We have all probably heard the expression “a dollar is saved is a dollar earned” at one point or another during our lifetimes. And it is true that if you spend less money on unnecessary things, you will have more cash to devote to paying off student debt or achieving other life goals. Although saving money is an extremely important part of repaying student debt, many readers of this website are more interested in earning extra money rather than saving cash. Nevertheless, it is important to note that a dollar saved is better than a dollar earned for a number of reasons.
One of the things that differentiates my student debt repayment saga from many others is that I worked a variety of side-hustles. While repaying student debt, I worked several part-time jobs, and I was able to earn nearly $120,000 from side-hustles alone during this time. Many people logically reason that if they too earn such a large sum from part-time gigs, they can make a huge dent on their student loans.
While repaying student loans, I focused more on earning extra cash from side-hustles than on saving money. If I wanted to purchase a luxury item, I reasoned that I could make up this expense by working harder at my part-time jobs. To a certain extent, I was able to subsidize my somewhat loose spending habits during my student debt repayment saga by working a number of side-hustles.
Looking back on it, however, I wish that I focused more on saving money, since a dollar saved is better than a dollar earned. The main reason why it is better to save money as opposed to earning extra cash is taxes. Any money you earn from part-time gigs will be taxed at your highest marginal tax rate. In addition, any money you make as an independent contractor will be subject to the self-employment tax, which means you are taxed more on income from side-hustles than the cash you earn at your main job.
Every year of my student debt repayment saga, I had to pay a considerable amount of money in taxes because of my side-hustles. I always tried to send extra money to tax authorities throughout the year, but I was never able to fully cover the cash I earned from part-time jobs. Paying extra money in taxes after filing my returns each year always created cash flow issues for me and made it harder to pay off my student debt.
Of course, money you save is not subject to taxes. Indeed, any money you are able to save by cutting expenses and making financial sacrifices is entirely yours and can be completely devoted to debt repayment. Since you might be taxed 30 percent or more on cash you earn from part-time jobs, it is definitely true that a dollar saved is better than a dollar earned.
In addition, it is usually more difficult to make money from part-time jobs than it is to save money. During my student debt repayment saga, I sometimes worked 90 hours a week, and a few times, I even worked a hundred hours a week between my full-time job and side-hustles. This was extremely stressful, since I had to forgo sleep and relaxation in order to work more hours at my part-time gigs.
Furthermore, working long hours at my part-time jobs definitely impacted my relationships with friends and family, since I did not have time to attend social functions or support those close to me. My part-time work also had an impact on my full-time job, although sometimes, working side-hustles enhanced my work as an attorney. If I worked less hours at side-hustles, I feel that I would have been able to better balance all of my social and work obligations, and saving more money could have empowered me to do this.
There are two main take-aways that I hope can be learned from my experience. One is that you should not romanticize side-hustles too much, and you should focus on saving money. I get a ton of emails each week from people asking how I was able to earn so much money from part-time jobs. And of course, there are some people who cannot cut too many expenses from their lives, and the only meaningful way they can pay off their student loans is from earning additional cash from side-hustles.
However, since a dollar saved is better than a dollar earned, individuals should be much more concerned with cutting expenses from their lives to maximize the impact they have on their student debt. Everyone should carefully scrutinize their spending habits to see where they can save money to devote additional cash to student loans. This website has already published a number of articles on saving money, and these pieces and other resources should be consulted in order to learn strategies for cutting expenses.
The second take-away is to understand that a dollar you earn from part-time gigs is not a dollar you can devote to debt-repayment. This might seem like common sense, but it is easy to forget that you have to pay extra taxes on money you make from side-hustles, especially since taxes are typically not withheld from part-time earnings. Remember to save some money you earn from part-time jobs for taxes, and do not completely devote this cash to repaying debt.
All told, in order to successfully pay off your student loans, you need to employ a number of strategies. One way to devote extra cash to student loans is by earning additional money through side-hustles. However, since a dollar saved is better than a dollar earned, it is more important that you cut expenses and use your savings to pay down student debt.