Money Management

She loves her work and is willing to do it for very little pay. 

If you’ve been thinking about picking up a side hustle, you’re not alone. A good 45% of Americans have a side hustle currently, according to research from Zippia.

Holding down a side hustle could benefit you financially in many ways. It could be your ticket to paying off your credit card debt once and for all, or socking money away for another big goal, like buying a home. And some side hustles have the potential to be quite lucrative, so much so that they might boost your income substantially.

But one friend of mine who works a side hustle only makes about $3 an hour from it on average. And despite the minimal amount of income she’s earning, she insists that her side gig is worth holding onto.

It’s not just about the money

A lot of people take on side hustles because they truly need an income boost. My friend is in the fortunate position of not being in that situation. She and her husband both work and earn decent salaries, and between their primary earnings, they have enough money to cover their mortgage payments, pay for their cars, and live a generally comfortable lifestyle.

Rather, my friend holds down a side hustle because she finds it fun. Years ago, she started making jewelry at home in her spare time. She then started giving out homemade jewelry as gifts to different people in her life.

At that point, people started asking if it was possible to purchase jewelry from her. And she decided her answer would be yes.

Initially, my friend thought she might make a decent profit on her jewelry. But then she realized that to do so, she’d need to compromise on the quality of her materials. She didn’t want to do that. But because it costs her so much money to procure those materials, at the end of the day, she only makes about $3 an hour in the course of her work.

That’s okay in her book, though. The way she sees it, making jewelry is something she does for fun. If she can make an extra $20 a month here and $30 a month there, that’s a little bit of extra spending money she didn’t have before. Plus, this way, she can, at the very least, cover the cost of her materials, which she’d probably be buying anyway.

When a side hustle stops you from spending money

Not only does my friend not mind earning very little from her side hustle, but she also acknowledges that making jewelry is a good way for her to stay occupied on evenings and weekends. If it weren’t for that hobby, she feels she’d probably spend more time going out and spending money on various things, like restaurant meals and shopping. So while her side gig isn’t particularly lucrative by itself, she insists that it saves her money.

Many people who take on a side hustle do so for the money, and there’s nothing wrong with that. But in some cases, a side hustle can serve a purpose other than making a huge difference for you financially. And you shouldn’t necessarily write off a low-paying side gig if it benefits you in other ways.

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Sometimes good news and bad news are thrown into the same basket. 

Do you remember the early days of the pandemic when everything first shut down? Businesses shuttered, more of us worked from home, and there were legitimate fears regarding what would happen as tax revenue dried up and state and local governments could not pay for essential services. The federal government sent stimulus funds to those state and local governments to combat the problem.

The result? Municipalities are flush with money. They either use it to fund projects or share it with their constituents. In either case, it caused a snag, making it tougher for the Federal Reserve to tame inflation.

Between a rock and a hard place

In 2020, the federal government was in an impossible position. Either it sent stimulus funds to keep the economy afloat or watched the economy and 334 million Americans sink. It wasn’t difficult to predict that extra money in bank accounts would lead to increased spending. In fact, that was the goal.

However, economists know that increased spending leads to inflation as people are more willing to overpay for what they want and need.

Still, the government faced an unwinnable situation. Any decision made would have both an up and a downside. It’s that downside with which the Federal Reserve now grapples.

Avoiding a worst-case scenario

Bloomberg opinion columnist Karl W. Smith was previously vice president for federal policy at the Tax Foundation and an assistant professor of economics at the University of North Carolina. Smith explains that state and local governments were historically forced to cut spending when economic growth slowed and tax collections fell short. Those spending cuts led to a weakening of the overall economy.

Over the years, state and local governments got smart. Like every American family, they realized they needed an emergency fund to carry them through when money was tight. For example, leading up to the 2008 recession, states had an average of 17 days’ worth of operating costs on hand.

A vast rainy-day fund

Fast forward to today, and the federal government’s efforts to stave off economic disaster by providing states with funds. This influx of money means that by the end of 2022, the average state had an estimated 42 days of operating costs. That’s a whole lot more money than they’re accustomed to. To put this into perspective, Pew Charitable Trust’s Fiscal Health Project says that states were sitting on $135.5 billion late last year.

With all that cash, Smith says that a typical state can weather a roughly 12% drop in revenue over the next year and still not be forced to cut spending. Back in 2008, states could only afford a 5% drop in revenue before they had to slash spending.

Money on top of money

What no one expected when the pandemic hit was that local and state governments would experience a surge in cash. Between increased tax revenue due to consumer spending and the hundreds of billions of dollars in COVID relief, it must have felt like it was raining money.

There’s also the fact that employment in government offices has not increased as quickly as in the private sector. Smith points out that the private sector has expanded by 6% since August 2021, while state and local governments have grown by 2.3%. Government offices have not replaced the positions they once paid, so they have even more money available.

Good news and bad news — simultaneously

Due to the rosy financial situation state and local governments find themselves in and the fact that consumer spending does not appear to be slowing, Smith believes the U.S. will avoid a recession, coming in for a “soft landing” instead. That’s the good news.

The bad news is that the Federal Reserve may have to double down on its efforts to cool inflation by raising interest rates, and in this case, doubling down means raising the rates higher than any of us expected and allowing them to remain there until spending is under control.

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Take control of your spending now! 

Did you know one of the most profitable products at the supermarket are the candy bars, sodas, and magazines near the checkout line? That’s why they’re placed there, in the hopes that you’ll make the impulse purchase. In fact, the average American spends $276 a month on impulse buys. This equates to $3,312 a year and close to $200,000 in a lifetime.

It’s easy to justify purchases in the moment, but when we look at our credit card statements and wonder where all the money went, it can be a real wake-up call. Don’t worry; there are ways to control your impulse spending. Here’s how you can make sure you’re not overspending on items that don’t help you reach your financial goals.

Recognize your triggers

The first step in controlling your impulse spending is to recognize what triggers it. Is it seeing something online? Is it walking into a store and seeing an item on display? Retail stores know how to target shoppers, which is why some of the most appealing items are placed at eye-level on the shelves, aisles, and near the cash register.

Identifying the triggers that cause you to make impulse purchases can help you avoid them going forward. This will allow you to prepare yourself mentally when these situations come up, so you won’t be tempted to spend more than necessary. Here are some of the most common triggers:

A good sale: Stores know that we often can’t pass up a great deal, so we are more likely to make the impulse buy. Nearly two thirds (64%) of shoppers buy things on impulse because they don’t want to miss out on a deal.We love it: Who doesn’t love shopping? It releases dopamine, making you feel good in the moment.Our emotions: Marketers know to appeal to our emotions. Especially when we are having a bad day, there’s nothing like shopping to help cure the blues!Our past: Maybe we’re used to rewarding ourselves or never truly learned how to manage our finances. It can become a big problem if not kept in check.

Track your spending

Once you have identified your triggers, start tracking your spending for a few weeks or even a few months. This will help give you an idea of how much money is really going out each month and where you could cut back if needed. You may be surprised by how much your small purchases add up over time.

Keeping track of your expenses can also give you insight into which expenditures are necessary and which ones aren’t. This can be helpful in determining whether an impulse purchase is worth making. Fortunately, there are budgeting apps that can track this for you. These apps can also give you spending insights to help you plan, as well as send you alerts about your spending habits.

Prepare ahead of time

An impulse buy is when you buy something without planning ahead of time, so one way to avoid impulse buying is to plan for any potential purchases that might come up. You will be less likely to overspend and you can add more obstacles between you and the item you want to buy. Want an item that just popped up in your email? Before hitting “buy,” have a rule in place that you will wait a day or unsubscribe from the email list. After the initial dopamine rush, the impulse desire may no longer be there.

If you know that you’re an emotional shopper, don’t shop when under those conditions. If you have issues with control, bring someone with you to help hold you accountable. Leave your credit cards behind and only take the necessary cash you need to buy what you planned for. If you know there’s a sale coming up at one of your favorite stores, decide how much money — if any — you’re willing to spend during the sale beforehand. By doing this, you’ll be more likely to stick to your budget and keep from indulging in unnecessary purchases.

Another part of a good plan is allowing some room in your budget to have some fun. That way it isn’t an impulse buy, but a reward you budgeted for. Can’t live without a product you want? Do some research and find out if you can get it for free instead. You might also consider boosting your income to better afford your shopping habits.

Controlling your impulse spending habits doesn’t happen overnight; it takes time, dedication, and practice. However, with some self-reflection and preparation ahead of time, it’s possible to learn how to manage these temptations so that they don’t derail your financial goals. By recognizing our triggers, tracking our spending, and creating a plan, you can ensure you meet your financial goals while still enjoying life’s little pleasures along the way.

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Your credit score is more important than you might realize. 

Credit is important, and it can impact many areas of your life. While it takes time and effort to build your credit and raise your credit score, doing so can put you on the road to greater financial success. But if you ignore your credit situation, you may set yourself up for future financial concerns and it could take longer to improve your score later in life. Here’s why you should pay attention to your credit score now.

1. It takes time to build credit

You’re wasting valuable time if you spend years not caring about or checking in on your credit score. The age of your credit history is one factor that makes up your FICO® Score. Having a longer credit history could help you increase your credit score. Creditors like to see that you’ve been managing your credit well for a while, and a lengthy credit history can help show that.

2. A higher score gives access to better interest rates

Your credit score directly impacts the interest rates you qualify for when you need to borrow money. Whether you need to take out a car loan or decide to purchase a home, a lower interest rate could help you save money by reducing the total amount you pay. It’s beneficial to care about your credit score now, so you have better odds of getting approved for a lower-cost loan when the time comes.

3. You may need to borrow money during an emergency

Even if you have a solid emergency fund, there may come a time when you need extra money, whether for an unexpected medical bill, house repair, or a costly trip to the vet. If you need to apply for a credit card or a personal loan, you’ll want a good credit score.

A better credit score can improve your approval odds and help you secure the funding you need to escape a difficult situation. Don’t delay caring about your credit score, because you never know when a financial emergency may occur.

4. A good score can help you qualify for a better credit card

There are many credit card options, but not all cards are available to every consumer. Some of the best rewards credit cards with attractive benefits and a higher earning potential are available to consumers with good or excellent credit. Those with poor credit or no credit may have fewer credit cards made available to them and those cards may have fewer perks.

It can be beneficial to care about your credit score and work to improve it, so you have better odds of getting approved for a better credit card in the future. With a better card, you may be able to earn more rewards and access more valuable benefits that improve your life and save you money.

Don’t ignore your credit score

Your credit score matters. If you checked yours in a while, here’s how to find out your credit score. Don’t delay establishing your credit or working to increase your credit score. With a better credit score, you’ll be more likely to qualify for better financial opportunities in the future. For additional financial guidance, check out these personal finance resources.

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Make it easy, obvious, and satisfying. 

Inflation is making it harder to achieve my goals, so I’m cutting costs. First on the chopping block is food spending, a category occupied by groceries, dining out, and delivery orders.

Dining out is expensive. The average American spends $2,375 on food and takeout per year. Cutting down can save them thousands of dollars they can put toward a much-needed vacation or paying down debt.

Solution: Reduce dining out/delivery, and buy affordable groceries instead. But it’s hard to stick to money-saving resolutions like “eat out less” and “cook more.” How do you rethink food spending and avoid falling back into old, money-sucking routines?

James Clear, author of the New York Times bestseller Atomic Habits, outlines how to create good habits. Drawing from lessons taught in the book, here are three tips on how to cut back on food spending and save money.

1. Change your environment

It’s dinnertime. You’re tempted to eat out, but that’s costly. Instead, you decide to cook. Great! But upon opening the fridge, you are greeted with a blast of sub-arctic frost and a bare smattering of ingredients. Your motivation freezes over, and you fall back into your old routine.

Been there, done that.

James Clear says, “In the short run, you can choose to overpower temptation. In the long run, we become a product of the environment we live in.” An empty kitchen makes cooking difficult. Cut down on spending by keeping your pantries stocked with your favorite meals.

Be smart about your renovations. If you want to avoid snacking on junk food, don’t leave candy bars lying about the kitchenette. Place whatever you’re comfortable eating front and center. Make saving money as simple as grabbing a banana en route to your car.

2. Create a personal rewards program

I’m addicted to ordering DoorDash; it’s a problem. Restaurant food is delicious, but ordering delivery is expensive — sometimes double the price of eating out. To combat this, I’ve taken James Clear’s advice to create a personal rewards program for sticking to good financial habits.

It works like this: Whenever I’m tempted to order delivery, I give myself the option to send $20 to my brokerage account instead. It’s far from foolproof, but it reduces the amount I order by around 10%, saving me hundreds of dollars a year.

Consider creating a personal rewards program for resisting your vices. Give yourself the immediate satisfaction of growing your long-term savings — or paying off debt — while cutting down on bad habits.

3. Track your food spending

In the words of Atomic Habits, we optimize for what we measure. You should know how much you’re spending right now to cut down on food spending. That way, you can tell friends how much you’re saving by changing your environment and starting a personal rewards program.

Know where your money flows. Easily track your food costs by opening up an account on a budgeting app to stay motivated.

Bonus: Automate grocery shopping

Atomic Habits suggests automating good habits so they stick. When ordering groceries online, take advantage of automation. For example, grocery delivery app Instacart saves prior orders. Click “Buy It Again” to save time and skip advertisements that encourage overspending.

Have a plan and stick to it. Stock your pantry with food you’ll actually eat, and create a personal rewards program to keep up money-saving habits. Track food savings to stay motivated, and automate what you can. Take advantage of any grocery credit cards you own at checkout.

It’s true; cutting down on food spending is easier said than done. Set yourself up for success by making it as easy, obvious, and satisfying as possible so you can achieve your financial goals.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Cole Tretheway has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoorDash. The Motley Fool has a disclosure policy.

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