In the personal finance community the idea of attaining FIRE (Financially Independent / Retire Early) has gained steam in the past few years and was popularized by Mr. Money Mustache. Check out my FIRE Prowess Score here. To start the path to FIRE you first need to save a considerable amount of your paycheck. If you have a high savings rate you could also become a millionaire! The next step to FIRE is to increase your income. There are several ways to do this, but this post will focus on the two most common. If you are at a full time job that pays overtime should you work extra hours or you should you start a side hustle in your spare time?
Overtime At Full Time Job
People usually decide to work overtime at a full time job either because there aren’t enough hours available to get their work done or they are trying to earn additional income. If you have the choice to work overtime, should you jump at the chance? There are several factors to consider:
- If you work overtime you may be increasing your chances at a promotion
- Is there a minimum number of hours you have to work to get compensated?
- Do you get paid at a higher rate if you work overtime?
- Do you get future PTO for extra hours worked?
- How many hours of overtime are you allowed to work?
There is an example from Time of a San Francisco Bay Transit Authority (BART) janitor making more than $270,000 in 2015 with $162,050 coming from overtime. While this required him to put in an extreme amount of overtime it shows that there are possibilities for earning extra from your current job. You don’t have to worry about starting something new on the side and dealing with startup costs or tax implications.
I want to give a shout out to Mrs. Picky Pincher who posted about the FIRE community’s obsession with side hustles. This is a good read on the pros and cons of side hustles.
Some people are unable or unwilling to work overtime at their job. Maybe their current job is only part time so they need to supplement income with an additional income stream. It’s also possible that they do not like their work environment and do not want to spend any additional time at their office. Here are some factors to consider for starting side hustles:
- How stressful is it to juggle multiple side hustles?
- What are the tax implications?
- Is there a conflict of interest with your current employer?
- Is there opportunity to earn more than your current job?
- What is the cost to entry and the learning curve?
Forbes has an example of a woman working a full time job, earning a 6 figure salary, but starting a coaching business in her spare time. She was able to grow her side business into earning $1M a year. While this example will not happen for most people it shows there is a potential to earn significantly more than your current job.
The other obvious benefit of a side hustle is that it adds income diversification. If you get laid off or you want to quit your job you have other options available immediately. The downsides are that side hustles do not usually come with benefits like PTO, sick time, 401k matching, health care, life insurance, etc. If you rely solely on side hustles for employment then you may have to earn considerably more than a full time job to match the benefits.
Readers, which option do you believe is better for FIRE? Should you work overtime or start side hustles?