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Quitting Your Job To Freelance In 2023? Make Sure You Do This First

A small business owner packing a box on the desk in their home office.

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It’s important to approach this life change in a sensible way.

Key points

  • There are really no circumstances in life where having cash savings won’t help — and it’s especially important to start your new freelance life with money saved up.
  • This is also a great time to assess your finances as a whole.
  • Make sure you consider your tax liabilities and make a plan for your retirement account, too.

New year, new you, right? If 2023 is the year you’re finally ready to quit your salaried job to become your own boss, congratulations! This is a huge step, and could result in greater happiness with your working life. However, quitting your “sure thing” job for uncertain income potential as a freelancer can be dangerous, depending on your circumstances and how prepared you are ahead of time.

To that end, make sure you accomplish the following tasks to set yourself up for financial success as a freelancer — and get the most value from your transition away from being someone else’s employee.

1. Save some cushion money

One of the hallmarks of being a freelancer is no longer having a predictable amount of money coming in. This can be good (you’ll be paid more for doing more work) or bad (if it’s a slow period for your clients, you’ll get paid less). But if you’re going freelance, you’ll have to get used to this uncertainty. Luckily, you can plan for it by boosting your savings account ahead of quitting your salaried job.

Sit down with your budget and figure out your non-negotiable monthly expenses. Having a three- to six-month emergency fund is the commonly held wisdom, but during a career change, you may want even more. Starting a new life is stressful enough without worrying about paying your bills at the same time, especially if your freelance work is slow to ramp up.

2. Whip your finances into shape overall, if you can

On a related note, it’s a good idea to get your finances in the best shape you can before you lose the safety net of steady income. This means paying down high-interest debt (such as credit card debt) and picking through your credit report to ensure there are no errors or discrepancies.

Remember, you may be facing more hoops to jump through if you’re hoping to get a mortgage loan or finance a car as a freelancer, due to having a variable income and no traditional employer. So if a home purchase is in your future, you want your credit score to be in good shape to help you get that lender approval.

3. Plan for taxes

Freelance life comes with many benefits — and a few potential challenges. You’ll have to stay on top of your taxes in the form of quarterly estimated payments you’ll make to the IRS (and your state, unless you live in a state without income taxes). If you miss these, you’ll be assessed a penalty, and not paying your taxes is a terrible idea anyway.

So mark your calendar (in 2023, the dates you need to know are April 18, June 15, and September 15, and taxes on Q4 for 2023 are due Jan. 15, 2024). You might also consider working with an accountant, as figuring out what you need to pay and what you can deduct will be more complicated than when you were a W-2 employee.

4. Use your insurance benefits one last time

Another drawback of going freelance is that you’ll be losing that sweet employer-subsidized health insurance. If you’re going to be joining a spouse’s plan, this tip may not be as crucial for you, but if you’re going to be self-funding your health insurance, make sure you get in for last-minute appointments under the plan you’re leaving.

For example, if you have vision insurance through your W-2 employer, get in for an eye exam and consider picking up a new pair of glasses while you can still get a good deal on them.

5. Get your 401(k) match — and roll it over

While freelancers have options to save for retirement, if you’ve been working for someone else, you may have a 401(k) account through that employer. Before you leave your job, make sure you have a plan for that account, such as rolling it over into a new IRA account. And if you can contribute enough to the 401(k) to get the full employer match on your money, do it. Why leave free money on the table?

As you can see, there’s a lot to think about when it comes to freelance finances and wrapping up your employee days. Take a deep breath, make a to-do list featuring the items above, and good luck. You got this.

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