Today’s post is from our regular Wednesday contributor, Cat.
Become self employed sounds great, doesn’t it? Working in your jammies, not having to answer to anyone, and making your own schedule are all quite nice.
However, you’ll never get to enjoy all those perks unless you plan ahead of time before making the switch.
Otherwise, becoming self employed might be even more stressful than the 9-5 you are trying to escape.
Here’s my best advice for what to do before making the switch:
1. Save an Emergency Fund
It might seem romantic to bust into your boss’ office, hand in your two weeks notice, exit the office building with your hair whipping in your face, and “We are the Champions” playing in the background. However, that’s not reality. The reality is that when you quit your job, you don’t get your paycheck anymore!
And, I can tell you from experience, that you really don’t expect how much not getting that paycheck will affect you. I saved up an emergency fund and had 7 months of solid business income before switching to self-employment, but when January 15 came and went without my steady paycheck, it was quite the reality check!
In sum, be overly prepared so you can handle both the financial and emotional aspects of working for yourself.
2. Try it Out for a Week
It might sound crazy, but you really need to make sure your personality is well suited towards working for yourself. This might mean taking a week off of work and trying your hand at only focusing on your business. You need to find out if you are self motivated enough to force yourself to work, even when you are sick and tired. Because that’s another thing: you don’t have sick leave anymore so it’s all up to you. Take that from the chick who is 8.5 months pregnant with twins. If I had a 9-5 job, I would have stopped working by now, but I can’t.
3. Arrange for Insurance
One of the things that holds people back from switching to self-employment is the lack of benefits. There’s no health insurance or 401k matching program provided for you when you work for yourself. So, before you go and take a leap, make sure you have all your ducks in a row in terms of your healthcare and other insurance needs. I am under my husband’s insurance plan, and so that part was taken care of for me. Because I worked overseas, I did not have a 401k to roll over or worry about, so I just started my own IRA, which was unaffected by the switch.
4. Decide Where You Will Work
It’s nice to have a designated spot planned out for your workspace. If you are starting a brick and mortar business, then you’ll need to find that location as well. If you’ll be working from home, it might take some time to carve out an office in your house or figure out if you need to go to a coffee shop or other type of location. I like to work from home, but I still don’t really have a “spot”. I look forward to making a very inspiring productive space for myself after we move in May!
So, those are my tips so far, although I’m sure I’ll have more in the future. Are you self employed or are you hoping to make the switch soon?
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I think that “try before you buy” is a great tactic. I have done this with endeavors in the past in the forms of internships and training programs. You will have no idea how you feel about doing something until you are actually forced to do it for real.
Building an emergency fund is actually a big help if you’re self employed. I’m working from home for almost four years now and I have a mini office here in my room.
These are all great tips Cat and ones I’d encourage to do, but #1 is still my top. :) Unfortunately being self-employed usually does not mean you’re getting those nice direct deposits several times a month. We’ve not had to touch our EF yet, since taking the plunge, but it certainly helps me sleep better at night.
Great tips Cat! I definitely recommend having an emergency fund. It can make those slow months better because you won’t drive yourself crazy wondering when the next dollar will come in.
Knowing you can actually handle working by yourself – when you don’t feel like it, when you’re sick, or when you have other things going on – is really important! Great tips :)
I am self-employed and agree with all of these tips Cat! You never know how long it will take for your business to turn from a passion to a paycheck, so the emergency fund is critical. And the self-motivation test is a great one. Without a boss watching over you it is easy to get sidetracked and distracted and a strong internal drive is the only thing that will focus you on work rather than watching t.v. :-)
Best tip is to try it out. If you can run your business on the side for a bit, then you can get a true representation of how much it will take.
We have our emergency savings ready to go, and I’ll be testing the water via going part time at my job. We’ll see how it goes!
fitisthenewpoor Ah I’m excited for you!!!
DebtRoundUp I agree Grayson. The overlap time is hard but worth it!
blonde_finance So true. I can be a pretty lenient boss sometimes haha.
CSMillennial Thanks!! Yes, it’s true. You can’t quit!
SenseofCents So true. I hate that worry!
FrugalRules Ha! Gotta looove that EF! Helps me sleep too! :)
Clarisse @ Make Money Your Way Interesting. I should do a survey of where everyone works. I’m not very productive in my room actually!
moneystepper It really is a big help and helps to cut down on all the romanticized notions of working from home.
As DebtRoundUp says, running your “side hustle” concurrent with your regular job is the best practice you can have. By doing that, you’re already pushing yourself hard so that by the time comes to make the switch, it should be more painless. That said, of course it’d still be unnerving since it’s moving out of a comfort zone/safety net. Just make sure you have all your ducks in a row before pulling the trigger. Cat’s tips above are a good start.
I definitely would be interested in being self-employed. It would be much more flexible…plus I have a one hour commute each way. Not only would I save time on my commute, I’d save a lot of money of gas. Just have to figure out what I can do. My current job has good benefits and a steady paycheck so it’s tough to leave.
I think the hardest thing about being self employed is knowing that if you don’t work, you don’t get paid. It takes lots of planning to be able to take a week of vacation, and lots of before and after catch up to take extended leave. Like your post yesterday, I think having multiple streams of income is super important, especially for self employed people. It’s hard to know when to take a break, so knowing there will still be income coming in helps tremendously.
Obamacare has made this easier. I left my full-time job in January, so I was able to sign up for a plan. The price is higher than my employer, but can’t put a price tag on leaving behind a job you don’t love.
MichaelSaves Yeah I have heard they are a lot more expensive but hey if it gives you freedom, rock on.
Eyesonthedollar Yes exactly! I’m experiencing that right now trying to take a few weeks off for when the babies get here – It’s not going to be easy.
Andrew LivingRichCheaply Ew that commute will kill you!! You could blog – You’re pretty excellent at that. :)
PFUtopia Exactly – Like I mentioned to Grayson, those months where you’re working both jobs are crazy but so necessary for a smooth transition! :)
I really like your first point, that an emergency fund that’s large is an important starting point, but won’t necessarily be enough emotionally!
The try it out for a week point was great. I ended up having to take vacation time to go finish a correspondence course, because I just wasn’t getting it done otherwise. Figuring out how to keep myself focused all day and on-task was interesting.
Ugifter Oh yeah that’s a good example! Sometimes there just aren’t enough hours in the day!
Agreed. I did all these things kinda after I made the switch, but I would recommend doing them before. I still don’t have a designated work space, but I’ll work on that :)
Being under 26 rocks for the insurance part! I just make a payment to my dad each month and it’s way cheaper than buying my own.
Great tips, Cat! I would also say for those who will work for home, if possible, have a separate work space. When your office is always open – it can be hard to shut down. While I have occasionally worked from home, I generally go into an office since I have staff and meet with clients. But my husband does telecommute and being able to shut that door at night helps him move from work to home. I would also suggest have a larger than normal e-fund too. Under normal circumstances your e-fund is for those unplanned expenses like replacing a dishwasher or your car breaks down and not your normal bills (unless you have lost your job, of course). When you are self-employed you may need to dip into your e-fund to cover your normal bills during a slow month. So a larger e-fund than normal can give you some extra peace of mind, especially when you are starting out, which is generally when your income is the most inconsistent.
Erin My Alternate Life Yesss don’t you know I had to turn 26 and THEN get pregnant. Not good planning haha.
ShannonRyan I totally need to work on the office situation in my house. I work on every surface. I need a spot! And, great advice on the e-fund!
One of my friends rents an office for her accounting business. She can use the conference room and lunch room. There is also a receptionist who screens guests. She loves it. Then doesn’t have to have clients visit her house.
savvyworkinggal That sounds really nice. :)