An estimated 10.4 million Americans out of the 160.99 million currently in the workforce are self-employed, according to the Bureau of Labor Statistics. It’s possible that this number is even higher, since plenty of self-employed workers fly under the radar.
In an economy where remote employees are being forced to return to the office and employers are thinning out their payrolls, being self-employed can sound pretty tempting, and it’s incredibly tempting if you’ve already established a business for yourself on the side. If you’re looking to quit your day job sooner rather than later, you need to know what it takes — or you might find yourself seeking a new employer soon.
Is it ever the “best” time to quit your day job?
“I don't know if there's ever a bad time to seek self-employment, at least on a part-time basis," said Nick Loper, founder of the online community Side Hustle Nation. “After all, building an income stream you have more control over is always an excellent financial move.”
Building an income stream that you can fully control can help you on your journey to self-employment. You’ll want to have things like cash flow figured out, as well as a backup plan in case contract work dries up before you take the leap. This is one thing about working for myself that I learned the hard way.
After freelancing on the side for years, I abruptly decided that it was time for me and my day job to part ways. The company suffered from micromanagement issues that only got worse when COVID hit, and I was repeatedly in trouble due to my ADHD. I no longer had the mental space or energy for it, so I walked away.
Soon after I turned in my notice, I lost a four-figure freelance client due to budget cuts. I was relying on this gig to cover part of my expenses while I built up a client roster, which meant that now I had to scramble for income. Trust me: This was just a taste of what would come during my first year of self-employment. But a lot of good stuff came too, like my book deal and learning to lean into my ADHD instead of trying to “fix” it.
Why you shouldn’t discount the side hustle
If you love working for yourself but are nervous to test the self-employment waters, try building your freelance schedule around your day job.
When I still had a full-time job, I would freelance in the evenings and on the weekends when I could. Depending on my schedule, I also freelanced on my lunch break and while I waited for appointments, like at the doctor’s office. But I was still a mess and couldn’t always account for my time.
“The key to doing this successfully without it taking over your life or ruining relationships is the ability to make sure you plan those hours accordingly,” they said. “For instance, at the beginning of each week, know what you have due and schedule times to complete those projects outside of times reserved for other commitments.”
Loper agrees. In his view, this is the lowest-risk way to fulfill your dream of quitting your day job. “I like to see a consistent track record of profits from the side hustle before you leave your job,” he said. “It may not fully replace your day job salary, but it's great if you can build it to at least cover your monthly expenses.”
This way, you can use your day job to pay your current expenses while using your solo work to save for emergencies and build a cash reserve.
The pros of quitting your job and going solo
Being self-employed comes with perks, including flexibility, control over your work environment, and the ability to choose your own educational path.
One of the reasons self-employment is highly desirable: You can often make your own schedule. A flexible schedule is a great perk that I enjoy (but also sometimes hate…more on that later) as a business owner.
As someone with chronic health issues, it’s nice to listen to my body and take that nap I may need instead of running myself into the ground, and it’s nice to be able to accommodate my friends’ hectic work schedule when we travel together.
Choosing your own team
Another advantage of self-employment is the ability to grow your business as you see fit, including hiring your own employees.
Being in charge of a team requires delegation skills, which can involve a learning curve for a business owner. But being in charge also allows you to hire team members who are truly a great fit.
Investing in yourself
Now that I’m self-employed, I can invest in the training I want to do, not endure the training my employer requires.
As a personal finance content creator, I regularly attend conferences like FinCon, where I can meet like-minded people and learn from them. For instance, I recently participated in a mastermind group as part of a FinCon event, and the tips I learned will help me take my own business to the next level.
Deducting educational expenses on your taxes
Professional training can be expensive, but there is a way to soften the blow. The IRS allows you to deduct work-related educational expenses, which could include:
- 🏫 Tuition and fees
- ✏️ Supplies you need for class
- 🚌 Transportation to class
When you use Keeper to track your business expenses, it’ll flag transactions that might be educational expenses for you. The app is designed to help both freelancers and side hustlers track tax write-offs and streamline their finances. That way, you can make sure you’re saving as much money (and time) as possible.
The cons of quitting your day job and going solo
Self-employment can be great, but it isn’t always what it’s cracked up to be. Here are a few downsides.
Most people experience burnout at some point. But when you’re still working your day job while building up your business, you’re especially at risk. If you find yourself tired and unable to focus on work for an extended period, it’s best to take a step back, focus on yourself for a few days, and then return to work well-rested.
This isn’t the fear of failure. I mean actual failure.
“The truth is many (or most, given a long enough time horizon) small businesses fail,” Loper, the founder of Side Hustle Nation, said.
Failure can happen for a lot of reasons: inadequate cash flow, no overview of your business’s operations, and no backup plan, to name a few. But you can give yourself a little padding.
“The key is to keep your expenses and startup costs low and your upsides high,” Loper advised. “That way, even if it takes a few attempts, the idea that ‘hits’ erases all your losses and then some.”
If you’re running around helping clients in person all day, you might not experience loneliness, but some working from home sure do. It’s nice to start work without brushing your hair, but it can also be lonely when your only social interaction is your cat screaming at you. (Ask me how I know.)
As Loper says, “The self-employment grass might look greener, but it can sometimes be lonely.”
Yes, flexibility can be a con as much as a pro. With no boss to answer to, you may struggle to complete your projects on time. Without a definite timeline, it’s also easier to procrastinate, or let yourself be pulled away for non-work obligations. As self-employed people, we often imagine we have all the time in the world, but that’s not true.
Self-reliance as a double-edged sword
As a self-employed person, it’s easy to waste time waiting for motivation to strike. But sometimes, it never happens, and then what? You’ve lost a whole day, and you’re 100% responsible.
Filing taxes as a self-employed person
Taxes as a self-employed person will differ from taxes on someone else’s payroll.
For one thing, you’re not subject to employer withholdings when you're self-employed, making you responsible for your own taxes. You’ll most likely receive a bunch of 1099 forms and use the information in those to file, which can feel overwhelming.
Keeper can help you file your taxes as an entrepreneur. The app will help you identify business deductions that will lower your overall taxable income, meaning you’ll save come tax time. When you’re ready to file, Keeper can also help you organize your 1099s and complete your return.
How to know if you’re prepared to quit your day job
When it comes time to pursue full-time self-employment, you’ll want to be prepared as much as you realistically can. Ask yourself these questions to help you decide whether to quit your day job.
✓ Do you know where you stand financially?
In order to prevent cash flow issues, you must know where you and your money stand. Do you see the income you need for your bare living expenses? Is your side income covering all of this, or does your day job take care of it? Can you cut out any of those expenses to make room in case of a low-income month?
If you haven’t yet, you’ll need to create a budget. When you know how much you spend, you’ll be able to determine how much you need to keep yourself afloat.
✓ Do you have a business plan?
You may already have one in your mind, but take the time to outline a business plan in an actual document. You don’t need to have every official system mapped out, but you must know a few things immediately. For example:
- What goods or services do you offer?
- How much will you charge for them?
- Who are your existing clients?
- How will potential new clients find you?
✓ Have you identified your business expenses?
If you haven’t yet, this is also a great time to identify your potential business expenses. For example, as a writer, I use tools like:
- ✍️ Grammarly
- 💻 Google Suite
- 📖 AP Style guide
- 🌐 Web hosting
Some of these expenses are yearly while others are monthly, so I must incorporate all of this into my budget to ensure I can still cover my expenses after paying for the ones related to my business.
Another hot tip: Keep up with your bookkeeping — something Keeper makes easy. You should always know where your money is coming from and flowing to.
✓ Do you have enough cash saved up?
When I first quit my day job, I didn’t anticipate how hard it would be to stay on top of my cash flow. Remember how I couldn’t cover my expenses at first because I lost a client? Well, I eventually caught up, but then I decided to take time off from most of my clients to focus on writing my book.
After a missed book payment in December, I felt anxious and asked my publisher about it. Turns out, I didn’t read the contract correctly and wouldn’t receive 40% of my book sum until April. I was left to scramble again.
My advice? Always have six months of living expenses saved up before you leap to full-time self-employment.
After almost a year and a half of being self-employed, I’m happy to share that I’m figuring things out. Learning to prioritize self-care helped me become more open to new strategies and ideas that I’m excited to try. I’m even on my way to achieving my first five-figure income goal!
Learning the tricks of self-employment helped me get ahead in my career, and it can do the same for you.
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At Keeper, we’re on a mission to help people overcome the complexity of taxes. We’ve provided this information for educational purposes, and it does not constitute tax, legal, or accounting advice. If you would like a tax expert to clarify it for you, feel free to sign up for Keeper. You may also email firstname.lastname@example.org with your questions.