How to Make Money (Legitimately) from Home
Money Girl discusses why you should create multiple sources of income, the best ways and places to get started, and important tax considerations – plus tools and tips to make sure you manage home business income the right way.
One of the most effective ways to turbo charge your financial success is to ramp up your household income. No matter your skills or interests, there are many legitimate – and even quick – ways to make money from home.
In this episode, I’ll discuss why you should create multiple sources of income, the best ways and places to get started, and important tax considerations, plus tools and tips to make sure you make money from home the right way.
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Why You Should Make Money from Home
Many people have realized that working for the same employer for 30 or 40 years and then retiring on a fat pension is an outdated, unrealistic work model. Not only are pensions a rare benefit these days, most people want a diversified career that reaches far beyond a single organization.
Having one or more side businesses—even in addition to holding down a traditional W-2 job—is getting more and more common. One of my all-time favorite books, Multiple Streams of Income: How to Generate a Lifetime of Unlimited Wealth, explains why you should have several income streams, and details the main types that are possible.
The benefit to having multiple sources of income is more financial security. If one income stream dries up because you lose your job or the market changes, you have one or more other streams that keep flowing into your bank account.
The book was a huge influence on my career because it got me to think big early on. All of a sudden, I realized that there are hundreds of creative and fun ways make money outside of, or in addition to, a 9 to 5 job, such as in real estate or intellectual property.
How many income streams you can manage will depend on the amount of time each one requires. I love passive income streams that pay you while you sleep, such as royalties and certain types of online business, because they allow you to really leverage your time.
The benefit to having multiple sources of income is more financial security. If one income stream dries up because you lose your job or the market changes, you have one or more other streams that keep flowing into your bank account.
There are many unexpected benefits that I’ve received from side hustles, besides extra money. They can help you develop new skills, meet new people, become more creative, and offer experiences that boost your happiness.
See also: How to Make Money Using Skills and Resources You Already Have
5 Tips to Make Money from Home
Here are 5 important tips and ideas for making more money working from home:
Tip #1: Leverage Skills You Already Have
To figure out what side-hustle(s) you should have, ask yourself these questions:
- When I have spare time, what do I enjoy doing?
- When people come to me for advice, what’s it typically about?
- What problem have I recently helped solve for someone that was easy for me?
Maybe you’re the go-to guy when a friend has a computer problem, a car problem, or needs advice about how to redecorate. Or maybe you love writing, cooking, doing graphic design, or taking pictures in your spare time. These are all great niches that you can monetize.
See also: Retire Rich Using These 5 Tips
Tip #2: Be Open-Minded About Opportunities
There are two basic ways to make money from home: providing a product or a service to individuals or businesses.
- Provide a product: If you have something unique or interesting to sell, such as vintage wedding dresses, original art, jewelry, or handmade furniture, you can create a store on sites like Etsy, eBay, or Amazon.
- Provide a service: There are hundreds of services that are in demand. Examples include copywriting, fitness training, pet sitting, guitar lessons, virtual online assistance, daycare, tutoring, or editing audio.
An increasing number of large companies are hiring remote workers for positions such as customer service representatives, advisors, trainers, graphic designers, and user experience analysts. Use a site like Indeed to do a job search for home-based opportunities.
Check out the following peer-to-peer sites and services that allow you to find people who want to pay you:
- Taskrabbit is a marketplace where you can help others in your area with basic tasks such as moving, hanging pictures, cleaning, or organizing.
- Uber allows you to collect a fare as a professional driver, in some major cities.
- Airbnb allows you to rent out a room in your home.
- Usertesting.com allows you to get paid for simply using websites and giving feedback about their usability.
- Fiverr is a marketplace where you can provide services or products in over 100 different categories, such as translation, graphics, and tech.
- Elance allows you to bid on freelance jobs in many different niches, such as programming, writing, marketing, customer service, and administration.
See also: Tax Deductions for Your Job Expenses
Tip #3: Start Slowly
I recommend that you never jeopardize your primary source of income while building other revenue streams.
An Academy of Management study found that keeping your day job while dipping your toes into entrepreneurial waters can cut the risk. I recommend that you never jeopardize your primary source of income while building other revenue streams.
Also, don’t spend a huge amount of money creating a side hustle. While there are success stories about people who risked everything on a start-up and succeeded, I don’t recommend that you rely on that strategy.
If a venture you start really takes off, you can always quit your day job later on and give it your full attention. Or you may be like me and decide that your goal is to have the security and benefits of multiple revenue sources.
While starting any side hustle can be risky, many can be done in your spare time and with little or no money. For instance, I’ve written many books, including my award-winning paperback, Money Girl’s Smart Moves to Grow Rich, while working full-time.
I’m very entrepreneurial, but also somewhat financially conservative. So when it comes to starting something new, I prefer the “crawl, walk, and run” approach. The idea is to create a side venture to improve your financial life, not one that ends up hurting it.
See also: How to Make More Money (Without Getting a Second Job)
Tip #4: Understand the Self-Employment Tax
When starting a side hustle or any home-based business, many people don’t realize that you pay much more tax on that income than you do working a W-2 job. That’s because employers are required to subsidize every employee’s tax liability, and they pay half of your Social Security and Medicare taxes on your behalf every year.
No matter if you call yourself a freelancer, independent contractor, or entrepreneur, when you make money on the side, you’re a small business owner. That means you’re responsible for paying the whole tax enchilada. The extra part is called the self-employment tax, which is required in addition to ordinary federal or applicable state income tax.
For 2014, the self-employment income tax rate is 15.3% of net earnings from your business. That amount is made up of 2 parts: Social Security (12.4%) and Medicare (2.9%). You only pay Social Security on the first $117,000 of self-employment income, but the Medicare portion applies no matter how much you make.
So, my advice is to set aside a minimum of 30% of your side business income throughout the year. Work with a certified tax accountant, because being self-employed generally requires you to make estimated tax payments every quarter, based on your income projections. For more information, see IRS Publication 334: Tax Guide for Small Businessopens PDF file .
Tip #5: Take Advantage of Business Tax Deductions
While having to pay more tax is a bummer, the good news for entrepreneurs is that there are some nice tax benefits when you make money from home.
For instance, you may qualify for the home office tax deduction, if you have a dedicated workspace for your business where you live. You can deduct a portion of expenses that you’d have to pay anyway, such as rent, property taxes, and utilities, when you have a qualified home office.
So no matter if you use a spare bedroom to do graphic design or a portion or your garage to build furniture for a legitimate business, the deductions can really add up. To learn more, see IRS Publication 587: Business Use of Your Home.
Additionally, expenses for running your business are deductible, such as office supplies, computer software, liability insurance, entertaining, or travel. Claiming deductions reduces the amount of tax you owe. See IRS Publication 535: Business Expensesopens PDF file to learn more.
Online Tools to Manage Home-Based Business Income
Here are some of my favorite tools for managing income from small businesses:
- QuickBooks is the gold standard bookkeeping software for use on your desktop or in the cloud. It’s easy to understand (even if you’re not an accountant) and is loaded with functions.
- FreshBooks is a cloud-based application for tracking invoices, expenses, and time spent working, and integrates with online bank accounts.
- Wave is a cloud-based application for tracking invoices, expenses, and payroll for a small business—plus, it also offers other tools and features for your personal finances.
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Work From Home and Money From Laptop images courtesy of Shutterstock
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
