Next up, we've got a question from Kyle. He says, "Should I count my side gig income in my 25% gross income savings, or is this like a bucket that I could put aside to save for things like a house, a car, a down payment, etc.?" How should you go about thinking about side income?
Well, here's what I like that you said, Kyle: Should I consider side gig income as part of my gross to save on, or should I save my side income for some goal that I have? Right? This is what you didn't say, Kyle. You didn't say, "Hey, can my side income just be blow money? Can I just spend it? Can I just go? Can that just be my fun money?" And while it can be (don't mishear me), it can be. Here's what I worry about. Let's say that you work on a job. I'm going to use really round numbers. If this is detached from reality, I'm sorry. I don't do public math. I'm going to use round numbers. Say that you make a hundred thousand dollars salary at your day job. Well, then you have a side gig that makes you fifty thousand dollars. And say that you're saving off of a hundred thousand dollar income, so you're saving twenty-five percent, because your goal is at some point, I want to be able to replace some proportion of that. Maybe it's 60% of my income, maybe it's eighty percent. You've got to figure out the math, figure out what that is. Well, if the whole time you've been living, you've also had this fifty thousand dollar side income, this blow money, I would argue your lifestyle is not some percentage of your hundred thousand, it's actually substantially higher. Right? The reason that we save twenty-five percent of our gross income is so that when we retire, when we get to financial independence, we can replace a large enough portion of that that we don't take a lifestyle hit. Most folks in my experience, it's not everybody, but in my experience, they don't say, "Okay, done working, ready to live like a popper now, ready for retirement. I'm ready to eat cat food, hamburger patties, and just really batten down the hatches." Most people want to maintain the same standard of living they had before they stopped working. Well, if you have this side income and you're allowing the side income to subsidize your lifestyle, you're living high in the hog. Nothing wrong with that, just know that it's going to be hard to replace later on.
So, Kyle, in your situation, I love thinking about it as gross income. If I'm making a hundred thousand dollars at my day job and fifty thousand dollars in side income, I've got a hundred fifty thousand dollars. I want to save twenty to twenty-five percent of that for the future. I'll be saving that. Now, perhaps part of his future plan is saving for a down payment on the house. Okay, great, that can be chiseled in there. Maybe it's, "I've got to replace my car." Maybe it's, "I have these intermediate-term goals I have to hit." I think there is nothing wrong with that. That's what the income is there for. And a lot of times, people will do side income because maybe that's the thing that helps put the pool in, or maybe that's the thing that helps pay for private school, or maybe that's the thing that funds vacation. Nothing wrong with that. I just don't want you to go into it (because a lot of people, they think), "Let me step away from side income for a second." I get so frustrated with my executives because I'm like, "Alright, what's your salary? Oh yeah, I make $200,000 a year." Don't mishear me, it's a lot of money, making $200,000 a year. But they get a bonus, it's like $300,000 a year, and they're saying, "Saving" as though they make $200,000, when realistically they make $500,000. That is not going to lead to a solid financial plan later on in life. So just be realistic about what your true income is and make sure that your savings match that. Now look, if it's sporadic, some of us get paid quarterly, some of us get big bonuses at the end of the year, whatever that thing is, that's okay. Save consistently on your consistent income, and then save sporadically on your sporadic income. You've got side gig income, save 25% of that number. You've got bonuses, save 25% of that number. Just make sure that you are not playing a mental accounting deception game with yourself and pretending like you're not really making as much money as you're making. For more information, check out our free resources here