What you must do before quitting your job – how much money is enough to quit?

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Going full-time freelance means leaving the comfort of a steady paycheck. But many freelancers find they make as much or more money once they make the switch.

If you’re someone stuck in an office job or a freelancer wondering how to become a full-time business owner, you’ll need to do a little financial planning.

Check out the following tips to help you know when you’re ready to make the switch and quit that job.


screen-shot-2016-10-19-at-4-20-42-pmThis article is brought to you by our partners at AND CO. With a sleek app and a real-life human on your side, AND CO is all you need to take the headache out of billing as a freelancer. Our partnership has not affected the value or content of this article. Learn more at and.co

Sidenote: Once you finish, read how 4 freelancers built recurring revenue models that changed their business. You'll love it.


Accurately and smoothly track your income and expenses

When you’re working and freelancing, expenses aren’t as big of a deal because you have an alternate source of income.

Once you quit your job, those expenses will reduce your business income. While this is an advantage when tax time rolls
around, it’s not so great if you enjoy things like eating and having a place to live.

Use a financial software package like AND CO to track both your income and expenses. They make it easy to track expenses on the fly with their mobile app that allows you to upload receipts. You can also email receipts to a special email address to avoid uploading them altogether.

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No matter what software you choose to use, be sure to include your home office expenses. If you’re working from home, you may be able to include a portion of your rent and utilities.

Understand your tax liability

When you work at a regular job, your employer withholds a certain amount of taxes from your salary and pays them for you.

But what you don’t realize is there are additional taxes your employer pays on your behalf that are not included on your paycheck.

When you work for yourself you’ll be required to pay Self-Employment Tax on top of your annual income taxes. If you work and freelance on the side, you can have your employer adjust the amount of taxes withheld from your check to avoid having to pay these taxes out of pocket.

Once you’re on your own, your taxes will be your own responsibility, and at that point, you should file the correct type of corporation and never mix personal and business spending.

Consult with a tax professional before quitting your job to find out how much you’ll be liable for so you can plan accordingly. To make things easier, online tools are also available to calculate self-employment taxes.

You need to aim for making more money than your annual salary and live on less disposable income

This brings us back to our original question: how much money do you have to be making before you can quit your full-time job?

Unfortunately, there’s no cut and dry answer.

If you’re comfortable with your current salary, a good rule of thumb is that you’ll need to make double your current salary for at least six months. Your income is likely to fluctuate from month to month, so you’ll want to make sure you are covered for those months when things are slow.

Also don’t forget about other benefits you have before quitting your job. With the new health insurance laws, you may need to make more if the cost of health insurance in your state is higher than average. This is mostly why you need to cut your spending and dedicate most of your energy to your work – or at this point in life, your true passion.

Statistically, freelancers and small business owners make about $21 an hour for 36 hours a week, a total of $39,000 a year. The good news is that this wage is already higher than the average wage for non-freelance jobs.

If you’re already making this much from freelance, you should be okay. If you’re barely there or haven’t even started freelancing, then the statistics show that the risk is still virtually worth it since freelance wages outdo non-freelance wages in many countries.

Wrapping it up

While it’s tempting to leave your current job when you’re starting to see a little money from your side business, take the time to do things right. Build up a few months worth of living expenses and track every penny you’re spending and bringing in.

Have you made the switch from corporate slave to business owner? At what point did you decide it was time to go? We’d love to hear about it in the comments!

 

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About Sharon McElwee

Sharon McElwee is a copywriter and freelance business coach dedicated to help people get better at making real money doing what they love. Before having such an awesome career, she spent a couple of decades working in commercial printing and as a corporate slave. Check her out on YouTube .

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  1. To quit the office job and start working as freelancer is an important and I think very responsible step. If you decided to change you career you should have enough money to support you life during 2 or 3 months. You can’t predict your earnings, being a freelancer.

    • That’s a great theory, but sometimes this keeps people from ever getting started. Saving up to a year of living expenses is definitely ideal, but in places with a ridiculously high cost of living this can be impossible. Thanks for your input 🙂

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