Rich Girl Roundup: How to Calculate Side Hustle Startup Costs

Katie: Welcome back, Rich Girls and Boys, to the Rich Girl Roundup weekly discussion of The Money with Katie Show. As always, I'm your host, Katie Gatti Tassin, and every Monday morning Henah and I dig into an interesting money discussion. So before we do that, here is a quick message from the sponsors of this segment.

All right, before we get into today's conversation, this week's upcoming main episode is about the surprising case for taking a mini sabbatical and all of the potential career and life benefits of taking a step back, enjoying some intentional time away from work, and how it actually might be more in reach than you even realize. Henah, what do you think? Sabbatical, yea or nay?

Henah: I think everybody would know I'm a yea.

Katie: This is a trick question because you work with me.

Henah: The trick question is I'll never get one, because Katie and I can't turn our brains off. However, I was thinking when you do the intro every time and you say, "And every Monday morning, Henah and I are going to unpack whatever." So we sent this out in the newsletter last week and someone just responded back, "Who is Henah?" And I was like, great question! So, hello. I am Henah.

Katie: Henah's ego balloon just deflated just a little bit. But you know what? That's because the newsletter audience isn't in on Rich Girl Roundup the way our pod fam is, because all the reviews are like, "I like Henah, I like Henah's takes. Henah's my favorite," or Hannah, if they spell your name wrong. Hena?

Henah: Hannah, Hena. It's spelled phonetically. I don't know how else to help.

Katie: Nothing will ever be funnier than when we first met and you were showing me your wedding...the designs that are painted on an Indian woman's hands when she gets married.

Henah: Yes. I showed you my own hands from my wedding.

Katie: And I go, "Oh my god, that's so cool. What's that called?" And you go, "It's called henna." Yeah, you wrote...henna.

Henah:  Henna.

Katie: I was like, oh yeah.

Henah: Spelled differently. I'll give you credit for that one. I think this week's question is a fun one because you and I have both had experience in this one. So it came from Meredith M. It said, "I'm interested in starting a side hustle, but it seems there are so many up-front costs, like website hosting, domain registration, logo design, advertising. How much is reasonable to spend before I even know if I'll make any money?" So Katie, we can start with you. I know obviously your side hustle ballooned. For most people who are just starting out, what would be your 2 cents?

Katie: Well, it's interesting because earlier this year I was kind of getting the itch to try to start another business that focused on expanding the mission of Money with Katie a little bit, and just how can we facilitate building positive habits, lifestyle design, that type of stuff that's not money-specific? And it put me back in those interesting beginner shoes that I had not felt for a few years because as I was really thinking about, do I want to do this? Do I not? Do I even have time to do this? Obviously I kind of decided I did not have time to do it right now at this phase in my life.

But between registering the website on Squarespace for Commerce, which allows you to sell products, filing for an LLC in Delaware using Stripe Atlas, which is how I filed for Money with Katie's, and it kind of does that incorporation for you, which makes it easier, and paying for an email marketing provider like Flowdesk or one of those types of companies that allow you to email customers, I was looking at around $800 in costs. And it really reminded me of those early days of building this business because in retrospect, obviously the startup costs required to get Money with Katie off the ground feel infinitesimal to me now. 

Henah: Infinitesimal. Wow, what a word.

Katie: It's a good word, isn't it?

Henah: It's fun. It's fun to say.

Katie: I just think it's such a nice word, infinitesimal. Can I be honest, though? I have only ever seen this word written, and so I was like, that's the word I want to use, but I actually don't even know how to pronounce it. So last night on Google, I'm typing in the "infinitesimal" and then you play it and that robot voice reads it to you and I'm sitting there like "infinitesimal, infinitesimal." Okay, got it.

Henah: It reminds me of the debate that I had on my stories that my friend started where he was like, "Do people say suggest or suggest?" And everybody was like, "Oh, we say suggest." And I was like, "No. I say suggest."

Katie: Suggest?

Henah: Yes. Everyone said they say suggest. And I said, "No, I say suggest."

Katie: No. What?

Henah: I know, and I went on Google and I did the same thing and then Google even said "suggest." And I was like, that's so strange. And I looked it up and it turns out that suggest is the British way of saying things. So that gets me one step closer to Harry Styles, but suggest is the American way of saying it, which I just think is extra work for the same word.

Katie: Everyone knows that if you say something in a British accent, you just automatically sound smarter.

Henah: 100%.

Katie: So I'm going to stick with our pronunciation, but at the time I had $0 in revenue and also no plan for monetization. It was just basically a hobby at that point and it was just pure expense funded by my paycheck job. So it felt like a shit ton of money. And it was a rock and a hard place, because within reason, there was really no way for me to operate without those things. I needed those things in order to do what I wanted to do.

Henah: Given what you wanted to actually do with the side hustle.

Katie: Yes, the nature of the side hustle. So I basically started with the most basic plan on Squarespace and I paid monthly, so it was less than $20 a month at the time. I'm not sure how much it costs now. And I did that until I needed to upgrade to the commerce version to sell products, at which point it was, okay, well, this is fine because I'm paying more so that I can directly monetize this hobby. So there was a bit of a, okay, I can see if I can sell two or three per month, it's going to pay for itself, and I still paid monthly because I was not confident yet that it was going to work. So I was like, well, I'm not going to plunk down 300 bucks for this annual plan yet. I'm just going to kind of pay as I go and see how it goes. And I didn't file for an LLC until I actually started making "real money."

I didn't start putting those legal parameters in place until there were thousands of dollars coming in every month. At which point I was like, all right, I should probably limit my liability here, which I will add, there is this weird misconception that becoming an LLC or having an LLC is a crazy tax hack that you suddenly get all these tax...no, this just means that if someone sues your business, they cannot come after your personal assets. So if anything, being an LLC guarantees you're going to pay more in taxes because now you're definitely paying that 15.3% self-employment tax in addition to the other taxes you're paying. So all that to say it's like a legal protection thing in my mind, and I didn't feel like it was necessary to pay for that until things really started to grow.

Henah: And you're working with money, it's a financial product. So I think that that's smart that you were thinking of, what's the liability that I'm going to be on the hook for?

Katie: How do you think about it?

Henah: I think of this in two different levels. So one, I think it depends on what your side hustle is, but the question I would've asked this person or myself back in the day is, what are the must-haves for starting a side hustle? What do you need to do the actual work itself? And then what are costs that you can plan for a little bit down the road, kind of like your LLC? But more often than not, just in my own world, I found that costs like domain registration, like logos, the things that they were talking about were secondary to just doing the work, and to do the work, I really only needed access to Google Docs.

Katie: I'm laughing because it just reminds me so much of the woo-woo spiritual.

Henah: "Do the work."

Katie: Do the work. She's doing the work. You're like, it came secondary to just doing the work. I'm like, mmm, yes bitch, come on. Do that work.

Henah: Well, in order to do said work, I needed the internet and Google...

Katie: Google Drive.

Henah: Google Drive. And so I think sometimes thinking of those costs can actually hold you back because you're thinking, oh, I don't have money to do these things, blah, blah, blah. But then I realized once I just kind of put my availability to do the work out there, people came to me, and then it became much more of a word of mouth rather than trying to see if the SEO could get someone to come to my website and see if my logo really inspired someone and said, "Oh, I like their aesthetic" or whatever.

The other piece of this was I found my freelance work through people I had previously worked with or went to school with. And so I only built things like a portfolio or a website or whatever after I started to gain traction. To your point with building the commerce site, I didn't have any of those other pieces and I still had side hustle work coming in, and actually to this day, I stopped paying for a website, I stopped paying for all those things because I have reliable enough clients that I don't need to have a presence elsewhere.

Katie: Oh, that's interesting. You have a retainer basically where it's like, oh, I'm not looking for new work, I'm just maintaining these relationships.

Henah: Exactly. So it was like it's a sunk cost for me to have a website that I don't need to continue getting this income on the side.

What I would kind of suggest too is, can you weigh the kind of income you could reasonably expect to get from what you want to do, versus what you want to put into it to start? And also consider what you could cut from your normal budget to put towards these things. So you and I have talked about, well, if you're scared to invest, what if you put money that you were going to go out to dinner with just in an investment account and then if you lose it all, which unlikely to happen, but it's like no harm, no foul. Can you do the same and do that for your startup costs? Maybe just once a month you put $50 from a dinner or two into a pile, and then if you don't make any money for a while, again, it's kind of like no harm, no foul. Or you could see it as an investment in your business growth. You can write this off on your taxes even if it's at a loss. So it's okay if you lose money tax-wise, I think for some of these things.

Katie: It would be like, oh, it's a Schedule C loss.

Henah: Yeah, well, when you go into tax after TurboTax or whatever and it's like, what was your income? And you're like $0.

Katie: Yeah. What were my expenses?

Henah: Like $1,000.

Katie: I think that's really wise, and I think at the end of the day where I come down on this is that if this works, particularly if this is not just, oh, I'm just trying to make some extra cash and it doesn't really matter how. It's a means to an end, it's not that I'm actually trying to build a business on the side. But if you are trying to build a business on the side, if this is what you're trying to really do, it's your exit ramp out of your current situation or a career change, these costs will be the greatest financial investment you ever make. Your ROI on the money spent on these things is going to be 1,000% if it works. So I think if it's even a moderate success, then you have paid for it many, many, many times over the best financial investment you're going to make.

So I would definitely say I err on the side of going for it if you're interested in it and not getting hung up on the, oh, it's 100 bucks. It's like at the end of the day, that's relatively easy to make back. But I do think that there's an interesting argument to be made.

I was reading something the other day where someone was like, "Before you are allowed to spend any money on a business, you have to make $100 somehow some way. If you can't generate $100 with your idea without a website or without these other things, then you shouldn't be buying a website." And I'm not sure that I agree with that. Because I could not have generated $100 with Money with Katie probably without a website, because my product was a blog. You need the site. So I don't know that I have a hard and fast rule, but I do think that when it comes to that kind of stuff, I err on the side of it is an investment in yourself, it is an investment in the future, and if you feel like you need it to do what you need to do...

Henah: Yeah, one of the things that I wrote too is, what is the ultimate goal from the side hustle? Is it your full-time job? Is it that you want to grow an empire? Whatever. But I think there might also be a contingent of people who know that they want to have a side hustle, but they don't know what they want to do. And so I would say if cost is what's stopping you, I think there are a lot of side hustles out there that have negligible, low, free startup costs that you could consider. I'm trying to think of some super easy ones. Like transcriptions is huge, dog walking.

But the last thing I'll say about this is you want to weigh what are your ongoing costs versus one-time and fixed costs, because I think that will also help you figure out if it's an investment you want to make. Because your business license or paying for a logo, those are one-time fixed costs. But your point about having to renew your website spend every month, that's an ongoing variable cost that might change based on if you want to sell products, if you don't, if you want to have paid spend behind social media, that's something that's going to change. So I do think writing everything down on paper and deciding which buckets those things fall into and what feels most reasonable might help you decide this is the threshold I'm willing to spend right now and make a bet on myself.

Katie: Yeah, I agree. That's all for this week's Rich Girl Roundup, and we will see you on Wednesday to talk about the opposite of side hustling: taking a sabbatical.

Henah: Email us if you say suggest or suggest, because now we need to know.

Katie: No other context. Just "suggest"...

Henah: Just the subject line.

Katie: Yeah. How do you even write them differently?

Henah: So I say suggest, but I would just type it out as two Js, and then suggest is with the hard G then the J.

Katie: All right, tell us if you're team JJ or hard G. Bye.

Henah: Bye.