skill sets:

•   Freelancing: Offer services such as writing, graphic design, programming, bookkeeping, and more. You’ll take projects on a contract basis with multiple clients.

•   Dog Walking: Providing exercise and companionship for dogs by taking them on walks on a regular or as-needed basis.

•   Blogging: Creating and maintaining a consistent feed of valuable written content on a topic you love or have expertise in. Find out how much it costs to start and run a blog.

•   Non-Medical Senior Care: Assisting elderly individuals with daily tasks (shopping, bathing, housework, etc.) and providing companionship to support their wellbeing.

•   Babysitting: The tried-and-true income-generator for teenagers and adults alike. You’ll care for children in the evenings and on weekends when parents are busy or need a break.

•   Personal Assistant: Providing administrative support and assistance to individuals or businesses. You’ll manage schedules, run errands, and handle correspondence. You can also be a virtual assistant and provide numerous essential services (bookkeeping, arranging travel, etc.), therefore creating a side hustle from home.

•   Handyman: Offering services to repair, maintain, and improve residences. You can specialize in one or more areas: plumbing, electrical work, carpentry, or general home tasks.

•   Crafting: Creating handmade goods and artwork, such as jewelry, clothing, and home décor, to sell online or at craft fairs.

•   Cooking/Baking: Crafting you can eat! Get to work in the kitchen to make treats, desserts, or meal kits for sale.

•   Private Tutor: Providing personalized academic instruction to students in a particular subject or skill, often on a one-on-one basis.

•   Self-Publishing: Writing and publishing books or other written works independently, without the involvement of traditional publishing companies. Self-publishing is inexpensive because your work will be accessible as an ebook.

•   Teaching Online Courses: Creating and delivering educational courses or tutorials on a specific topic via online platforms is another side hustle from home.

•   Product Tester: Testing and reviewing products or services for companies or brands, often providing feedback and insights based on personal experience.

•   E-Commerce: Selling products or services online through a website or online marketplace, which may involve sourcing or creating products, managing inventory, and handling customer inquiries and orders.

When Is a Side Hustle Not Worth It?

A side hustle may not be worthwhile because of the toll on your physical, mental, and financial wellbeing. Here are more specific ways that a side hustle can negatively impact your life:

•   Burnout: Working an 8-hour job and dedicating 2 to 4 additional hours per day to your side hustle leaves little room for anything else. The demands of a side hustle can result in excessive stress, fatigue, and burnout.

•   Missed Career Advancements: Devoting significant time and energy to a side hustle may detract from opportunities for advancement in your primary job. They can also keep you from visualizing a sustaining career. So if you’re in a job you don’t like, a side hustle can act as a bandage instead of a cure. It’s advisable to focus on switching vocations instead of supplementing your income through another unsatisfying side job.

•   Unhealthy Lifestyle Habits: A demanding side hustle may lead to poor eating choices due to lack of time for meal prep, insufficient exercise, and disrupted sleep. Over time, these habits damage physical health and overall quality of life.

•   Strained Relationships: Spending excessive time on a side hustle can strain relationships with family, friends, and romantic partners. Missing significant events or quality time with loved ones due to work commitments can lead to feelings of resentment and isolation.

•   Financial Costs: Some side hustles require upfront investments of time and money, for purchasing inventory or equipment, marketing expenses, or training courses. If the return on investment does not justify these costs, the side hustle may not be financially sustainable in the long run.

•   Not-So-Passive Income: Many side hustles require active participation and ongoing effort to generate income, which can limit scalability and long-term earning potential. Without the ability to create passive income streams, you’ll constantly trade time for money without achieving financial freedom.

•   Neglecting Personal Growth: A side hustle that consumes all available time and energy may leave little room for hobbies or other interests. Over time, this can lead to stagnation and dissatisfaction with your lifestyle.

Side Hustle Tips

A side hustle can quickly get out of hand or detract from your life if you’re not careful. Here’s how to create a practical side hustle that serves your needs:

•   Start Small: When beginning a side hustle, starting with manageable tasks or projects that don’t require a significant investment of time or resources is wise. Starting small allows you to test the waters, gain experience, and assess the viability of your chosen side hustle without taking on too much risk. As you gain confidence and experience, you can gradually expand and scale your side hustle over time.

•   Play to Your Strengths: Identify your special skills, interests, and areas of expertise, and leverage them in your side hustle. By focusing on activities that align with your strengths, you’re more likely to enjoy the work, excel at it, and differentiate yourself from competitors. This approach also allows you to maximize your earning potential by offering high-value services or products that cater to a specific niche or market. Remember, this doesn’t mean you must stick to your current skill set. Your interests and abilities can also lead you to pick up new skills.

•   Maintain Your Performance at Work: Balancing a side hustle with a full-time job means prioritizing high performance and professionalism in your primary job while pursuing your side hustle. To that end, it’s recommended to set boundaries for the time you dedicate to your side hustle and to manage your schedule efficiently. By maintaining your performance at work, you can preserve your job security and opportunities for advancement.

•   Aim at a Goal Instead of a Job: Instead of treating your side hustle as just another job, set out to achieve specific goals or milestones that align with your long-term aspirations. Whether your goal is to generate additional income, pursue a passion project, or transition to full-time entrepreneurship, having a clear vision and purpose for your side hustle will keep you motivated and focused on what truly matters to you. By focusing on goals rather than simply exchanging time for money, you can create a more fulfilling and meaningful side hustle.

The Takeaway

Side hustles can be a bad idea when they damage your quality of life. While picking up a side gig can create more income, this result must be weighed against other priorities, including advancement in your day job, time dedicated to relationships, and alternatives that slowly but surely create passive income.

Asking yourself whether a side hustle is a good move might not be the most relevant question. Instead, you can ask yourself if a second job makes sense after developing a clear vision of the future.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Are side hustles risky?

Side hustles can be risky because of the opportunity cost of picking up extra work. Specifically, a side hustle can drain time and financial resources, add unmanageable stress to your life, and lead to worse quality of life because of the sacrifices required to work a second job. As a result, it’s essential to evaluate your circumstances and identify your goals before starting a side hustle.

Are side hustles a waste of time?

Side hustles can be an excellent way to generate more income, develop yourself professionally, or transition to a different career. However, they can also be a waste of time if you don’t set goals and create a realistic plan when starting. So a carefully planned side hustle that fits into the larger picture of your life can provide massive benefits, while picking up more work to simply stay busy can lead to missed opportunities in your professional and personal life.

Is starting a side hustle really worth it?

Starting a side hustle can be worth it for additional income, pursuing passions, or expanding your skill set. However, it requires careful consideration of the potential drawbacks, such as time constraints, increased stress, and the risk of hindering career advancement. Ultimately, the value of a side hustle depends on your aligning it with personal goals, managing resources effectively, and maintaining a healthy work-life balance.

Photo credit: iStock/JLco – Julia Amaral

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL0324010