So, you’re thinking about a new side-hustle, or even a full-time gig. Driving for popular rideshare companies may be a great way to earn some extra money to reach a short or long-term goal. As a rideshare driver, you get to work when you want and can even get paid instantly. While many paint a rosy picture of the market, it’s important to consider the pros and cons before getting behind the wheel. You’ll want to maximize your revenue and limit expenses where possible to get the most out of the gig.
Most rideshare drivers either transport passengers or provide delivery services, and use a variety of applications to leverage the most profitable rides/fares. Once you’ve decided which route you want to take, think about how you’ll use the extra income.
Leasing vs. Owning Your Vehicle
First and foremost, it’s important you own your vehicle if you’re considering using it for ridesharing services. Using a leased vehicle for a side gig like this could hurt your bottom line.
Your average vehicle lease:
- Is typically for a newer model vehicle, so it will be clean and meet the standards of ridesharing companies – this is a pro.
- Comes with mileage limits, generally around 10,000 miles per year. You’re charged an overage fee for any miles you drive over, generally $0.25 per mile – meaning you could average about 250 miles per week per year without overages.
The U.S. Department of Transportation notes that the average work commute is 15 miles each way. 30 miles a day, multiplied by 5 days a week, comes out to 150 miles. Take the 250 miles a week average you can drive without overextending your mileage limit, minus the 150 miles for work and perhaps 50 miles for other personal use, you’re left with 50 miles a week to drive for rideshare.
Here’s where it gets complicated. A study by SherpaShare, an app that helps drivers track their mileage and analyze their time showed that the average rideshare trip is 6.4 miles. Therefore, to stay on track, you can only drive about 8 (7.81 to be exact) rides a week. This severely limits your earning potential.
While many find leasing attractive to upgrade their vehicle every few years, owning your car and using ridesharing services to help pay your monthly loan payment and insurance may be the better investment.
“Owning your vehicle means that you have full control over the use of your car. Driving for rideshare services can be a great way to offset your monthly car payment and reduce the burden on your monthly budget.” – Joe Pendergast, VP of consumer lending at Navy Federal Credit Union
You’ll need to consider the additional costs –
These will vary based on how many hours you drive, how far, and how fuel efficient your vehicle is.
Regardless of whether you lease or own, you’ll likely need additional coverage to supplement your ride sharing company’s insurance policies. You can find policy information out on the company websites. Many have high deductibles ($1,000+) or may not cover you if you don’t have your own insurance. Contact your car insurance company and see if you’re covered to travel with passengers. You want to ensure you’re fully covered in case of an accident.
Rideshare drivers are considered independent contractors, not employees. With this in mind, you’ll need to set aside funds for tax withholding since you’ll be responsible for paying your Social Security and Medicare taxes. The more you make, the more you should set aside – preferably in a separate savings account so it’s available to you come tax season.
As a rideshare driver, you’re also eligible for a few tax deductions that can help you increase your earnings, such as:
- Vehicle depreciation – $.056/mile, and
- The cell phone data plan you need to use the apps or get directions on-the-go.
It’s important to factor in that many tax preparation companies charge you to file your taxes when you are self-employed and have a 1099. This is a one-time fee, but it does impact how profitable the driving gig can be if you only drive a few hours.
With the right approach, the extra income you earn as a rideshare driver can put you on the road toward achieving your financial goals. Since it’s flexible and revolves around your schedule, success is up to you. Rideshare driving can make your goals more achievable – and faster – than originally thought.