It has been almost TWO months since I left my day job and started fully working for myself at home. Where has the time gone? The time is flying by and each work day passes before I know it.
One thing that many people have asked me is how my life has changed financially. Yes, I am still making a good income each month, but I have lost my stable day job income that I was earning.
Almost everyone that I talk to about starting my own business has asked me how it has been losing my day job income and the benefits that came from it.
Well, there are many changes that happen when you leave your day job. Below are some things that may happen.
You will need to pay for your own life insurance.
When I had my day job, I received a small amount of life insurance that was fully paid for by them. It was nothing life changing, but it was around one year of expenses.
We still haven’t looked into life insurance, even though neither of us have any. I’m not even sure what the average couple without children pays for life insurance. Genworth does have a life insurance calculator to check out. How much do you pay?
Read: 3 Insurance Policies Everyone Should Have.
You will need to pay for your own health insurance.
Health insurance is something that I lost when I left my job. And boy, is it expensive to buy your own! For now, we have very minimal coverage but plan on changing that within the next few months.
I have never had to pay for my own health insurance before. I had health insurance up until my father passed away (I was 18). Then I went 2-3 years without health insurance (I was young and broke!), and then when I started working at my day job I received nice health benefits which were paid entirely by my employer.
Paying for health insurance when you never had to before is definitely an eye opener.
You might need a larger emergency fund.
We have always had a good amount in our emergency fund, but now that I am self-employed, we have built up our emergency fund much higher. You never know when something may happen, and having a well-funded emergency fund can protect you if something actually does happen.
How much do you keep in your emergency fund? Do you determine it based on your career?
You will need to prepare for taxes.
Oh taxes. These are just so much fun! You might pay 15% in taxes, or you may be paying 40%. Each situation is different, but taxes are never a positive of starting your own business. You need to make sure to keep very good record of everything money related.
Where would you see changes? If you work for yourself, what changes have you experienced?
Photo by Alan Cleaver via Flickr
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Allison says
O Michelle I want to hear more about the health insurance aspect. That is such a hot button topic right now. We had individual coverage for a fee months a year ago when I quit my job when we moved and it was terrible. I need to learn more about this. Excited to find out what you learn.
Michelle says
My day job insurance was actually just cancelled a few days ago, so I definitely not an expert when it comes to health insurance. I’m still looking for something better but I will keep you updated!
FI Pilgrim says
Taxes are where most of my questions are, I know there are a lot of things you can deduct when you work for yourself, but self-employment tax rates are much higher! Does it balance out for most folks?
Michelle says
I wish I could answer this. Last year my day job income was higher than my side income, so my taxes were all over the place. I will be sure to answer your question after this next tax season 🙂
Nicoleandmaggie says
We’re currently spending down our excess emergency fund from dh’s self employment stint.
Michelle says
Interesting! What are you doing to do that?
nicoleandmaggie says
We have a post on that!
http://nicoleandmaggie.wordpress.com/2013/12/02/december-mortgage-update-and-what-are-we-going-to-do-with-all-that-income/
Pauline says
Optimizing taxes is the hardest part, but hiring out an accountant can be worth it to save on taxes and save time.
Michelle says
Yes, hiring an accountant is well worth it!
Jeremy says
I know how you feel. I have to disagree with you on the health insurance front though. This seems to be one of the major barriers of people achieving their freedom. I’m a healthy 26 year old male (knock on wood) and make around 60k a year on my own. I have some cash saved up (you mention an emergency fund which I agree with is a necessity), but I only pay $146 a month for cigna health insurance. Yes, my deductible is a bit high, $5,000, but that amount is only applicable if I’m hospitalized god forbid. That means if it’s really bad, I fork over 5k and then 100% after that amount is covered. I have low copays for seeing doctors on routine visits and a prescription plan.
Michelle says
$146 per month is still higher than $0 per month though! 🙂
I was talking more about long-term costs though. Health insurance will go up as you get older, and if you want a family (which we do), then health insurance will increase as well.
Erica says
Life insurance is definitely a good purchase in your twenties if it works with your finances. I looked at it as the lowest prices for life insurance are going to be in my 20s. The medical background check was fairly easy, the nurse came to my apt and I received a final quote not long after that. To give you an estimate for someone in their 20s in good health, I was able to get a great plan at age 23 (20 year term life plan) at what equates to $4.25 per $100k of coverage. Hopefully I’ll be able to renew – most likely pending another medical check – at age 43. Good luck with your decision!
Michelle says
Thank you! This is what I wanted to know more about 🙂
Erica says
You’re welcome 🙂
Dee @ Color Me Frugal says
Lots of things to think about! I’m thinking it’s probably worth it to be your own boss, right? We are hoping to have enough income from our side hustles some day that we can become our own bosses, too! If you get a term life insurance plan it should be fairly cheap if you are young and healthy.
Michelle says
I definitely think it is worth it to be your own boss 🙂
dojo says
I have registered myself as an LLC in my country, so all the taxes/insurances are paid through it. As income is concerned, while it’s clearly not stable, it’s still very good compared to what I used to make. My average monthly income is 4-5 times bigger than it was when I used to work, so we’re doing oK 🙂
Michelle says
I have an LLC too 🙂
Sounds like you are doing great!
BlushandBarbells says
Part of my desire to be self-employed is to max out a SEP-IRA as much as possible! The limits on 401k and IRA contributions are pretty low since I’m trying to catch up.
SuburbanFinance says
I think for me, regardless of working for a company or myself, I’d want life insurance and an emergency fund, but the taxes thing I am sure is a huge change!
Michelle says
Yes, you would definitely still want all of that. I probably should have reworded my post a little bit so that would make more sense.
What I meant was that before I had life insurance provided by my company, but now that I am self-employed, I will have to pay for life insurance out of my own pocket.
And regarded to an EF, when I had my stable day job, I had a lower EF. However, now that I am self-employed, I have built it up just in case I have a bad month with my self-employment.
Stefanie @ The Broke and Beautiful Life says
Does the new healthcare law help you with the cost of insurance? I know I could never afford to buy my own with the old system, but with the subsidies, it’s actually affordable.
Michelle says
I think for most healthy people, health insurance has actually gone up.
adam says
On average, how much would you need to pay for comprehensive health insurance? We currently pay around US$360 per month for top private health insurance in Australia. I should mentioned that figure includes a 30% rebate from the Government. Is this comparable to what you’d expect to pay for a young family of three in the US?
Michelle says
I’m not sure what a family would pay, but I think it would be higher than that here.
Mike Collins says
A larger emergency fund is a good idea. Without the steady paycheck coming in a rough month or two in online income could really be a problem. Having an extra stockpile to fall back on is smart.
Michelle says
Yes, having an EF is very important when you are self-employed.
Michelle says
Yes, true!
Tawnya Greene says
That’s true. Working for yourself comes with advantages and disadvantages. Emergency funds and insurances can help you save for more important things in your life especially when you don’t have a stable source of income. These definitely require huge amount of discipline on your part.
Paul @ The Frugal Toad says
One of the main reasons why I am hesitant to leave my full-time job is my retirement plan and insurance coverage. When you do an analysis of the cost of these benefits and throw in the time value of money factor, it is very difficult to generate the extra income needed to make up for these lost benefits.
Lance @ Money Life and More says
If I worked for myself I’d have to get some life insurance. I currently have life insurance through my employer that covers my needs, but if I lost my job I’d definitely have to replace that for my wife’s sake!
Kim@Eyesonthedollar says
This is a great list for those wanting to leave a company job. I have always had to cover all those things on my own from owning a business, but Jim has them all as benefits of his job with the school system. Some days, I think he is the lucky one, but I would not trade my experience for anything, even if it means that I have to think about a few extra steps to make sure we have everything covered. I also think your income potential is so much greater with self employment, so it’s well worth it if you can make it work .
Crystal says
I work from home and finding life and health insurance was actually the easy stuff overall. The hard part is simply staying motivated and on task since falling behind for more than a couple of days can equal disaster for our customer-service oriented business. I truly hope that we have some sort of backup if we ever have a kid or two…
Caitlin says
You sound like me! I’m 26, and I’ve been freelancing full time since 2011. I still don’t have life insurance because I also recently had to start paying my own health insurance. I’ve got decent coverage, but I had to forgo a lot of the benefits I had when I was on my parent’s insurance (like maternity coverage). Life insurance is definitely on the to-do list, but we have some other things we want to accomplish first, such as continuing to build our emergency fund.
Taxes are not fun. Last year, even with what my husband got back, we paid (taxes plus the cost to file) the equivalent of 10% of my income. The cost to file goes way up when your self employed.
Khaleef @ KNS Financial says
I think that taxes and insurance would definitely be my biggest concerns overall. I’m a long way away from working on my own (at least voluntarily doing it lol), but I do plan to research those options as the time gets closer.
Amanda L Grossman says
My husband lost his job (and our healthcare coverage) on Halloween, and I am self-employed, so we recently went through the process of sourcing health insurance coverage. COBRA was going to cost an astounding $1800+ for both of us (and we are quite healthy), but we were fortunate to have called USAA and got a high-deductible plan ($5,000 per person) for $193.80 per month (for both of us). Not bad!
Jack @ Enwealthen says
Solo 401k. The best reason to be self employed. You can save up to 50% of your income, tax free. It more than makes up for additional taxes you might have to pay.
For the health insurance, Obamacare supposedly help with this, although I haven’t seen much impact. If your spouse works, probably cheaper to get on his plan. Or if neither of those options work, try organizations you belong to for any group rates – church, alumni associations, professional organizations, etc.