It’s official: I’m ready to get out of here. I’m tired of working here and I have a lot of people lined up to hire me for home catering and cooking. I’m sure you did a bunch of planning before you made the leap. What exactly did you plan?"
I know at least one other former coworker who is contemplating a similar move into a freelancing gig, though his plans are decidedly less clear at this point.
So what exactly did I do during that transition period? I started making a list of the things I did—then, soon, I realized that there were several things I wish I had done. Before I knew it, the email had ballooned into a guide that I thought might be useful to quite a few people.
Here are fifteen things I did (or wish I had done) during the months leading up to my transition to working for myself.
Learn to live on less
One of the biggest challenges of freelancing/self-employment is the uneven pay. Gone are the steady paychecks of a typical job. Gone is the idea that you’ll make roughly the same amount next month as you will this month. During 2009, I have had months that earned only 25% as much as other months—and I anticipate a single month later in the year when several projects come to fruition in which I have by far the best month of the year.
If you allow your spending to match your income, you’re not going to be able to survive during the lean months. Instead, you need to adapt yourself to a consistent lower level of spending. Start looking now for fat to trim from your life. Every expenditure you have that’s not necessary for your basic living standards should come under very careful scrutiny.
Many people balk at this, but the truth is this: your first several months as an independent worker are going to be a real shock in a lot of ways. The last thing you need making this transition more difficult is a bunch of unnecessary expenditures. If things go well, you can always add some expenses back into your life—but you may find, surprisingly, that you’re quite happy without most of them.
2. Create a budget, both personal and business
As I’ve written before, I’m not a believer in the “one-budget-fits-all” approach. Trying to make your budget or spending match an example provided by someone else is doomed for failure because that example doesn’t match your life.
I argue that the real value provided by a budget is that it reveals, loud and clear, how you actually spend your money and it can provide some clear pointers to where you need to make changes. Prepare a budget by just keeping careful track of what you spend for a month—make a giant list of every dime you spend, then organize all of that spending into categories that make sense to you. When you have that in place, look not only at the total amount you spend (you’re going to need an income level that on average exceeds that by at least a little), but also at the various categories—are there areas that you can cut?
A similar exercise for one’s business expenses is also useful, though it can be more difficult. Seek advice on the expenses that people typically have freelancing in your area of interest and use that for a basis.
3. Build up a big emergency fund
If you’ve followed steps one and two and made serious cuts in your spending, you’ve now got a nice surplus of money coming in each month. Don’t be tempted to spend it. Instead, sock it all away into a savings account. In fact, do it automatically—instruct your bank to automatically transfer a healthy amount each week into a savings account on your behalf.
If you’ve done your budget, you have a good idea of what your monthly expenses actually are. I recommend having at least six months worth of living expenses in your emergency fund before making the leap. This will help you survive the lean months, particularly those early on in your freelancing experience.
4. Now make it bigger
Quite often, people go light on the emergency fund before they make the leap. They have a bit of cash saved up, but they’ve convinced themselves that they’re ready—they have plenty of clients and opportunities lined up.
Don’t make that mistake.
The big problem is that freelancers and self-employed folks—especially early on—can have a tendency to count their chickens before they hatch. No deal, no matter how good it is, is a sure thing until contracts are signed and products are delivered. You might have ten potential clients that talk big about what they want to do, but when push comes to shove, all of them could vanish—and many of them will.
Be prepared for that. Don’t leave yourself in a desperate situation if a conversation doesn’t pan out. Cover your bases—and the best way to do that is with a healthy emergency fund. Build it now, build it later, keep it nice and fat.
5. Start reaching out to your audience and client base now
There is no better time than right now to start digging for opportunities, even if your leap is far into the future. Get out there and start seeking out the people you want to know—and the people you want to sell to.
In a nutshell, this is market research—you need to find out if there are people that will buy what you do and figure out how to connect with them. Obviously, the internet and social media (like Twitter and Facebook) are good places to start, but they’re just a start. You should also go directly to where people who might be potential clients—or potential competition—congregate.
Start finding the people now. Join message boards. Start Twittering. Start a blog. Pound the pavement in your local community. Dig through freelancing boards and other job boards. If you’re passionate about the field you’re leaping into—and you must be if you want freelancing to work—you have plenty already to talk about. Let the passion flow.
6. Eliminate as many regular bills as you can
Back on the money side of the coin, start whacking your regular bills, particularly any related to entertainment. Ditch Netflix—if you want to watch a movie, use Redbox or a similar service. Ditch your cable bill entirely—use a digital converter box and Hulu to get your television fix. Sell your car—if you can use public transportation or ride a bike to work, do you really need one?
For the ones you can’t eliminate, trim. Make your living quarters as energy efficient as you can, with programmable thermostats and the like. Cut your cellular plan—do you really need that much data, those minutes, or that many text messages? If you decided to keep cable or satellite, whack some premium channels you don’t watch.
The more monthly bills you can eliminate or reduce, the more room you have to breathe when you make the transition.
7. Write a business plan
Don’t worry about being too formal when you do this. The purpose of a business plan is to make you think about all of the details of what you’re about to leap into. Have you really thought things through?
Areas to include: market analysis (is there actually a need or a market for what you’re doing), product or service development (what kind of service or product will you actually offer), marketing (how will you draw attention to what you’re doing), financial organization (the money), and risk factors (what problems might crop up and how you might handle them).
Spend some time on this. Include everything that comes to mind, and flesh out details on every point. Don’t sweat the formality—just focus on ideas. The more effort you put in here, the easier it will be to make this all work when things get rolling.
Trent Hamm is the creator of TheSimpleDollar.com.