How to Start Planning for Going Freelance
Deciding to leave a secure job is not easy. We're taught from a young age, that we need to get a good education, so we can get a good job and put money away for retirement. The good job is a crucial part of that equation. So to leave a job that pays for medical and has a 401k match plan sounds ludicrous.
The best advice I ever got regarding quitting my day job was to first stay at my day job. We all have different comfort levels when it comes to how much money to have in savings, how many clients to have lined up, etc. But one thing is for sure. If you have no savings, have any amount of debt and no clients knocking at your door, now is a very bad time to quit your job.
My wife’s and my comfort level was to have around 6 months worth of savings, and to be bringing in a coupe thousand dollars per month for three months in a row with freelance while still at my day job.
The reality of what happened… I didn’t ever get to $2,000 in a month, but the requests were coming in very steadily for a month or so and I had to turn jobs down because I didn't have time, due to my day job. So I felt pretty confident that I could get to a point where I was making my old salary (taking into account paying more taxes and paying for my own health insurance) within three to six months. Hopefully we wouldn’t have to dig into our savings for very long.
I had a couple of small projects and one bigger job lined up when I quit. As I worked on these projects and word got out that I was now full time freelance, more projects started coming in.
There is no guarantee that this pace of work will keep up, but I have been quite pleasantly surprised at the amount of work I've gotten so far. I attribute this to the three years I've spent developing lots of friendships in the motion design and video production industry.
Transparency
I'm a big fan of being transparent, so I'll throw out some rough numbers. I believe that being open to talk about numbers is invaluable to those who don't know what to expect. I understand that most people get uncomfortable talking about salaries, rates, and real dollar amounts, but I love talking about that stuff.
So avert thine eyes if you don't want to see the realness.
My take home pay from my day job was about $2,600/month (this is after taxes, 401k and health insurance). To compensate for the additional taxes and health insurance, I need to make around $4,800 per month (I’m estimating a conservative 35% for taxes).
In the first four weeks of going freelance, I got my final paycheck from my old job and with freelancing, I’ve earned enough to take us through the next month and a half. No digging into savings yet!
This was not at all what I expected, nor do I necessarily count on this happening every month. The plan is to keep our budget exactly where it has been. Any extra money made in a month goes towards filling the bucket of our next month’s expenses. What keeps a lot of people living paycheck to paycheck (or client project to client project) is inflating your expenses to match your income. Keeping your expenses at the same level as your income grows is what gives you the freedom of choice. With money in the bank you can choose to take time off of doing client work, save up for a down payment on a home, or invest in a great opportunity.
On the fence about leaving your job?
Here are my biggest takeaways for you.
- Pay off any debt you have. This is no small task, but it’s so much better to not owe anyone anything (especially with any interest).
- Save enough money for several months of living expenses (the number of months is up to you and/or your partner’s comfort level).
- Invest in relationships with people in the industry (networking). Always seek to add value. Don’t be a leach.
- Do client work in the evenings and weekends. This is good for two things. Use the cash to pay off debt/save for X months of living expenses. AND you are building your list of clients and gaining all the experience that comes with it.
Making the jump can be scary, but planning properly will make things go much smoother.