Becoming a millionaire on your regular salary may seem impossible -- especially if you need most of your paycheck to cover bills. Side hustles are an increasingly popular way to get ahead. A recent Zapier survey of 2,000 people found that about one-third had a side gig at the beginning of 2021.
If your employer isn't especially generous with raises, a side hustle may be what you need to attain millionaire status. Surprisingly, you don't have to earn that much money to turn your side gig into a million bucks.
How to turn $175/week into $1 million
Your ultimate goal is to find $125 you can invest each week, for a total of $500 a month. If you can do that, you can max out your individual retirement account (IRA) contribution for the year. The IRA contribution limit is $6,000 for 2021, though if you're 50 or older you can make an extra $1,000 catch-up contribution.
Before you can start turning your side gig into a $1 million nest egg, you need to set aside money for taxes. A common rule of thumb is to set aside at least 25% to 30% of self-employment income for taxes. Assuming you can earn $175 a week, you'd have $125 if you budgeted slightly less than 30% for taxes. If your side income comes from a regular W-2 job, you won't need to save as much since your employer will automatically withhold money for taxes.
Once you've found a way to pocket an extra $500 a month, you'll need to invest it. If you earn 10% annual returns, you'd have just over $1 million in 30 years. Your total investment? Just $180,000.
How should I invest side gig money?
Investing in a Roth IRA is typically the best way to go if you're eligible based on your income. You won't get a tax break for your contributions, but the sacrifice will probably be worth it. Your money will grow and be yours completely tax-free when you retire. If you prefer a tax break now and are willing to foot the tax bill in retirement, you can fund a traditional IRA instead.
Once you've opened your IRA, investing in S&P 500 index funds is a smart strategy. These funds track the S&P 500 index, which consists of 500 of the largest, most successful companies in America, representing about 80% of the U.S. stock market by market capitalization. You'll instantly become an investor in companies like Apple, Amazon, Tesla, Walmart, and Johnson & Johnson.
The beauty of investing in S&P 500 funds is that, historically, the S&P 500 index has always delivered positive returns over a 20-year period. That doesn't mean you should expect your investment to always be up. Bear markets, stock market crashes, and recessions are all completely normal. But if you invest consistently over a long span of time, even when the market is down, you're practically guaranteed to reap the rewards.
Do I need to stick with my side gig for 30 years?
We get it. Thirty years is a long time to stick with your side hustle, particularly if you aren't passionate about it. The big takeaway here is that if you start early enough, maxing out your IRA with $125 a week is all it takes to become a millionaire.
Pursuing a side gig may be the only way to find an extra $125 a week if you're earning an entry-level salary or you're paying off debt. But as you earn more from your regular job or free up room in your budget, you can start putting extra money toward your IRA contributions so that you aren't relying on your side hustle.
If you're able to fund an employer-sponsored retirement plan, like a 401(k), that's a serious bonus. Remember: In the example above, we assumed that you're becoming a millionaire on IRA contributions alone.
Of course, it's easier to build a substantial nest egg when you start saving in your twenties. If you're getting a late start on investing, it may be worth sticking with a side hustle a bit longer than you'd prefer. The extra sacrifice now is your best weapon against lost time.
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