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Right now you’re on Cloud 9 daydreaming about quitting your job. You’re reading countless stories about others who managed to leave their careers to work for themselves or travel abroad – or even better, run their business whilst they travel the world.
You dream of working from home and on your own terms.
But you have a million questions running through your head:
- Can I do this?
- Am I financially prepared to do this?
- Can I travel the world whilst working?
- …and how soon can I do this?
Maybe you’ve read a horror story about someone who’s quit their job with no idea how to bring in income. They do something like move abroad and, with no idea how they’ll make money, they run their savings dry.
Speaking from experience, there is also a large community of people who support themselves whilst making a living online. These same people do not let the horror stories scare them away from their preferred lifestyle.
The world of working online from home surprised me when I first discovered it in 2017. Before then, I thought “freelance” or “self-employed” was a synonym for “unemployed.” Since then, I’ve started a freelance business of my own and have visited countries like Thailand, Vietnam, France, England, New Zealand, and Japan.
Before I moved abroad, I prepared a safety net that would keep me going during the turbulent ride of freelancing. I honestly love talking about money, so…here are three simple steps you can take to financially prepare to quit your job.
Of course, I don’t know everything and I can’t offer financial advice for your own specific, unique situation. I’ve also learnt that everyone interacts with money differently. Because I come from a lower-middle class, Asian-American background, my money philosophy might be different than yours. Based on my own journey of financially preparing to quit my job, these are the steps I recommend to start your journey.
1. Understand how much you spend every month
First, understand how much you spend every month.
You can use apps like Personal Capital or YNAB to see your month-to-month spending. I use both Personal Capital and a spreadsheet to keep track of my spending.
When you understand how much you spend every month, you can start estimating a minimum number to bring in every month.
2. Focus on saving at least one month of living expenses immediately
Next, I recommend saving at least one month of living expenses. Life happens and unexpected expenses happen too.
When something like an unexpected car maintenance bill pops up, it’s better to be prepared for that – as opposed to that bill getting tacked onto our credit cards.
3. Get your debt to a manageable amount
According to a 2015 study, 80% of Americans are in debt. If you plan to quit your job before being debt-free, get your debt to a manageable amount first. Understand the payments you will need to make every month. In addition to that, understand your interest rates, and how the interest accrues.
For example, although I have been self-employed for three years now, I am still paying my federal student loans. Luckily, my student loans have a low interest rate (<6%). In case you didn’t know, on most federal student loans, interest accrues daily. That means the interest gets added to your debt every day – instead of once per month or per year.
Another interesting thing to note is that up to $2,500 student loan interest can be tax deductible.
Overall, decide on a plan to pay off your debt. I think the best way to tackle this is to look at your loan with the highest interest rate, and pay that off as quickly as possible.
4. Have an idea of what you will spend every month
Will your spending be the same after you quit your job? Will you have new expenses – for example, your own health insurance – or will you need to cut your spending in a certain area?
If you will be moving somewhere else, what are the costs of moving around?
Here are some examples of expenses to consider:
- Going Out
- Travel (flights, visas, etc)
- Other (subscriptions, unexpected expenses)
- Debt Payments
- Safety Net + Savings
- 401k Contributions
5. Start contributing to an emergency fund
If you haven’t already, start contributing to an emergency fund. As a safety net, I would recommend saving up for at least six months of living expenses and emergencies. There comes a type of relief when an unexpected cost comes up, and you know you prepared for this.
However, everyone’s needs here are different. Some people have a higher risk tolerance than others and others have a family to consider. Safety nets also exist beyond an emergency fund – for example, some people just know they will always have a roof to sleep under every night.
No one can actually tell you how much to save in advance. It is a personal decision. But you should, without a doubt, start contributing to an emergency fund.
6. Start a side hustle, or find a remote job
For most people, I would recommend having an idea of how you will bring in a steady income stream after you quit your job.
Some people can do it: quit their job, live off their savings, and start making everything work for them. Maybe you’re one of them.
But if you prefer to veer on the safe side, prove to yourself you can make a consistent monthly income before you quit your job.
At the same time, don’t watch yourself succeed at your side hustle, only to prevent yourself from taking the leap to pursue it full-time.
Last year when I was visiting home, someone asked me if I was worried about losing my freelance contracts. At the time, I had one big client and other smaller clients. I told him that I felt confident enough that I could tap into my network, and extend my network, to make things work. A few months later, my big client ended our contract and my confidence was put to the test.
I leaned on my sales skills to figure out what people needed, and how I could offer that as a freelance designer.
As someone who also enjoys research and writing, I also know I could fall back on writing as a Plan B – even with no background in journalism or freelance writing.
How can you transfer your current skills to a side hustle or job?
Related Reading: How to Find Freelance Clients (Medium)
7. Account for costs covered by your employer
Often, our employers incentivize us to make 401k contributions. They also pay for our health insurance.
Make a plan for how you will make up for those payments.
After I quit my job, I transferred my existing 401k balance to Betterment. I don’t want to try searching for this money 30-40 years down the line, and I use the roboadvisor Betterment to manage any money I want to invest anyway. With Betterment, I also set up recurring payments to my 401k.
I also specifically opted for a health insurance plan (not a travel insurance plan) because health insurance costs are tax deductible.
Quitting your job to work from home or start your own business will be an exciting step. It’s okay to feel scared.
Quitting your job to work from your computer goes against everything we’re taught about growing up. Because we’re taught to go to university, start a career, and settle down. Not only is going against that scary, but if you start telling others about your dreams, they might project their fears in order to dull your dream.
You don’t have to do this alone.
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Fear is a part of the process. And another part of the process is reminding yourself you are not alone and you can do this.
Even though I proved to myself I could make money online, as the last day at my job approached, I was scared. But, before the end of my last day, I also landed my first web design client.
Success doesn’t come to those patient enough to wait. It comes to those who work hard for it.
If my dream can come true, so can yours. Just know you have to put in the work to make it happen.
Related Reading: Work from Home Tips (Medium)
Are you preparing to quit your job? What do you want to do to support yourself, and how do you plan to get there?