Want to know how to quit your job and become self-employed? Maybe you’ve found your passion in running your own business, or your side hustle has grown so much that it’s time to choose between your day job and going full-time with your side gig. Whatever your reason, taking some preparatory steps can make the transition to self-employment smoother.
I’ve been self-employed for about eight years now, and there were several things I did to get ready for the switch. It was a bit scary to leave my day job, but preparing helped ease the transition and made me feel more comfortable. Not everyone has the luxury to prepare, especially if you’re laid off or need to leave a toxic work environment, but any preparation can make the switch easier.
Learning how to quit your job and become self-employed takes hard work and several steps. While I’ll guide you through the steps to prepare for this big change, remember there’s no one-size-fits-all approach. Depending on your situation, you might take different steps, and that’s okay. Taking your time to prepare can lead to a smoother transition.
### How to Quit Your Job and Become Self-Employed
#### Step 1: Start Your Business on the Side
If you can, start your business while still working your day job. This way, you can rely on your job’s income, reducing the risk if your business doesn’t take off as expected. This approach helps you determine if:
– It’s something you want to do full-time.
– It’s a realistic way to make a living.
– The business idea will succeed.
Starting on the side reduces stress and allows you to build up your business until you’re earning enough to leave your full-time job. For me, it took about two years before I made the leap. The right amount of time varies for everyone, so find what works for you.
#### Step 2: Plan for the Loss of Job Benefits
Full-time jobs often come with valuable benefits like health insurance and retirement plans. When you become self-employed, you’ll need to handle these on your own. Research and price out health and dental insurance before quitting. This will help you understand your self-employment budget better and avoid surprises.
Health insurance is a big hurdle, but there are options:
– Find a plan on Healthcare.gov.
– Explore travel medical insurance.
– Join a health share, though they aren’t required to cover medical bills.
– Use Cobra temporarily, though it can be expensive.
– See if you can join a partner’s health insurance plan.
– Check if professional groups or associations offer health insurance.
Each option has pros and cons, so take your time to find the best fit for you.
#### Step 3: Build an Emergency Fund
An emergency fund is crucial when running your own business. It helps you handle bad months, seasonal fluctuations, or unexpected changes without stress. Most experts suggest saving 3-6 months’ worth of expenses, but for self-employed people, 6-12 months is better. This might sound like a lot, but it provides peace of mind during tough times.
Starting your business on the side can help you save for this fund. It’s also a good time to pay down debt, especially high-interest debt, reducing the amount you need to save.
#### Step 4: Understand Taxes and Legal Requirements
Running your own business involves dealing with taxes and legal matters. Many new self-employed individuals underestimate their tax obligations, so save around 30% of your income for taxes. You might need an EIN (Employer Identification Number) from the IRS and to understand estimated quarterly taxes.
You should also legally organize your business, often as an LLC (Limited Liability Corporation) or S-Corp, to separate personal and business assets. If you’re unsure, consult a lawyer or accountant who specializes in your field.
#### Step 5: Quit Your Day Job
Once you’re prepared, it’s time to leave your day job. Plan your exit, set a final workday, and give your notice. Good luck with your new business!
### Transitioning to Self-Employment
There’s no exact way to transition to self-employment. Some people quit on a whim, while others wait years. Paying down debt and having a solid emergency fund can ease the process. While self-employment can be scary and stressful, it’s also incredibly rewarding. You’re your own boss and can follow your passions. I love being self-employed and wouldn’t go back to working for someone else.
If you’re thinking about becoming self-employed, take your time to follow these steps. They can help ensure you’re fully prepared for the transition. If you’re already self-employed, what tips do you have for someone wanting to make the switch?