Is the thought of losing your guaranteed salary crippling your decision to start your own business or start freelancing?
The good news is that you can leave your job for the world of self-employment without risking the house.
I know because 7 years ago, I went from being the main breadwinner in our house to becoming a newly signed up member of the ranks of the self employed.
So, if you’re determined to start your own business – or need to go it alone – what can you do now to help you prepare for losing your salary without risking your family’s financial security?
(By the way, if you’re still undecided about freelancing or self-employment, you might like to take a minute to read 13 reasons why it’s a good idea).
Get a reality check
If the thought of giving up your salary is terrifying, the first thing you need to do is:
Take a good hard look at your outgoings and determine what is really ‘essential’.
This shows you what you actually NEED to earn each month versus your current spending.
And this has the added benefit of:
- helping you to reduce your spending to essential items only
- showing you how much you REALLY need to make each month once you’re self employed – it’s usually less that you think.
To do this, you need to be really honest with yourself.
Do you need that facial every month? Sure, it’s fantastic ‘me time’ but when you’re starting out maybe it’s time to cut back.
TIP: Give yourself treats in return for achievements. Maybe when you land your first gig you’ll treat yourself to a manicure or a night out? Whatever floats your boat. Just make sure that you can afford it without putting it on your credit card.
With a few cuts, you’ll be able to start saving money while you’re still earning a salary rather than spending everything that you earn.
A budget is telling your money where to go, instead of wondering where it went. Dave Ramsay
Start a Savings Habit
A penny saved is a penny earned. Benjamin Franklin
Now, you know what you NEED to earn, multiply it by 6.
Now you know how much you need to cover 6 months worth of expenses.
This is your savings target.
This figure will be different for everyone, but setting it aside will make your self-employment journey all the sweeter. And you could decide to put away 9 months or even a year, I’m just suggesting 6 months as a minimum.
While you’re still in the world of employment, start cutting back and put the extra cash away into a savings account.
TIP: If you’re UK based (and you haven’t already saved your total annual limit) consider opening an ISA – either cash or stocks and shares – which has the benefit of allowing you to put aside £15,240 per year tax free.
To save your target more quickly: Pay Yourself First!
When your salary is paid into your account, keep what you need to cover the essentials and then pay the rest into your savings account. Set up a direct debit each month and then you don’t even have to think about it.
Sell, sell, sell
If your savings target is high or if you think it will take you too long to save up (before you go insane in your current job) you can add to the pot in other ways starting with selling the stuff you already own, but don’t use/need/want.
Got old baby equipment? Sell it on Gumtree.
That vegetable steamer you vowed would change your eating habits but which, in reality, has done nothing but languish at the back of the kitchen cupboard? Get it on ebay.
Personally, I sold baby items on Gumtree, went through my garage (several times) and sold items on ebay and probably still have more to sell. Check out sites like Music Magpie if you have old CDs, DVDs or even laptops and smartphones and sell your stuff.
We sold our second car, which made us a few bucks (although it was a banger). This had the added bonus of saving us £450 a year on road tax and insurance. Not to mention the whopping £50 per month that I used to spend on petrol, which I clearly didn’t need, as I now average around £15 per month using the local club car.
I am not an ebay queen or a garage sale guru, but I’ve managed to make a bit of money by selling items we no longer need so you can do it too.
I always shop around for insurance, banking and utilities. As a result, I usually only save a few pounds when I swap supplier – but it’s still worth it because it all adds up.
The good news is that if you don’t regularly shop around, then you’re likely to make even greater savings.
I also switched from shopping in Tesco to shopping in Aldi.
I came late to the Aldi phenomenon (largely because I can’t stand the way that they rush you through the checkout and don’t let you pack at the till – not a relaxing shopping experience).
However, now that I save around £30 a week (yep, a week!) on my grocery bill, I am delighted to have my shopping flung at me as soon as it’s been scanned.
Make it a Habit
As a child, I never quite understood my Granny’s enthusiasm for saving 2p on a tin of peas, but it seems I have turned into her.
My kids have gorgeous clothes (mine aren’t too bad either) and the vast majority of them are bought in sales or on ebay.
Working from home means that I visit our local high street more regularly than before, and I’ve discovered that I can often buy things more cheaply when I shop locally.
Our ironmonger (yes, we still have one) is much cheaper than B&Q for many household items, while the town’s sports shop often has trainers on sale for less that I can get them online. Not forgetting the discovery of a fabulous hairdresser in the next village thanks to asking a few friends who cut their hair.
I’ve actually become slightly addicted to saving money and budgeting.
However, I don’t scrimp and save to the point that we’re miserable. I have done that in the past, but we get fed up and then splurge – usually when we can least afford it.
Now though, we still have meals out, holidays and day trips without running up our credit cards thanks to better budgeting and saving.
Unbelievably, we now have more disposable income than when I had a regular salary coming in.
The happiest people don’t have the best of everything, they just make the best of everything. Unknown
Budgeting doesn’t have to be boring. In fact, it’s pretty liberating.
Check out my favourite expert sites on budgeting:
Money Saving Expert – UK site listing ‘best buys’ for banking, credit cards, savings accounts etc. You can also sign up for a weekly email giving you up to date information on where to go for the best deals.
The Wealth Chef – Ann Wilson walks the talk and her blog on investing and blitzing debt is packed full of strategies to get your finances working for you. I refer back to her book ‘The Wealth Chef’ time and time again.
The Frugal Family – A blog all about family life on a budget with fabulous ideas on recipes, thrifty days out and saving money. Her site also has 50 money saving ideas and a free downloadable monthly budget planner.