Strict Standards: Declaration of Walker_Page::start_lvl() should be compatible with Walker::start_lvl($output) in /home/jjensen3/public_html/freelancesprout/wp-settings.php on line 158

Strict Standards: Declaration of Walker_Page::end_lvl() should be compatible with Walker::end_lvl($output) in /home/jjensen3/public_html/freelancesprout/wp-settings.php on line 158

Strict Standards: Declaration of Walker_Page::start_el() should be compatible with Walker::start_el($output) in /home/jjensen3/public_html/freelancesprout/wp-settings.php on line 158

Strict Standards: Declaration of Walker_Page::end_el() should be compatible with Walker::end_el($output) in /home/jjensen3/public_html/freelancesprout/wp-settings.php on line 158

Strict Standards: Declaration of Walker_PageDropdown::start_el() should be compatible with Walker::start_el($output) in /home/jjensen3/public_html/freelancesprout/wp-settings.php on line 158

Strict Standards: Declaration of Walker_Category::start_lvl() should be compatible with Walker::start_lvl($output) in /home/jjensen3/public_html/freelancesprout/wp-settings.php on line 158

Strict Standards: Declaration of Walker_Category::end_lvl() should be compatible with Walker::end_lvl($output) in /home/jjensen3/public_html/freelancesprout/wp-settings.php on line 158

Strict Standards: Declaration of Walker_Category::start_el() should be compatible with Walker::start_el($output) in /home/jjensen3/public_html/freelancesprout/wp-settings.php on line 158

Strict Standards: Declaration of Walker_Category::end_el() should be compatible with Walker::end_el($output) in /home/jjensen3/public_html/freelancesprout/wp-settings.php on line 158

Strict Standards: Declaration of Walker_CategoryDropdown::start_el() should be compatible with Walker::start_el($output) in /home/jjensen3/public_html/freelancesprout/wp-settings.php on line 158

Warning: session_start(): Cannot send session cookie - headers already sent by (output started at /home/jjensen3/public_html/freelancesprout/wp-settings.php:158) in /home/jjensen3/public_html/freelancesprout/wp-content/plugins/maxblogpress-stripe-ad-pro/include/mbp-stripe-ad-pro.cls.php on line 58

Warning: session_start(): Cannot send session cache limiter - headers already sent (output started at /home/jjensen3/public_html/freelancesprout/wp-settings.php:158) in /home/jjensen3/public_html/freelancesprout/wp-content/plugins/maxblogpress-stripe-ad-pro/include/mbp-stripe-ad-pro.cls.php on line 58

Warning: Cannot modify header information - headers already sent by (output started at /home/jjensen3/public_html/freelancesprout/wp-settings.php:158) in /home/jjensen3/public_html/freelancesprout/wp-content/plugins/maxblogpress-stripe-ad-pro/include/mbp-stripe-ad-pro.cls.php on line 70

Warning: Cannot modify header information - headers already sent by (output started at /home/jjensen3/public_html/freelancesprout/wp-settings.php:158) in /home/jjensen3/public_html/freelancesprout/wp-content/plugins/maxblogpress-stripe-ad-pro/include/mbp-stripe-ad-pro.cls.php on line 80

Warning: Cannot modify header information - headers already sent by (output started at /home/jjensen3/public_html/freelancesprout/wp-settings.php:158) in /home/jjensen3/public_html/freelancesprout/wp-content/plugins/maxblogpress-stripe-ad-pro/include/mbp-stripe-ad-pro.cls.php on line 81
Before you Quit your Job - How to Determine your Replacement Income | Freelance Sprout | Find, Start, and Grow Your Dream Freelance Business
Read the six part series on creating a freelance business plan
 

Before you Quit your Job - How to Determine your Replacement Income

Date February 9, 2008


Strict Standards: Only variables should be assigned by reference in /home/jjensen3/public_html/freelancesprout/wp-includes/post.php on line 117

Strict Standards: Only variables should be assigned by reference in /home/jjensen3/public_html/freelancesprout/wp-includes/post.php on line 117

Strict Standards: Only variables should be assigned by reference in /home/jjensen3/public_html/freelancesprout/wp-includes/post.php on line 117

One aspect of freelancing that I often see people overlook is estimating replacement income. Freelancing may not necessarily require you to make more money but it will certainly require you to keep a close watch on your finances. 

If you’re currently a salaried or hourly employee, there’s a lot that goes on behind the scenes within your company that you don’t see.

Employers pay your taxes (to a point) and partially pay many of your benefits—health insurance, 401ks, and profit sharing plans.

To determine what your income needs to be to replace your employed income, you have to look at three categories.

Living expenses

How much do you really need to live on? Think housing, food, and vehicles. You also need to factor in health insurance. Most employers will pay half your health insurance premiums. To estimate your own, double what you currently pay. For example, if you’re paying $250 per month (out of your paycheck), plan on forking over about $500 to insure yourself. That’s if you’re a healthy, non-smoking adult.

Another stinger is taxes. If you pay $5,000 per year in taxes, your employer withholds a little each paycheck to get you there by the end of the year. As a freelancer, you’ll be responsible for paying those taxes throughout the year. If you forget, you’ll have to come up with the $5,000 in one big chunk come tax time. And don’t forget penalties for paying late.

Direct Costs

What are your business essentials? These are the things that help you perform the work that gets you paid. You can’t work if you don’t have these items. A computer for sure. What about a DSL or cable connection? A good way to figure out these costs is to go through several months of bank statements. Look for recurring, essential items. Example categories include software, bandwidth, and Website hosting.

Overhead

Everything else is overhead. Examples include office supplies, furniture, training, and marketing.

The most difficult part of this process is figuring out living expenses. None of us want to lower our living standard. But, many of us live well beyond our paychecks. When you go freelance, make sure you can cover your essentials like house/apartment payments, food, and clothing before you consider “standard of living” items. This is difficult because some things we consider essential aren’t.

I’ve posted previously that it comes down to a simple question: “Are you more concerned with your standard of living, or do you want to be a full-time freelancer?”

A lot of financial gurus say to plan your savings first. I don’t agree. As a freelancer, you will be investing. You’ll be investing in yourself.

Getting over this financial hump will give you the freedom you need to move forward.

Tags: , , ,

Like it? Share it!

  • Technorati
  • del.icio.us
  • blogmarks
  • Furl
  • Ma.gnolia
  • StumbleUpon
  • Digg

Related posts:

  1. Freelance Funding - Rules of Thumb
  2. Freelance Business Startup Worksheets
  3. Creating a Freelance Business Plan - Part 6

Leave a Reply

You must be logged in to post a comment.