The Financial Checklist You Need to Use Before You Quit Your Job and Start Freelancing
Kali, one of the newest JUGS contributors, is a talented freelance marketer and writer Here, she shares her story of making the leap into the gig economy!
My entire body shook as I walked into my supervisor’s office in May, 2014. I held out my folded two week notice and nervously blurted out that while I loved the 3 years I worked for the company (a bold-faced lie), I was leaving to make a go at being a professional freelance writer.
Giving my notice was scary, but giving up a steady paycheck to freelance wasn’t. It didn’t feel like a financial risk because I made damn sure I had my money right before quitting my office job.
Figure Out Your Finances Before Giving Up Your Paycheck
Yes, you should bet on yourself, believe in yourself, and refuse to wait for anyone to give you permission to go after your ambitions… but that doesn’t mean you can’t set yourself up for (financial) success first.
It might seem boring. You might even feel you’re not legitimate if you don’t embody the starving artist stereotype. But how legitimate are you really if you have to go find another job? And not because you weren’t a good freelancer, but because you failed to think about your finances?
You can do your thing and be financially successful at the same time. Use this checklist to help make it happen.
Here's What You Need to do Before You Quit Your Job and Start Freelancing
- Have a Fully Funded Emergency Savings Account
Set aside at least 3 months’ worth of expenses in a savings account. This will give you a cash cushion to use should anything go catastrophically wrong (and to avoid using things like credit cards, which could force you into debt). Don’t even think about touching these savings unless it’s a true emergency!
2. Create a Worst-Case Scenario Budget
You may go through months where you just don’t have enough money coming in from your freelance work. It’s helpful to set up a super-lean budget before you hit that point so you know how to manage your money even when there’s not much of it.
A lean budget is one that accounts for your necessary expenses -- and that’s about it. Think things like your bills and rent and what you have to buy for groceries and things like transportation.
No, it’s not fun to live lean -- but being able and willing to do so will help you get through low-income months so you can keep pursuing your freelance dreams.
3. Make Sure Freelancing Is Viable and Sustainable for You
The best thing I did for myself when I moved to self-employment back in 2014? Freelancing on the side of my day job for almost a year first. I slowly built up not only my freelance income but also the proof that my freelance business model worked.
I had almost 12 months’ worth of income history to look at when I made the decision to quit my job. Freelancing felt less like an unknown or a risk and more like a sure bet that it was the right move, both for my career and my finances.
4. Plan for Taxes
There is absolutely no excuse for being surprised by a big tax bill in your first year of freelancing. Taxes are inevitable for us honest folks, which means that even if you don’t know exactly how much you’ll owe, you can plan to pay something.
Set aside 30% of every single check you cash or sum of money you earn for taxes. The exact amount you owe will depend on your specific situation, but I like 30% as a good rule of thumb.
5. Have a Backup Plan
I’m not encouraging you to think negatively -- but I do want you to make a list of options you could pursue if you needed to make money, fast. Could you work a part-time job? Go back to work? Try a different business model or offer a different service? Make your backup plans as detailed as possible so you know exactly what to do should you need to rely on one.
The reason I like this exercise is that it should give you some confidence that there really is no worst-case scenario. For every likely thing that could go wrong, there’s usually a solution or an answer. Recognizing that now can help you see that you can do this and succeed -- especially when you get your finances in order first.
Kali Hawlk is a personal finance writer who contributes to JUGs to explain how freelancers and entrepreneurs can make the most of their money, and writes about mindful living through intentional spending on her blog GoingBeyondWealth.com. You can find her @kalihawlk