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6 ways to manage finances with multiple income streams

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Having multiple sources of income, whether it’s from a side hustle, investments, or gig work, can bring more excellent financial stability to your life. However, it also adds complexity to your finances.

An increasing number of Americans rely on multiple income streams not only to enhance their financial security but also to meet their everyday needs. According to Bankrate’s recent survey on side hustles, 33 percent of those who have a side hustle rely on extra income to cover their living expenses.

Diversifying your income sources brings both benefits and challenges. On the one hand, you’ll have more cash flows to manage and include in your budget. On the other hand, additional tax obligations and the potential need to manage multiple bank accounts can be daunting. To effectively handle these responsibilities, here are some strategies to consider.

1. Create a comprehensive budget

Creating a comprehensive budget empowers you to have a clear overview of your monthly income and how you allocate it. Begin by documenting all sources of income and their corresponding amounts.

Next, identify your expenses. It’s beneficial to categorize them into essential expenses, such as rent, utilities, and loan payments, and nonessential expenses, like clothing and entertainment. Consider the specific needs associated with each income stream, whether investing in equipment for a side hustle or managing investment costs.

Lastly, don’t forget to allocate a portion of your income to savings, including emergency savings. By following these steps, you can ensure financial stability and make informed decisions about your money.

2. Streamline financial accounts

One of the initial steps to maintain organized bank accounts is to separate business and personal finances. Keeping different accounts makes it easier to track income and expenses for each stream, minimizing record-keeping errors and identifying business-related expenses during tax season.

However, managing multiple accounts can feel overwhelming. To streamline this process, you can link your accounts to a personal finance app that offers a consolidated view of all your finances. Apps such as Mint and Empower allow you to track earnings, expenses, and savings from each account on a single dashboard. This comprehensive overview enhances your financial decision-making and simplifies the regular review of transactions.

3. Automate savings and payments

Managing multiple income streams can quickly become overwhelming when manually allocating funds for savings, debt, and bill payments. Simplify the process and stay on top of financial commitments by automating your savings and payments.

To automate savings, consider setting up regularly scheduled transfers to a savings account through online or mobile banking or using a third-party savings app. Determine a specific percentage or fixed amount to save from each income source. This will be deducted from your paycheck and deposited into a linked savings account, ensuring a seamless and efficient savings strategy.

You can conveniently automate your bill payments through online banking. Simply navigate to the bill pay tab in your online banking portal and enroll to link your billers. This includes rent or mortgage, utility bills, loan repayments, and credit card payments. By automating these payments, you not only save time but also alleviate the stress of remembering and managing multiple due dates. Enjoy the convenience and peace of mind!

4. Pay attention to taxes

It is important to note that each of your income sources may have distinct tax implications. Understanding the specific rules and regulations that apply to each stream is crucial. If you engage in a side hustle, whether it is part-time or full-time, you are considered self-employed. In such cases, you will likely receive a year-end 1099-MISC income statement, which designates your self-employment income.

When filing taxes for your side hustle, it is advisable to consider any business-related expenses. This is because these expenses can reduce the amount you owe in taxes. Remember, you are only taxed on the profits you make. Some common categories of expenses to consider include:

  • Supplies
  • Legal and professional services
  • Car/truck maintenance
  • Insurance

To streamline the tax preparation process, it is crucial to maintain a meticulous record of all income and expenses throughout the year. It is advisable to keep copies of receipts, invoices, and financial statements.

Additionally, it is worth considering the tax advantages offered by retirement accounts. By contributing to a traditional IRA or 401(k), you can defer taxation and receive a tax break for those contributions. However, you will be required to pay taxes on future withdrawals. On the other hand, a Roth IRA entails paying taxes upfront, but your funds will grow tax-free until withdrawal.

For optimal tax compliance and efficiency, it is advisable to seek guidance from a tax professional. They can provide tailored advice based on your unique circumstances, ensuring that you receive the most suitable recommendations.

5. Use digital expense tracking

Managing and organizing your expenses across multiple income sources can be a cumbersome task when relying solely on spreadsheets. However, thanks to technology, this process has become much simpler.

With the help of digital expense-tracking tools, you can effortlessly categorize your expenses based on their respective income streams. In some cases, these tools may even automate the categorization process. Furthermore, you’ll have a comprehensive record of all your expenses throughout the year, which proves invaluable during tax season or when evaluating your financial standing.

Embrace the convenience and efficiency of these digital solutions to save time and maintain a clear overview of your financial situation. Say goodbye to the hassle of manual spreadsheet tracking and welcome the ease of technology into your expense management routine.

There are several budgeting apps available, such as Mint, that offer expense-tracking tools. With Mint, users can connect their accounts to the app, which then monitors and categorizes all transactions. While the app automatically groups expenses into categories, users also have the flexibility to personalize and rename these categories.

Expensify is another widely-used expense-tracking service that offers a unique feature: receipt scanning. By simply snapping a photo of a receipt, the app automatically captures the date, merchant, and amount of the expense. For individuals, the service includes 25 free receipt scans, with a monthly cost of $4.99 after that.

6. Regularly assess and adjust financial goals

Maintaining multiple income streams means that your financial situation can change frequently. Over time, you may prioritize different sources of income, have investments with fluctuating returns, or take on sporadic gig work. As your income streams evolve, so will your financial goals and needs.

Regularly review your budget to track your progress towards savings targets and debt reduction goals. By analyzing your income and expenses from each stream, you may discover areas where you can optimize spending and invest more in higher-yielding income sources. This will help you maximize your financial growth and stability.

For instance, let’s say you’re a freelancer who also earns passive income from investments. Initially, your freelance work may be your primary source of income, but as your investment portfolio grows, you’ll start generating more income from dividends and capital gains. This shift in income streams may require you to restructure your budget and financial goals. For example, you might consider saving a higher percentage of your freelance income and allocating more of your investment income towards additional investments or long-term savings.

By acknowledging and embracing inevitable changes, you can optimize your financial resources and consistently strive towards new goals, ensuring the utmost effectiveness and efficiency.

Bottom line

Effectively managing finances with multiple income streams requires meticulous planning, organization, and regular assessment. As your financial situation becomes more intricate, digital financial management tools can simplify the task of tracking expenses and budgeting.

Keep in mind that a dynamic financial situation with multiple income sources may necessitate more frequent revisiting of your budget and financial priorities compared to a single income stream. However, doing so enables you to maximize your income potential and accomplish your financial goals.

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