These days, a second job has become a long-term necessity for some to financially survive. But for others it’s a short-term solution to hit a certain financial goal such as paying off debt faster or saving money for the down payment on a house.
Ideas for a second job include: teaching courses at the community college, working during the holiday season at a retail or department store, consulting, bar tending or pizza delivery.
Whatever your motivation for finding a second job, it’s important to actually work toward a goal; otherwise it’s not worth the time and effort.
A second job may incur additional expenses such as gas or babysitting. So, if you have to drive an extra hour to earn at or around minimum wage, it’s probably not worth your while. To spare yourself the hassle of another job, check first about working overtime at your full-time job or perhaps do some freelancing.
Set a goal of how much money you need and exactly how you will use this money. If you blow through every penny you make, why even bother with a second job?
One of my clients created a colorful wall chart. He crossed out debts as he paid them off with the earnings from his second job. This was his motivator to sacrifice a few evenings and weekends and it worked. He paid off his student loans two years early.
Set aside extra money for taxes. If you work only a few hours, your second paycheck may not withhold enough taxes and you certainly don’t want a surprise bill from Uncle Sam.
Don’t compromise your full-time job. You need to decide whether to tell your boss about your second job. Keep in mind that you may be putting yourself at risk. On one hand, your boss could show some understanding if you need to leave earlier. But on the other hand, remember that there is a large pool of job candidates who would eagerly take your position.
Here are a few tax issues to watch out for:
If you moonlight as a bartender and earn tips, keep in mind that tips are taxable as income. You must report tips of $20 and more to your boss by the 10th of each month. IRS (www.irs.gov) has a form 4070A to help you keep track of your tips.
If you do consulting and get paid as an independent contractor: Since you are essentially working for yourself, your client does not do any withholding, making it your responsibility to pay taxes. Your client should mail you a 1099 reporting how much was paid to you for services rendered.
If you expect to earn more than $1,000, you are supposed to make quarterly estimated tax payments throughout the year. The payments are due by the 15th of the month following each quarter. If you don’t make payments, you will be hit with a penalty.
Whether a second job is necessary to merely survive, pay off debts or to set aside money for a home or an education, be sure to have a plan. A clear road map will chart a course to your destination that avoids the bumps and hazards along the way.
Mystified by money and want to improve your financial effectiveness? Denisa Tova CFP®, CDFA, MBA is a Colorado Springs-based Certified Financial Planner and a Certified Divorce Financial Analyst. Contact her at DenisaTova.com or email denisa.tova@gazette.com.
