5 Banking and Financial Tips for Gen Z To Maximize Side Gig Income
Rule one for making more money: get a side hustle. Rule two: take what you earn and put it somewhere you can actually track and grow it. Simple in theory, but if you've ever tried to stretch a paycheck, you know the math gets messy fast -- especially for Gen Z workers just starting out in this economy.
Before you give in to financial nihilism, here are a few tips to squeeze the most out of your side gig.
1. Manage Your Net Worth
Knowing just how much your net worth is goes a long way in your financial planning. To help you sort that out, Paul Ferrara, the Senior Wealth Counsellor and Client Relationship Manager at Avenue Investment Management, has a quick breakdown.
“Income is what you are paid. Net worth reveals what you are holding on to. I have been sitting with clients who earn $200,000 and have less than $30,000 that can be invested. If you're saving less than 20% of your paycheck, you're certainly just barely making it.”
For everyone living paycheck to paycheck, saving 20% might feel unrealistic, but it’s this type of money move that makes a real difference in the long run. This applies to your spending habits as well. “When your assets are increasing, but your debt is increasing at a higher rate, you're not accumulating wealth, you are borrowing wealth,” said Ferrara.
2. Separate Business and Personal Finances
According to Jay Zigmont, founder of Childfree Wealth, a dedicated bank account for side gig income is essential, as this separation makes it easier to file taxes, calculate profits and identify deductible expenses.
"Anytime you do side gigs or run a small business, you should have a separate banking account," he said. "When people combine personal and business expenses, they often lose the ability to track how they are actually doing."
Zigmont recommended the Profit First process for tracking expenses through bank accounts; a system designed to clarify business finances and improve profitability.
3. Hit Age-Related Milestones
Gen Z looks at the comfortable retirement of boomers as if they're watching a dystopian Sci-Fi thriller. However, when you break down your financial goals into more palatable bites, everything seems much more achievable.
“When it comes to keeping up, age-related milestones are tangible. At age 35, you should have about two times your yearly income saved. When a person's income is increasing, but his or her net worth is not, that’s a big difference that grows rapidly…Real wealth provides options; the only way to know if you have options is to measure the right things,” said Ferrara.
4. Choose the Right Bank Account Type
Though Ferrara said, “Money in the bank is not money in your pocket,” business checking accounts offer features like higher transaction limits, payment processing and tax reporting tools that personal accounts may lack. Many banks now offer fee-free or low-fee options, which are critical for smaller operations.
For side businesses that accept cash, a local bank can be the most convenient option. However, if all transactions are online, Zigmont recommended looking into options like Mercury, Relay or Amex Business Checking for features and facilities tailored to digital businesses.
It's also worth looking for bonus offers. "I recently took advantage of a $300 bonus for opening a business bank account at my local Chase," said Zigmont. Bonuses like these can add value, particularly at the beginning of your career path.
On the flip side, watch out for the little ways you can hemorrhage money just by not paying attention to fees. Many accounts designed for businesses come with fees for maintenance, transactions or depositing cash. Research options that fit the nature of the gig, as, face it, the fewer expenses a side gig has, the better for wealth growing.
5. Automate Savings for Taxes and Expenses
Taxes are a reality for anyone earning side gig income, yet many overlook this responsibility. In fact, many young adults admit they haven't reported income from a side hustle on their tax returns. This can lead to serious consequences such as expensive fines or -- gulp -- jail.
Setting up automatic transfers to a dedicated savings account for taxes ensures there's money available when quarterly payments are due. Some business accounts even allow the creation of sub-accounts, making it easier to allocate funds for different areas of your business, including taxes.
Emily Fowler contributed to the reporting for this article.
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