In recent years, many Irish employees have turned to ‘side hustles’ or additional income streams to boost their earnings and secure their financial future. Whether you’re working as a freelancer, renting out property, or earning through an online business, managing multiple income sources can be both rewarding and challenging. Balancing your primary employment with an additional income stream requires discipline, organisation, and strategic planning to ensure you maximise your earnings and stay financially healthy.
If you’re juggling a full-time job with another source of income, here’s a guide on how to manage your personal finances effectively.
1. Understand Your Tax Obligations
One of the first things to consider when managing multiple income streams is the impact on your taxes. In Ireland, your income is subject to the Pay As You Earn (PAYE) system if you are an employee. However, additional income from side gigs, investments, or freelancing could complicate your tax situation.
• PAYE vs. Self-Assessment: If you earn income from your primary job, your employer will deduct tax at source through PAYE. However, side income might not be subject to PAYE, so you’ll need to self-assess your tax and file a return with Revenue each year if you earn more than €5,000 from self-employment, freelance work, or rental income. If your additional income comes from freelance work, be aware that you’ll be required to pay both income tax and social insurance (PRSI) under the self-employed category.
• Tax Bands and Allowances: Your additional income will be taxed in the same way as your main income, but depending on how much you earn, it could push you into a higher tax bracket. Ireland uses a progressive tax system, meaning the more you earn, the higher percentage of your income will be taxed.
It’s essential to plan ahead by factoring in the potential tax implications of your side income to avoid any surprises at the end of the year.
• Tax Credits: Keep track of the tax credits you’re entitled to. For example, if you are eligible for the single person tax credit or married couple tax credit, these will continue to apply to your PAYE income but may not automatically apply to your side income.
You might be able to apply them via self-assessment, reducing your tax burden.
• Expert Advice. Tax advice from an expert is advised.
2. Separate Your Finances
When you earn income from different sources, it’s easy for your finances to get messy. For simplicity and better financial management, it’s advisable to keep your primary and secondary income streams separate.
• Separate Bank Accounts: Consider opening a separate account for your side income. This makes it easier to track how much you’re earning and spending from your side income without interfering with your main salary. It also helps in calculating expenses related to your side business and in setting aside money for taxes.
• Clear Budgeting: Develop a detailed budget that accounts for both your main salary and any additional income. If you’ve recently started your side income, make sure to estimate how much you’re likely to earn each month and include this in your budget. As side income can fluctuate, it’s best to err on the side of caution and estimate more conservatively.
3. Track Your Expenses
If you’re earning from a second source, chances are that there are associated expenses – whether it’s for equipment, materials, or marketing. It’s vital to track these costs so that you can reduce your taxable income and avoid overspending.
• Expense Deductions: When managing additional income, it’s crucial to understand what you can deduct. For instance, if you’re running a home-based business or working from home as a freelancer, you may be eligible to claim a portion of household expenses, such as electricity, heating, and even a portion of your internet bill, as tax-deductible expenses. Keaep thorough records and receipts to substantiate these claims.
• Accounting Software: Consider using simple accounting software to help track your income and expenses. This can also help you ensure that you’re setting aside enough for tax payments.
4. Save for Taxes and Emergency Funds
When you receive income from more than one source, it’s easy to forget to save for taxes, especially if one income is taxed automatically through PAYE, and the other requires self-assessment. Failing to save for tax payments can result in a shock when you need to file your return.
• Set Aside for Taxes: It’s wise to set aside a portion of your additional income to cover taxes. A good rule of thumb is to save 20-30% of your freelance or side income for tax purposes. You can set up a separate savings account specifically for this purpose to avoid spending the money prematurely.
• Emergency Fund: Financial stability doesn’t just come from managing taxes—it also comes from having enough savings to weather unexpected financial challenges. Aim to build an emergency fund that can cover three to six months’ worth of living expenses. This fund can be used for any unforeseen events, such as a drop in your side income or an unexpected personal or family expense.
5. Plan for Retirement
As an employee with a second income stream, you should still be contributing to a retirement plan. If your primary job offers a pension scheme, make sure you’re participating and taking full advantage of any employer contributions. However, if your second income is substantial, it might be a good idea to open an additional pension account for supplementary retirement savings.
• Additional Pension Schemes: Consider contributing to a Personal Retirement Savings Account (PRSA) or a Retirement Annuity Contract (RAC). Contributions to these schemes can be deducted from your income before tax, lowering your taxable income and giving you tax relief on the amounts saved.
• Diversify Investments: In addition to pensions, think about diversifying your investments through savings accounts, stocks, or property. Multiple streams of passive income can help secure your financial future.
• Save don’t spend. If you don’t need your side income for your day to day living expenses then don’t spend it. Talk to a Financial Advisor about some long term investment plans.
6. Balance Work and Life
Finally, managing two income streams requires time and effort. It’s easy to become overwhelmed and neglect your personal well-being.
• Time Management: Set clear boundaries for your work hours. This will help you maintain balance and avoid burnout. It’s important to dedicate specific time slots to your side business, but not at the expense of your main job or personal life.
• Self-Care: Taking care of your physical and mental health should be a priority. Stress can affect your productivity and overall happiness, so make sure to incorporate breaks, exercise, and social activities into your routine.
Conclusion
Balancing a full-time job with a second income stream can be a great way to increase your earning potential, but it also comes with its own set of challenges. By understanding your tax obligations, keeping your finances organised, saving for taxes and emergencies, and planning for retirement, you can successfully manage multiple income streams. With discipline, organisation, and proper planning, you can enjoy the financial benefits of side incomes while ensuring long-term financial health and work-life balance.