6 Common Mistakes Side Hustlers Make—and How to Avoid Them

It's possible to purchase the items you love from Anthropologie without breaking the bank.

Andre Spicer, a business professor, was delighted when his 5-year-old daughter expressed interest in an entrepreneurial endeavor. He couldn’t have foreseen the outcome, though: a firsthand lesson in side hustle mistakes and a nearly $200 fine, according to a July article in the Telegraph.

Spicer and his daughter decided on a lemonade stand and set up shop on a busy sidewalk near their London home. They quickly attracted customers and sold out.

Unfortunately, the father-daughter duo also attracted the attention of local law enforcement.

An officer approached and “read a lengthy legal statement—the gist of which was that because my daughter didn’t have a trading permit, she would be fined £150,” Spicer wrote, an amount equal to about $200. His daughter burst into tears and repeatedly asked, “Have I done a bad thing?”

This experience is a cautionary tale for side hustlers and other small-business owners, proving that it’s all too easy to run afoul of the law when you try to launch a side business.

6 Common Legal Mistakes Side Hustlers Should Sidestep

Ignorance of local business laws and legal requirements could result in hefty fines and fees. These needless costs can set you back or permanently damage your side business.

You probably can’t afford to make such mistakes with a fledgling side hustle. Here’s a look at common ways your side hustle could break the law—and how to make sure it doesn’t.

1. Failing to Get Proper Business Licenses and Permits

Let’s start with the example of Spicer and his daughter. They were fined for operating a business without proper permits. Business laws in the US differ from those in the UK, but ignoring them could land you in similar trouble.

Here are just a few of the permits and licenses you might need to offer services or products.

  • Local business licenses: Most cities or counties require business licenses and will levy fees or force you to suspend operations if they discover an unlicensed business. Your local Small Business Administration (SBA) office should be able to help you sort through the local rules and figure out how to get a business license.
  • Occupation-specific licenses: There may be regulations for the specific kind of business you own. For example, you’ll likely need a specific license for a side business preparing or selling food or providing home-based child care.
  • Federal business licenses and permits: The SBA provides a list of federal business licenses and permits you might need, such as liquor licenses.
  • Doing business as: If the customer-facing name you use for a business differs from its legal name, you’ll have to file the former as your doing business as (DBA) name. You can do so by filing a DBA application with your local government office, which usually includes a fee.

Though some requirements are obvious, side hustlers often won’t find out about lesser-known permit requirements unless they check local commercial regulations regularly and thoroughly.

2. Violating Local Zoning Laws or Your Lease

Many side hustles and startups are homegrown. But when you start a commercial enterprise in your home, you can run into legal red tape.

Taking the time to ensure your business is properly zoned will prevent costly fees or a shutdown of your new business. Check the following documents for rules and restrictions on doing business out of your home.

  • Local ordinances and zoning laws: Your city or county might restrict businesses from operating in certain residential areas, and some local laws might allow only certain kinds of home businesses. You can find and review those rules at your city or county clerk’s office, on municipal government websites, or at your local library.
  • Your lease agreement: If you have a landlord, be sure that your business operates within the terms of your contract. Many leases have clauses that forbid subletting or short-term renting, for example, which could kill an Airbnb side hustle.
  • Your homeowners association (HOA): If your home or condo is in a neighborhood governed by an HOA, check out its rulebook (often called a Declaration of Covenants, Conditions, and Restrictions) for any rules concerning home businesses.

The above regulations might also limit how or when you can operate your business. For instance, an on-the-side carpenter who works in the evening might violate quiet hours or noise ordinances. A sign advertising an in-home hair salon could be considered an eyesore by an HOA.

You don’t automatically have to accept a “no” you get from the city, your landlord, or your HOA, though. Check for a way to appeal the rule and to ask for a variance or exception.

3. Infringing on Your Employment Agreements

You probably don’t want your side business to get you fired from your day job, right? Avoid this outcome with a full review of your employer’s rules and the hiring documents you signed, including the company’s employee handbook and policies, your employment contract, and any nondisclosure or noncompete agreements. Watch for language that clarifies whether your business would violate any of your contract clauses. If these documents don’t offer clear answers, ask a human resources manager.

Even if your company allows side businesses, you should proceed with caution. Avoid conflict between your employment and side hustle with these tips.

  • Work on your own time and on your own property: Don’t work on your side hustle on company time. And don’t use company property to work on your side hustle, either, whether it’s a company-owned laptop, email address, or software service account login.
  • Don’t use your employer’s intellectual property: Never use employer-owned proprietary knowledge, trade secrets, contact lists, or other materials for your side business.
  • Differentiate your side business from your employer: You shouldn’t be competing with your employer. If your business is similar, try to serve a separate target market, and make sure your products or services are sufficiently unique.

Better yet, build a business that’s completely different from your day job. You’ll avoid these legal issues and prevent side hustle burnout.

4. Skipping Business Liability Insurance

Protecting your business from legal issues includes insuring yourself against lawsuits and other legal actions people might take against you. Business liability insurance covers judgments as well as the costs of defending lawsuits.

Take the example of Student Loan Hero writer Kat Tretina, who built her own pet-sitting business on the side. She’d heard horror stories about sitters being held responsible for a pet damaging furniture or for a burglary after losing a key, so she knew getting her own policy was a must.

Many sharing economy–based companies such as Rover, Uber, and Airbnb include insurance as part of their services. Owners starting up on their own, however, will need to find and purchase their own business liability insurance.

5. Mishandling Business Taxes

When you start a new business, it’s crucial to set out with the end in mind—specifically, the end of the fiscal year, when you’ll have to file taxes for your side business.

Complicated business tax codes make it easy to file an erroneous return or fail to claim an important deduction. Either mistake can cost your business money or draw the scrutiny of the IRS.

Forestall unexpected tax bills or penalties and fees from missed tax payments by following some business tax best practices.

  • Set aside money for taxes or pay taxes quarterly: By setting aside money and paying on time, you’ll avoid late fees, penalties, and sky-high tax bills that you can’t afford come April.
  • Keep all receipts for business purchases: This will make it easy to calculate and write off your side hustle costs—and cover your bases in case of an audit.
  • Separate business funds and purchases from your personal finances: Keeping separate accounts for your business will help ensure you don’t mix up any expenses.
  • Create a specific place and time to work on your business: Having a set number of hours per week and square footage you dedicate to your business will make it easier to track and deduct business costs when you file taxes.
  • Pay others appropriately: Say you have a friend who runs your books for you. Is she your employee or a contractor? You’ll need to know the difference to calculate taxes you owe and file appropriate income tax forms.
  • Choose the right business structure: Do you run a sole proprietorship, general partnership, or limited liability company? You need to know, because how you set up your side business will affect how you pay and file taxes.

6. Trying to DIY When You Need Professional Help

The above tips offer some great guidelines to get a side business up and running without too many legal hang-ups. But at the end of the day, they can’t replace professional legal and tax advice.

Local business laws and regulations can vary widely, as can your personal business plans, structures, and management systems. You can and should read up on commercial regulations and tax codes, but the best way to know for sure that your side hustle complies with all legal and tax concerns is to hire a professional.

An hour with a lawyer or accountant is a worthwhile investment to shore up your business practices and ensure your operation is on the right side of the law. When in doubt, hire a professional to clarify any fuzzy areas. Your growing business—even if it’s just a lemonade stand—could depend on it.

Starting a side hustle takes some planning, but it can really pay off if it’s done right. For help finding loans and getting your business off the ground, take a look at Credit.com’s Small Business Loan marketplace.

Image: monkeybusinessimages

The post 6 Common Mistakes Side Hustlers Make—and How to Avoid Them appeared first on Credit.com.

3 Financial Mistakes That Could Ruin Your Military Career

Money might not seem like a priority when it comes to the military, but it plays a much bigger role than you might think.

Serving in the military is a serious commitment. Signing on the dotted line means dedicating years of your life to service—not to mention a lot of work. There are examinations to pass, sacrifices to make, and physical fitness standards to meet. When you have made all that effort, you don’t want financial mistakes to affect the livelihood you have worked hard for.

Here are three financial mistakes to avoid if you want to protect the military career you have earned.

1. Misuse of Your Government Travel Charge Card

A Government Travel Charge Card (GTCC) is meant to be used for approved expenses during temporary duty. It’s not for you to hit up Bed Bath & Beyond on the weekend (even if you have a coupon). The GTCC program is monitored, and improper use of the card will be reported to your leadership.

Your supervisors need to know that you will follow the guidelines for proper use throughout your career. Not having the discipline or knowledge to use a GTCC correctly can have a detrimental effect on your military future. Only use your card for official expenses, and don’t forget to pay your bill on time too!

2. Late Military Star Card Payments

The Military Star Card is available to military personnel and is administered by the Army and Air Force Exchange Service (AAFES). Unlike the GTCC, the Star Card is a regular credit card: you may use it anywhere from uniform purchases at clothing stores to snacks at the gas station. What many servicemembers aren’t aware of is that AAFES is a branch of the Department of Defense. When you don’t pay your Star Card bill, it’s like not paying your boss the money you owe them (they’ll notice). In fact, when you don’t pay your Star Card bill, the terms and conditions clearly state the AAFES will “notify your unit commander about [its] Account collection efforts.

If your commanding officer gets a notification from AAFES that you aren’t paying the bill, you can be sure that won’t help your career. Not meeting your financial obligations gives the impression that you will likely not be good at managing people or your job. Pay your Star Card bill on time to ensure it has no negative ramifications on your military career.

3. Lots of Debt

Debt is always an issue, but it can lead to especially serious problems for those in the military for a few reasons. First, a high amount of debt could cause you to fail a security clearance background check. Not having a security clearance will make you ineligible for many jobs in the military and can therefore ruin your chances of a long military career. Second, financial troubles and debt can be a huge source of stress, and that stress can negatively affect your ability to make decisions—and that’s not something you want to deal with when you’re on active duty. Create a budget and spend less than you make to help pay down your debt and keep your military career thriving.

If you need more help avoiding financial mistakes, visit our Personal Finance Learning Center for additional tips.

Image: Catherine Lane

The post 3 Financial Mistakes That Could Ruin Your Military Career appeared first on Credit.com.

8 Financial Choices You’ll Regret in 5 Years

Financial success will come easier if you can avoid these common mistakes.

If your goal is getting ahead financially, the formula for success is simple: Maximize tax-advantaged retirement accounts early, boost your savings with a Roth or traditional individual retirement account, choose investments you feel comfortable with and avoid debt like the plague. If you do those four things, you’re bound to enjoy less stress and more wealth over time.

But is it always that easy? Absolutely not. As you move through the various stages of life, you’ll encounter myriad pitfalls and temptations that can knock you off track – some of which can seem like a smart idea at the time.

Speeding toward financial independence is easier when you know which financial choices can slow you down. I spoke to a handful of top financial advisers to get their takes on the most common financial choices their clients live to regret. Here’s what they said.

1. ‘Investing’ in a New Car

“At first blush, buying the latest and greatest version of the ultimate driving machine may seem like a value worthy of your hard-earned money,” says California financial advisor Anthony M. Montenegro of Blackmont Advisors.

Unfortunately, new cars depreciate the moment they leave the lot, and continue dropping in value until they’re worth almost nothing. If you finance the average new car priced at more than $30,000 for five years, you’ll pay out the nose for a hunk of metal worth a small percentage of what you paid. (Remember, a good credit score can qualify you for lower interest rates on your auto loan. You can see two of your scores for free on Credit.com)

Pro tip: Buy a used car and let someone else take the upfront depreciation, then drive it until the wheels fall off. Once five years has passed, you won’t regret all the money you never spent.

2. Not Watching Your Everyday Purchases

While big purchases like a new car can eat away at your wealth, the little purchases we make every day can also do damage, says Maryland fee-only financial adviser Martin A. Smith. If you’re spending $10 per day on anything — your favorite coffee or lunch out with friends — your seemingly small purchases can add up in a big way. (If you must feed a coffee habit, the right credit card can help make it more worthwhile.)

Keep in mind that $10 per day is $300 per month, $3,600 in a year and $18,000 after five years. While you may not regret your daily indulgences, you may regret the savings you could have had.

3. Not Refinancing Your Mortgage While Rates Are Low

While refinancing your mortgage is anything but fun, now may be the perfect time to dive in. That’s because interest rates are still teetering near lows, says Colorado financial adviser Matthew Jackson of Solid Wealth Advisors LLC.

Even one percentage point can cost you – or save you – tens of thousands of dollars in interest over the years. Since rates will eventually go up, you “don’t want to miss the opportunity now,” says Jackson.

4. Buying Too Much House

Buying the ideal home may seem like a smart idea, but does your dream home jive with your financial goals?

Unfortunately, buying more house than you need can lead to regret and financial stress, says Vancouver, Washington financial planner Alex Whitehouse.

“Too much income going to housing payments makes it difficult to fully furnish rooms, keep up with rising taxes, and often leads to struggles with maintenance and utility costs,” notes Whitehouse.

Banks may be willing to lend you more than you can reasonably afford. If you want to avoid becoming house-poor, ignore the bank’s numbers and come up with your own.

5. Borrowing Against Your Retirement Account

While you can borrow against your 401K plan with reasonable terms, that doesn’t mean you should. If you do, you may regret it for decades.

“Millennials often ask if it’s okay to access their 401K or IRA early (before age 59 ½) to buy a home, travel or pay off debt,” says Minnesota financial adviser Jamie Pomeroy of FinancialGusto.com.

However, there are numerous reasons to avoid doing so.

Not only do you normally have to pay a penalty to access retirement funds early, but you’ll pay taxes too. Most important, however, is the fact you’re robbing your future self. You will regret the lost savings (and lost compound interest) when you check your retirement account in five years.

6. Not Using a Budget

While many people buy the notion that budgets are restrictive, the reality is different. If used properly, budgets are financial tools you can use to afford what you really want in life.

“I would suggest that you create a budget that you stick to,” says financial planner David G. Niggel of Key Wealth Partners in Lancaster, Pennsylvania. “At the end of the year, you have the chance to evaluate your spending habits and make some serious changes if necessary.”

If you don’t, your finances could suffer from death by a thousand cuts.

7. Not Saving as Much as You Can

While it’s easy to think of your disposable income as “fun money,” this is a decision you could live to regret in five years.

The more money you have saved later in life, the more flexibility you’ll have, notes fee-only San Diego financial adviser Taylor Schulte. And if you don’t get serious about saving now, you could easily regret it in the future.

According to Schulte, you should strive to “play it safe” when it comes to your savings.

“I’ve never heard anyone regret having too much money,” says Schulte. “But, I’d be willing to bet we have all heard far too many people complain about not saving enough or not starting earlier.”

8. Not Buying Life Insurance When You’re Young

If you are married, own a home, or have children, you need life insurance coverage. Unfortunately, this is one purchase that becomes more difficult – and more expensive – as you age.

If you don’t buy life insurance when you’re 25, you can expect to pay a lot more for coverage when you’re 30, 35, 40 and so on. And if you wait long enough, you may not even be able to buy it at all, says New York financial planner Joseph Carbone of Focus Planning Group.

As Carbone notes, if you develop a chronic health condition before you apply for life insurance coverage, you could easily become uninsurable. To avoid regretting inaction in five or 10 years, most people would benefit from applying for an inexpensive, term life insurance policy as soon as they can.

Image: Ridofranz

The post 8 Financial Choices You’ll Regret in 5 Years appeared first on Credit.com.

Your Financial Ignorance Could End Up Costing You Thousands

Everyone makes mistakes, but you can avoid these common financial blunders and end up saving yourself a lot of money.

None of us like to make mistakes, even though they’re frequently part of the learning process. Still, if you could avoid making mistakes, especially with your money, you’d probably prefer to do so rather than wasting your hard-earned dollars on bad decision making.

If that’s you, take heed. Here’s your chance to learn from others and avoid their mistakes.

A recent study by the National Financial Educators Council (NFEC) found that 28.8% of Americans aged 65 or older said their personal lack of knowledge about personal finances caused them to lose $30,000 or more in their lifetimes.

NFEC asked participants across age groups, “Across your entire lifetime, about how much money do you think you have lost because you lacked knowledge about personal finances?” Across all age groups, respondents said their lack of financial knowledge had cost an average of $9,724.83, with nearly a quarter of respondents reporting a loss of $30,000 or more.

The survey didn’t ask participants how they lost their money, or what bad decisions they made that led them to part with their cash, but the problem frequently boils down to one thing — people thinking they know more than they actually do. Case in point: Another recent study by Sallie Mae, “Majoring in Money: How American College Students Are Managing Their Finances,” looked at the financial habits of college students between the ages of 18 and 24, including the methods they use to pay for purchases, their knowledge and use of credit, and their money management skills.

Of those surveyed, 65% thought their money management skills were good or excellent. In reality, only 31% of these respondents answered three basic financial questions correctly. The questions were on how interest accumulates, how repayment behavior affects the cost of credit over time and how credit terms affect the cost of credit over time. (You can take a financial capability survey on the NFEC site to see how you compare nationally.)

Whatever your age, making financial decisions on assumptions or only part of the facts can lead to frustration and economic loss. But if you’re in your teens or 20s, chances are you haven’t made any major financial missteps, and can potentially avoid them altogether.

Let’s take a look at some of the key areas of the study and address how you can avoid making mistakes that could end up costing you thousands over your lifetime.

Paying Bills On Time

A large majority of respondents to the Sallie Mae survey said they pay their bills on time — a whopping 77%. Not paying bills on time can result in late payment fees. If they go unpaid long enough, there can be a snowball effect when they end up in collections. Suddenly, that unpaid phone bill is hurting your credit scores, which means it will cost you more in interest when you apply for things like credit cards, auto loans or a mortgage.

If you struggle to pay your bills on time, you’ll want to look at exactly why. Is it because you don’t have enough money to make the payments when they come due? You’ll be well served by reviewing your spending habits, creating a monthly budget and sticking to it. Are you just forgetful? Automating your bill payments can help tremendously.

Setting Aside Savings

A surprising 55% of college students reported setting aside savings every month. Having a financial safety net is important in the event of an emergency — your car breaks down, you break your leg and can’t work, you lose your job. Having an emergency fund or savings account is an important first step when it comes to financial security, so take a look at your budget and figure out how you can start saving small, eventually setting aside enough income to live on for three to six months if needed.

Tracking Your Spending

We’ve already mentioned it twice, but we’ll say it again: Having a budget is important if you want to stay in control of your finances, and tracking your spending is an important part of the budgeting process. More than half of college students surveyed (56%) said they track their spending, and you should too. There are lots of helpful apps available to help make it easier.

Having a Paying Job

If you’re in college and aren’t working, you may want to reconsider that choice. 65% of students surveyed said they had a paying job, and there are numerous studies that show students who work tend to manage their time better. Working also gives you the opportunity to manage your money better. Think of the nest egg you could put away if you don’t need the extra spending money.

Getting a Credit Card …

The majority of students surveyed (59%) said their No. 1 reason for getting a credit card was to begin building credit, and that makes a lot of sense. A credit card, wisely used, is one of the best ways to establish credit. There are lots of good credit cards for students that offer added incentives for making good grades and paying bills on time. There are also secured credit cards if you can’t qualify for a standard card, or you can ask a parent or guardian to become an authorized user on one of their cards to help you establish credit.

… & Managing It Well

According to the survey, 36% of respondents said they never charge a purchase without having the money to pay the bill when it arrives, while 23% said they have rarely done so. On the flip side, 25% said they sometimes do this, and another 15% said they do it frequently.

If you’re charging too much on your credit cards because you just need that latest gadget, keep in mind you’re only making life harder for your future self by racking up debt. If you’re charging too much because you’re using your credit card as an emergency fund for unexpected bills, you may want to consider the additional costs you’re incurring to pay off that debt. Putting a little money aside and earning interest on it is a much better alternative financially.

… By Paying Off Balances Every Month

The absolute best way to ensure you don’t get into credit card debt (and to boost your credit scores as much as possible) is to pay off your credit card balances every month. The survey found that 63% of the students surveyed pay off their balances in full each month. These students also tend to have lower average monthly balances — $825 compared to $1,635 among those who pay only the minimum amount due.

Carrying $1,500 in debt every month on a credit card with an APR of 15.99% can cost you more than $200 a year in interest. You can use this handy credit card payoff calculator tool to see how long it will take you to pay down your debt.

Paying Your Student Loans on Time

Just like making credit card payments on time (and in full, if you can) making student loan payments on time can have a significant positive impact on your credit scores, meaning you’ll qualify for better interest rates on better products with better perks. If you’re already behind on your student loan payments, it’s a good idea to contact your servicer right away and sort out how you can get back in good standing. Don’t let your student loans go into default because you’re afraid to admit you need help.

Being Aware of Your Credit Standing

Of the college students surveyed, 67% said they were aware of credit reports, and about half had viewed theirs (you can get two of your credit scores, absolutely free, on Credit.com).

The survey also found that those who had experience with credit were far more likely to have viewed their credit report than those without credit experience. For example, 66% of students with credit cards reported having viewed their credit report, compared with 27% of those who did not have a credit card.

Seeking Professional Help

Making financial decisions isn’t always easy, particularly when you’ve run into trouble. That’s why it’s always a good idea to consider professional help, whether for tax preparation, investing decisions or getting debt under control. Paying a reputable person for expertise and assistance can end up saving money in the long run.

Reading the Fine Print

Life is full of agreements, and many of those include legally binding contracts. Most are on the up-and-up, but it’s still a good idea to fully read any agreement you sign and understand the terms completely. If you don’t, this is another case in which you may want to seek professional help to save yourself frustration and possibly money further down the road.

These are the basics to setting yourself up to succeed financially. Of course, there will be hiccups along the way, but by staying on top of your finances and asking lots of questions, you’ll be able to avoid some of the common mistakes many people make.

Image: SIphotography

The post Your Financial Ignorance Could End Up Costing You Thousands appeared first on Credit.com.