Ever since becoming self-employed, I have been very happy. That’s pretty obvious if you have read my post Being Your Own Boss – 2 Years Since Becoming Self-Employed or any of my monthly income reports.
However, I don’t want anyone to think it’s all sunshine and butterflies.
Learning how to become self-employed is hard work and there are a lot of steps a person needs to take before they think about leaving their current job.
There’s no one “correct” way to leave your job and become self-employed and everyone takes slightly different steps. However, by taking your time to become self-employed and preparing yourself, you may have a much smoother transition.
Below are the steps you should take before you make the leap for self-employment. The below will help you learn how to become self-employed so that you can have the best start possible.
1. Start your business on the side.
Starting your business on the side will allow you to see if it’s something you want to do, if it’s a realistic way to make an income, and whether it will work or not. This is a great way to learn how to become self-employed as you will learn all about it on the side.
By doing this all on the side of your full-time job, you will be able to have a little less stress because you will have somewhat of a built up business before you drop your stable full-time income.
For me, I had my business on the side for around two years before I decided to make the leap into self-employment. There is no right or wrong amount of time for each person – just what you think is good for you.
You will want to think about:
- What kind of business you will start.
- How you will earn a living and whether you can earn money well into the future.
- Try living just on your business income to see if it’s doable.
- Get used to or research the behind-the-scenes stuff such as paying taxes, dealing with health insurance, and so on.
- What equipment, space, and so on you will need in order to effectively run your business.
If you are interested in starting your own blog, I created a tutorial that will help you start a blog of your own for cheap, starting at only $3.49 per month (this low price is only through my link) for blog hosting. In addition to the low pricing, you will receive a free blog domain (a $15 value) through my Bluehost link if you purchase at least 12 months of blog hosting.
2. Think about what you’ll do without the benefits of your current job.
If your job provides certain benefits such as health insurance, life insurance, retirement, daycare, and so on, then you will want to think about what you will do when those benefits no longer exist.
It’s much better to do your research and price everything out now so that you can get a better idea about what your self-employment budget will be.
Related: If you are wanting to leave your current job to pursue something else, I have the book for you. I highly recommend the book How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye. It includes 150 pages of information on how to negotiate a severance from a job you no longer like, profiles of people from different demographics and income levels who’ve successfully engineered their layoffs, and how they did it, and more.
3. Create an emergency fund.
If you truly want to know how to become self-employed, then you need to take my word on starting an emergency fund!
An emergency fund is extremely helpful when you work for yourself. It can come in good use if you ever have a bad month (or multiple bad months), if you decide to change direction with your business, and so on. When owning a business, you never know which direction your business will go.
By having an emergency fund, you will feel a little less stress so that your financial troubles are not impacting your business in a negative way.
Related: Everything You Need To Know About Emergency Funds
4. Have a backup plan.
While some may say that having a backup plan is for those who have no faith in themselves, I do think it is a smart idea for many.
A backup plan can help you in case your business isn’t going as well as you thought it would, if you no longer like self-employment (I have seen this a few times), or something else.
Having a backup plan can help you feel less stuck in case that point in time ever does come.
5. Don’t forget about taxes and the legal side of running a business.
Many of the newly self-employed underestimate what their taxes are. Be sure to either do your research or to contact someone who is qualified so that you can be ready for taxes.
Another thing you will want to think about is possibly contacting a lawyer as well to see if there are any legal issues you should be aware of when it comes to your business.
6. Leave your day job.
This is the step you’ve been waiting for.
The final step when learning how to become self-employed is to one day finally leave your day job.
When you finally feel prepared and ready to leave your current form of income, you should figure out the correct way to leave your job, set a final work day, and turn in your notice.
Have fun and good luck with your business!
Are you interested in learning how to become self-employed? Why or why not?
I managed five out of 6… 🙂
The one thing I didn’t think about was a backup plan. I guess, I didn’t think I’d need one. Turns out, I did!
But, because I had a healthy emergency fund, I had time to think about my Plan B.
Excellent list Michelle. And, I can recommend all of them to anyone looking to make the jump to self-employment.
Thanks Diane!
Great post, Michelle! I agree, self-employment isn’t for everybody. It’s definitely a high risk/high reward situation that you need to serious think about before undertaking. While stressful and frustrating at times, it has been immensely rewarding as well.
Yes, definitely very rewarding.
Great post, Michelle!!! I’m glad you mentioned the taxes, benefits and legal side of it, as I think most people just think about replacing their income!
I kind of went backwards where I was self-employed and now I’m self-employed and work FT, lol. However, my goal is to grow my blog and replace that income with my day job. We’ll see 🙂 🙂 🙂
Awesome post as always!!
Thanks Sarah! I know many who have flip flopped back and forth haha. When do you think you’ll be self-employed again?
Thank you for a great article Michelle. I really appreciate your expertise.
I am one of the many looking to make the leap from a FT job to becoming self employed. It’s something I’ve considered for a while now but I still have a ways to go. Seeing what you have accomplished though keeps me inspired.
Again thank you for sharing.
Thanks Luis! What kind of business do you hope to run?
My intent is to have a business as a life coach. I just got certified as a Law Of Attraction practitioner and I am also working on my NLP certification. My intent is to educate people on how to achieve what they want and in the process to live their best life possible.
Awesome!
Hi Michelle, thanks so much for this post! I am a new blogger, and although I’m managing the blog totally for free, as a hobby, I would love to start some freelance writing on the side as well. It would be amazing to have a side hustle to bring in extra income to help pay off my student loans, and I’d be interested to see if it could possibly turn into more than that. I’ve always loved writing, so I’m not sure why this didn’t occur to me before now!
Welcome Sarah. Freelance writing is a great side hustle and I highly recommend it!
I am working in a corporate field full time as an Internal and Quality Controller. I absolutely love my job and the team I have. It is challenging and I have very flexible schedule.
However, I also run my online business on the side and I launched my blog in January 2015. It generates pretty decent income already and I absolutely love what I do. I haven’t thought about leaving my corporate job yet, but who knows what the future brings. Both of my job and business allow me to travel and work on my own terms. So right now it is the perfect balance for me 🙂
Sounds like a great balance 🙂
Michelle this is a solid start up guide! You really know how to distill important info into easy to read bits. Awesome post!
Thanks Jesse!
Great tips! I’ve been prepping for this moment for months 🙂 Being financially prepared was the most important step for me – I’ve socked away living expenses just incase something happens. The hardest to plan for was health insurance. It costs a lot more on my own and I just don’t know enough about health insurance to make sure I really have the best plan.
Yeah, health insurance is hard when you’re self-employed. It stinks!
Hello Michelle,
This is great advice for people to consider when if interested in self employment.
I would electorally love to get into self employment part time.
Thanks for sharing, I really value your advice.
Thanks!
These are all very important things to do before you quit your job. What a good guide, Michelle. 🙂
Thanks Cat! 🙂
I can’t lie, I’m working on it. I need to set a goal and create a LLC or S corp. I also want to add more to my emergency fund, but I will wait until most of my debt is gone before I do that.
You can do it Jason!
This is some really good advice. A couple of months ago I was planning on only working for myself and becoming self-employed immediately. But, it’s like you said, things like health insurance really need to be thought about. I’ve since started working on my business on the side. I’ll definitely save this page to look at when I’m getting closer to that work for yourself leap in the future. 🙂
Thanks!
Self-employment is not for everyone. There are a lot of ups and downs when you’re self-employed. One of my parent’s owned a small business so I would hear about the roller-coaster ride of being a small business owner as I was growing up. And a lot of people don’t like the competition aspect of being an entrepreneur.
It’s VERY competitive out there. I’m just starting a little blog because I want to be a writer and creative person, and this industry is VERY VERY competitive.
I imagine it’s more difficult to get started if you want to start an insurance agency or a restaurant. So that’s why I decided to start a business right now while I’m in college,because success takes time and I don’t have as many responsibilities. Luckily writing and blogging is a bit on the cheap side, well at least cheaper than trying to start up a boutique or grocery store.
Yes, it’s definitely not for everyone.
Creating an emergency is really helpful and I think this fund can back me at least three months or more, so that when being self-employed fails, I have something to depend on, Michelle. Thanks for the tips as I am contemplating on this matter.
Welcome 🙂
There really is so much to consider and prepare. I have thought about suggesting my husband try to start his own business, but for now, a regular paycheck and benefits are too important for our family. It’s something I would consider for myself when our daughter is older, though.
Yes, a regular paycheck is nice!
I hate it when people suggest that you should just up and quit, hoping to “figure it out” afterwards. As if burning your ships like Cortes somehow works just because you burned your ships. Preparation is absolutely crucial and I’m glad it was #1. Quitting and figuring it out makes for a better story but rarely works.
Thanks Jim!
Definitely creating an emergency fund and saving more for taxes than you think will be necessary should be #1 and #2. Income is not steady nor guaranteed like a paycheck and I struggle with paying down debt while having enough to pay taxes and still live. It’s definitely a balancing act with a lot of stress, but it will be worth the struggle one day!
Yes!
Wow, I can’t believe you quit your job 2 years ago…time flies! Your income reports are definitely inspiring. Great point about starting a business on the side to see if you can realistically make income. I know you have a tutorial on making a blog…but do you have a tutorial on how to make money from the blog?! =)
http://www.makingsenseofcents.com/2013/04/how-to-make-money-blogging.html 🙂
nice tips, my intent is to be boss of myself in the next 10 having my real estae agency for the moment I am realtor (I do a job that I love) and looking for other side hustle, so at the moment I am still at pint number 1 of your list but I am glad about it, because I am learning and upgrading knowledge of several fields daily!!!
Thanks!
Michelle all your points are spot on! Making the leap isn’t something you should do all at once. A step by step approach like you suggest is the key to lasting success and if anyone should know it’d be you!
Thanks Jesse!
Good advice. When I started my software business, I still did software consulting on the side. I would try to spend half my day on software consulting and half my day on the new software business. This worked well and helped pay the bills.
After my business started taking off, I continued to provide consulting services but instead of doing the work myself, I subcontracted the work out to offshore developers. That way they could the majority of the work and I could just oversee and test it.
That formula worked really well for me, as I sold the business 10 years later and retired.
Wow, that is awesome Steve!
Very insightful, thanks Steve !
Tyler Poldervaart mentioned you were a ajunct professor for the MSL program @ Mt. Mercy in Cedar Rapids Iowa. I am looking forward to learning from you and other awesome people in the MSL program at Mt. Mercy after my graduation in May 2017.
Have a blessed day !