The biggest fear about leaving your day job to freelance full-time is having enough money to quit your job, continue to live comfortably, and build up your self-employment income. If you don’t have money leftover after your paycheck, you’re probably finding it difficult to build up the savings you need to quit your job. That’s understandable. I don’t recommend you leave your job unless you have another source of income lined up and some savings to make the transition easier.
How Much Should You Save?
Before you start saving anything, you need a goal. Ideally, you should have a cushion of about three to six months of living expenses saved up before you leave your day job. You will use this cushion to supplement your freelance income. The cushion should not be used as your entire income.
Before I left my day job, I saved up $10,000. My plan was to pull a maximum of $1,000 from this savings each month to help pay the bills. I only needed to dip into this savings for two months before I was fully supporting myself with freelance income.
How to Build the Savings
Saving up a large sum of money isn’t easy for most people. After all, you have bills to pay. I agree, building up savings starts off difficult but gets easier as time passes. You’ll begin to get motivation from seeing your savings grow and the momentum will push you toward your goal.
If you’re not already using a budget for your income, you should start now. You’ll definitely need it when you start freelancing. A budget is nothing more than a list of your expenses subtracted from your monthly income. The money that’s left over is what you can begin putting toward your full-time freelance savings fund. Each pay period, put the money into a separate savings account and don’t touch it unless there’s an extreme emergency.
Make Saving Easier
Consider putting the money into an online savings account. This will make it harder to withdraw the money on impulse since you can’t visit a physical branch to make a withdrawal. The other benefit of online savings accounts is that they typically have higher interest rates, so you’ll earn more money on your savings.
Make your saving automatic either by splitting your direct deposit or via automatic bank transfer. If your employer allows it, you may be able to have part of your paycheck deposited into your savings account. Check with your payroll or human resources contact to see if this option is available. Otherwise, contact a customer service representative at your bank to find out how you can set up an automatic transfer to your bank account each month.
How to Save More Money
Based on your current budget, you may only be able to save up a limited amount of money. At such a slow rate, you may have retired before you can start freelancing full-time. If you want to reach your savings goal quicker, you have to make some tough decisions about what you’re spending money on.
Review your monthly budget to find expenses you can cut back to increase your savings contributions. For example, you may be able to reduce your grocery bill, eat out fewer times during the month, spend less money on entertainment, or cancel your Netflix subscription. Evaluate your spending and make wise decisions about the expenses you can reduce or even eliminate.
You may have to live frugal for a few months while you build your savings. You might miss some of the “comforts” you’re using to having, but you’ll be amazed at how soon you adjust. Cutting back now will make it easier to live off your freelance income and keep you from dipping into your savings too often.
Saving up to freelance full-time might be hard, but it’s a necessary step to make sure you can transition comfortably from working full-time for someone else to working full-time for yourself.