Safety in Numbers--and Dollars

If you fail as a freelancer, the reason will likely not be that you aren’t good at what you do, but because you didn’t set aside the financial resources to keep you going until your business got off the ground. The solution? Create a substantial bank account balance before you even think about quitting your full-time job.

How much do you need? A rule of thumb says at least 6 months to a year of living and operating expenses, but you may need more, depending on how difficult you feel it will be to establish yourself and build up a client base. If you’re entering a competitive field, it may take up to a year or more before you're earning as much as your old salary.

Also budget for the following items:

Equipment: Computer, fax machine, new phone line, answering machine, office supplies, stationery, business cards.
Health insurance: Unless you are covered by your spouse’s plan, set aside money to pay your premiums.
Taxes: You now are responsible for all your withholding and Social Security payments. See a qualified accountant to find out how much you need to set aside or even pre-pay.
Operating costs: Gasoline, phone bills, internet access, and anything else you need to spend money on.
Professional organizations: Dues and membership fees, as well as lunch meetings.