Accountants are naturally good with numbers, so it’s not a big surprise when some decide to explore on the side and offer their services privately outside of their regular job. However, while you may have a solid understanding of budgets, having this additional income could become a burden if you’re not prepared. Here are some of the best money moves for accountants with a side gig.
Pay down high-interest debt
Not that accountants don’t already know this, but paying off high-interest debt should be your top priority. It’s tempting to spend that extra money you’re earning, but making extra payments towards your credit card debt will significantly cut down on the interest you pay.
Even if your loans have a reasonable interest rate, it’s still worth paying them off with your increased earnings so your personal balance sheet looks better. The faster you eliminate high-interest debt, the more money stays in your pocket. This creates breathing room in your budget for other financial goals.
Build an emergency fund
Your side hustle earnings could be the key to financial peace of mind. Instead of splurging on lifestyle upgrades, direct that extra cash into your emergency fund. This safety net can protect you from unexpected setbacks, such as job loss, car problems, or medical bills, and keep your finances stable.
Start by setting a realistic savings goal. While many experts recommend saving three to six months' worth of essential expenses, don’t let that figure overwhelm you. Begin with a manageable target, like $500 or $1,000, and gradually increase it at your own pace.
There’s no denying that accountants have a high income potential, but if you have nothing set aside, one emergency could set you back.
Contribute to a Tax-Free First Home Savings Account (FHSA)
If you're planning to buy your first home, the FHSA is probably the best place to allocate your side gig income. Contributions are tax-deductible, so contributing, for example, $5,000 from your side hustle could significantly reduce your tax bill.
Any investments in the account grow tax-free, and qualified withdrawals for home purchases are also tax-free. This combines the best features of RRSPs and TFSAs. You can contribute up to $8,000 per year, with a lifetime maximum of $40,000. The account remains open for 15 years or until you reach the age of 71.
Maximize contributions to your RRSP or TFSA
If you already own a home or have no interest in buying one, focusing on your Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) may be good alternatives.
RRSP contributions offer immediate tax deductions. You can lower your current tax load while growing your retirement savings. This is especially helpful if your side income puts you into a higher tax bracket. Meanwhile, TFSA contributions don't provide upfront deductions but offer tax-free growth and withdrawals. Any investment gains you earn stay completely tax-free.
Consider your current income when selecting an account. Higher earners often gain more from RRSP deductions, while lower earners may prefer the flexibility of a TFSA.
Set aside some of your income for taxes
As you’re aware, side income in Canada is taxable, so set aside 25% to 30% of your earnings from side gigs for taxes. Additionally, if your side hustle earns over $30,000 annually, you must register for a HST/GST number. Since you'll collect and remit these taxes to the government, consider saving 40% to 45% of your extra income for tax obligations.
Mixing this money with your personal bank accounts can be confusing if you don’t keep detailed records. Even worse, you might be tempted to spend it. Consider opening a separate savings account for your tax money so you can remove this temptation and keep your money where it belongs.
Decide if you should incorporate
Incorporating your side hustle can provide significant tax advantages and liability protection. The decision depends on your income level and business needs. If you already earn a high income from your regular accountant job, it may be advantageous to incorporate your side business, since the corporate tax rate is significantly lower than personal rates. Any profits retained in the business could be invested for the long term.
Keeping your income in a corporation can also be helpful if you plan to take a year off to travel or retire early. During those times, you can withdraw funds from your corporation as income to cover your expenses.
Reinvest into your side gig
Investing money into your side hustle can boost its growth, but you first need to identify your goals. Whether you hope your side gig becomes a permanent fixture or you're considering a pivot into a different career, understanding your aims is key.
Some areas you could focus your reinvestment on include sales and marketing, improved tools or systems, upgraded equipment, continuing education (here’s
Expanding your business will require spending. If you can reinvest your funds, you will be creating a stronger future for yourself and your business.
Final thoughts
As an accountant with a side gig, you’re uniquely positioned to make smart, strategic decisions with your earnings. Whether you're saving for a rainy day, planning a home purchase, building retirement savings, or growing your business, every dollar can help you move closer to financial freedom.
Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog
Money We Have is one of Canada’s most trusted sources when it comes to money and travel. As a completely self-taught, do-it-yourself investor with no formal training, he makes money easy to understand for all Canadians. His specialties include personal finance, budget travel, millennial money, credit cards, and trending destinations.