4 days ago
‘I'm 20 and have three jobs. How can I make my side hustle pay more than investing?'
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Ella Coombs understood how to make and save money at a younger age than most.
When she was 11, she was given a debit card and learnt to save her pocket money for bigger, important purchases. Four years later, she started working part-time after school and on the weekends. Now, at the age of 20, she holds down three jobs.
Her main salary – £18,000 – comes from being a full-time manager at an RSPCA charity shop in her home town of Rugby.
It's a job that she loves – so much so she spends another day each week working at a different charity shop, Air Ambulance. This earns her £350 a month.
But what makes Ms Coombs stand out is the thousands she has earned from her side hustles.
She has made nearly £10,000 pre-tax in the past 18 months selling clothes on Vinted, Depop and eBay.
As she is working three jobs while living rent-free at her parents' house, Ms Coombs finds herself in a strong financial position. But unlike many 20-somethings, she is not saving to get on the property ladder, but to open her own business.
Her side hustle started as an attempt to clear out unwanted clothes, but she soon realised that she had an eye for selling. Now, she buys from wholesales in bulk to sell on at a profit.
It provides Ms Coombs with a level of disposable income that her generation is often missing out on, she explains. It means she can afford to go on holiday and to festivals, or get her hair and nails done without worry.
To ensure her side hustle is profitable, Ms Coombs has set up a separate bank account to keep track of her income and outgoings. Apart from the odd treat for herself, she uses her earnings to buy more stock.
She wants to start saving more of her money for setting up a shop, but she isn't sure whether a savings account or investing her income is the better option. Her boyfriend has started investing and has encouraged her to do the same, but Ms Coombs wants to keep her money accessible as she takes steps towards starting a business.
When she can, she transfers £100 a month into a savings account, but admits this isn't as regular as she would like.
A self-professed worrier, she doesn't want to gamble with her money. She wants to learn more about investing and growing her money, but between her three jobs, doesn't feel she has the time.
Once she has reached the six-month mark in her current role at the RSPCA shop, she will be enrolled on to a workplace pension for the first time.
With an immediate goal of saving to establish her own business, rather than the longer-term focus of a mortgage or pension, she is wondering what to do with her hard-earned side hustle cash.
Laith Khalaf, head of investment analysis at AJ Bell
The fundamental question Ms Coombs needs to tackle is whether to invest spare cash in her side hustle, or stash it in mainstream financial products.
Certainly, it looks like her sales activity has been extremely profitable, to a greater degree than holding money in a savings account would have been. Reinvesting profits in more stock therefore makes some financial sense, but it would be a good idea to also syphon some of the money into an account for a rainy day fund, just in case.
Probably the first port of call is a cash Isa or a savings account. A cash Isa will protect you from tax, but because Ms Coombs is a basic rate taxpayer, she wouldn't be liable on the first £1,000 of interest from a standard savings account either. As such, she should be driven by whatever gives her the best rate.
If the rates available on cash Isas and savings accounts are the same, I'd go for the cash Isa, because tax protection is built into the account, whereas the continuation of the personal savings allowance relies on the Government not withdrawing or reducing it from £1,000.
A lifetime Isa might be a consideration if Ms Coombs were saving for a house deposit, as this has an extra top up from the Government. However, it also has restrictions on when you can draw on it, and so isn't appropriate in her case, as she wants easy access to her savings. If that changes, a lifetime Isa might come into play.
It's also definitely a good idea to contribute to a workplace pension when it becomes available. The extra money added in from the Government in tax relief and her employer in contributions is simply too valuable to turn down.
I hear Ms Coombs' concerns about investing, and at the moment, her financial situation doesn't require it (apart from into a pension), but I think it is worth building up some knowledge in this area because it can seriously increase your wealth over time, especially if you start at a young age.
The things you learn from investing also overlap with running a business, so there are skills and knowledge which can be used in both activities.
Shaz Bishop, wealth manager at RBC Brewin Dolphin
Ms Coombs should review her monthly income and spending and use the surplus money towards future goals, and there are plenty of budgeting apps available that could be used to help with this.
She should look to build her emergency funds – it's generally considered wise to have around six months' worth of essential expenditure in an easy-access savings account.
For savings, she could consider a cash Isa. Like everyone, Ms Coombs has an annual allowance of £20,000 for this tax year. She could consider an instant access cash Isa to prevent her money being locked away, and there are many available with no withdrawal penalties. These can be switched to an investment option at a later point if deemed suitable.
To grow or hold some of her income, she could use an ordinary savings account. These are generally instant access savings accounts with no minimum or maximum limits, and no penalties on the withdrawals.
These are good for the short term, and as Ms Coombs is a basic rate taxpayer, she can earn up to £1,000 in savings interest each year by utilising her personal savings allowance.
When considering investing, we would need to establish when Ms Coombs would like to set up her own business. If this is within the next five years, she would require funds to be accessible and secure.
Investments would potentially be considered appropriate once she has suitable emergency funds, sufficient capital to meet any planned expenditure over the next five years and importantly whether she can accept market fluctuations.
If possible, Ms Coombs should aim to contribute at least the minimum amount required to receive her matching employer contribution in her workplace pension. This is essentially additional money from her employer, on which she would receive tax relief from the Government.
