A significant number of Americans have a side gig. In fact, a late 2022 GOBankingRates survey found that roughly 38% of people have one or more side gigs — and this includes people who earn more than $100k a year. Some studies have found that this percentage might be even higher, as well.
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If you earn money from a side hustle, whether it’s via cash or online payments, you might not be sure about the best place — or places — to store it. After all, there are many options to choose from, and not all of them are as accessible or as secure as you need them to be. Some options also offer a higher return on investment than others, something that’s particularly beneficial if you’re trying to secure a financially stable future.
Considering these factors, experts shared the best and safest ways to store or save extra money from your different side gigs.
Separate Checking or Savings Account
Perhaps the simplest way to store your side gig income is in a bank account that’s separate from your main income. This can make it easier to keep track of your income for tax purposes.
“Put it in a separate account to help track your earnings,” said Andrea Woroch, a nationally-recognized consumer finance and budgeting expert. “Remember, you have to report any income you earn over $400 in a calendar year to the IRS, and you will owe taxes on it. Although you should get a 1099 if you earn over $600, some companies fail to send these out, so you will want to keep track closely to avoid any hiccups and potential penalties on your taxes.”
High-Yield Savings Account
A high-yield savings account, or HYSA, is another secure option that tends to have a higher yield than traditional savings accounts.
“Open a high-yield online savings account which offers higher interest rates back on your money [and] makes money for you,” said Woroch. “For example, Bread Savings High Yield Savings Account offers a competitive 5% APY and only requires a $100 minimum to open an account. This means your side hustle income will grow on its own to help you save more effortlessly and also make more money.”
Scott Lieberman, founder of TouchdownMoney, suggested diversifying your side gig income, however.
“I think diversification is key, even with smaller amounts of money,” said Lieberman. “So, start by putting the money for your side gig into a high-yield savings account — and enjoy those higher-than-average interest rates we’re seeing today. But once you have $500 or so, try putting your next few hundred dollars into bonds, and the next few hundred after that into an index fund. From there, you can divide further earnings between these different accounts and investments.”
He added, “Not only does this strategy balance risk and reward, but it also helps you develop sound wealth-building habits. Remember, it’s not just the mega-rich who should have ‘diversified portfolios.’ You should have one, too!”
Professionally Managed Investment Portfolio
A professionally managed investment portfolio helps you diversify your investments, grow your money, and manage risk.
“The best place to invest your side gig money for growth depend on your goals and risk tolerance,” said Rahul Paragi, founder of MoneyFreed. “For hands-off development, a robo-advisor like Betterment or Wealthfront provides affordable access to professionally managed investment portfolios.”
Individual Retirement Account
“For more active investing, a self-directed IRA through a brokerage firm gives you more flexibility but requires more research,” said Paragi.
An IRA, or individual retirement account, is a tax-advantaged investment account. It’s also a popular way to build a retirement savings fund and invest in a secure financial future.
For 2023, the current yearly contribution limit to a traditional IRA is $6,500 if you’re 49 years old or younger. If you’re at least 50 years old, you can contribute an extra $1,000 each year as a kind of catch-up contribution. Another option is a Roth IRA. Annual contribution limits depend on things like your income and filing status.
Secured Online Payment Service
There are many secured payment services available online, such as PayPal and Venmo. Many people with a side hustle use these types of services not only to get paid, but also to keep some of their money and pay for certain expenses.
“For getting paid, I’m a big fan of digital payment platforms like PayPal, Venmo, or Square Cash,” said Paragi. “They allow fast and secure money transfers, provide records of payments, and avoid the risks of handling cash. PayPal in particular makes it easy to create invoices and receive payments seamlessly.”
You may not want to keep your money in an online payment service for long, though, especially if you want it to grow upon itself. But this can be a good option if you intend to spend some of your side income on specific purchases in the near future.
Other Investment Accounts
There are several other secure options in which you can keep the extra money you earn from side gigs, including:
Money market accounts: These accounts work similarly to traditional savings accounts, but they typically offer a higher yield. They’re also accessible and secure.
Certificates of Deposit (CDs): CDs are generally considered a secure place to store and grow your extra side income. You’ll need to keep your money in the CD until it matures, or else risk facing an early withdrawal penalty, so keep that in mind.
Short-term bonds: If you want to invest some of your cash for around 5 years or so, consider getting a short-term bond. Like other investment vehicles, these come with some level of risk. They can, however, see a higher return than a typical savings account.
Index funds: For a long-term investment solution, consider putting your cash in an index fund. “Index funds are a great way to grow your money long-term without picking individual stocks,” said Paragi.
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This article originally appeared on GOBankingRates.com: Experts: 6 Safest Places To Put Your Side Gig Income