So you’ve made the decision to go from full-time to freelance. You’re ready to take the leap without fear. Well, it’s good to be prepared and know the best place to start so you won’t be shaking your head with regrets a few months into self-employment. Check out these steps to transitioning:
1. Budget for an inconsistent income every single month. One of the most obvious factors to consider is your budget. Do you have enough money to actually pull this off, or will you be starving after your first few months? If it’s the latter, you may want to wait a little bit longer. Save up before severing ties with your solid income source.
If you do have some money saved up, consider if it’s enough to really float you if you get stiffed. You may have encountered this unpleasant reality of freelancing before, but if a client decides they don’t want to pay for whatever reason, the consequences will be more serious. Before you had your steady W-2 income to fall back on; now every second you’re not paid means you don’t get to eat.
Even if everything goes right and everyone pays, you still need to consider taxes. Since you don’t have an employer, you have to pay your own taxes—including extra to cover the self-employment tax. Quarterly estimated taxes will become your life. Every few months, you will have to pay up to the government. These payments are higher than taxes you paid as a salaried or hourly worker when your employer threw in to help you.