Freelancer’s Survival Guide: Things You Need Before You Quit Your Day Job

Kristine Kathryn Rusch

Let’s assume that last week’s essay didn’t convince you to keep your day job. You’re going to take the plunge no matter what. Good for you. That’s how most of us have entered this crazy profession. On the afternoon that I write this, I heard a woman on National Public Radio who confessed to starting her fulltime freelance business when she lost her job in the 2003 recession. Then I picked up the April More Magazine, and find a series of articles about women who started green businesses—often against all advice, often while in the middle of a job loss or downturn or personal crisis.

Most fulltime freelancers you know didn’t have that three years worth of income in the bank like I mentioned last time. Some barely had an emergency fund. A few didn’t even have paying customers when they took the plunge.

Again, I’m not recommending this method, but I do know the realities of the world. And the reality of people who want to freelance is simple: If you really want to do it, you’ll find a way to make it work.

So…last week, I dealt with whether or not you should quit. This week, I’m going to tell you the practical things you must have in place before you do quit.

(Those of you who’ve already quit that precious day job, you can still implement these items now. The sooner the better. Make a list and conquer one per day, if you can.)

The first few items on my list are in order of importance. After that, I’m going to place the items in random order, as I think of them.

1. You need to have the people you live with on board.

These are the people I’m describing as family. Your grandmother hundreds of miles away in Iowa doesn’t have to approve; your wife, whose livelihood probably depends somewhat on yours, does. You cannot quit your day job by fiat. You must have your family on board.

Sometimes that takes work. Dean and I offer classes for established professional writers—not just fulltime freelancers, but people who have already made money at their writing. (We only offer one course on business and publishing for beginners. We’re holding one in June. Find the information here.) We offer one particular workshop for the professionals which role plays the freelance lifestyle. Our theory is simple: If you practice freelancing in a reality-based role-playing situation, you’ll know what you’re getting into.

A lot of our students bring their spouses to that workshop. In fact, we ran that workshop just a year or so ago because the students who had done it before wanted to run their spouses through the simulation. Our weekend workshop for beginners would also give spouses similar information, without the role-playing aspect.

I’m not telling you all of this to get you to sign up for our workshops. I’m telling you this because at times, it doesn’t matter how much you try to tell your spouse what freelancing is like, your spouse won’t understand until about a month in, when you haven’t made a dime. Yes, you have $5000 in accounts receivable, but all of those accounts are paying late—or in the case of the downturn this past December/January/February, not at all.

Freelancing sounds good in theory, but it’s difficult in practice.

Once you have your spouse/family on board, you have to continue to communicate, to make sure that person remains on your side. You and your family are in this together, even if everyone else in the household has a day job. You all need to know what’s happening, why, and what to expect.

2. You need to know the exact state of your finances.

I mean you need to know, down to the penny, how much money you have, and how much of that money is liquid (easily available). You need to know how much money clients owe you and—this is important—approximately when they’ll pay you.

In my business, writing, I have a vague idea when I’ll receive payment for my short fiction. I mean vague as in—sometime in the next six months, I’ll get a check. You can’t plan for that.

I also know when money is due from book publishers under contract. Because book publishers always pay late, I add three months onto the due date in my financial calendar. That helps with my financial planning—and also makes it easier to cope with the chronically late payments.

My business also involves large sums of money that arrive without warning. Royalties land in the mailbox from unexpected projects, sometimes only a few dollars and sometimes thousands of dollars. I never plan for those, but I don’t treat them as windfalls either. They’re part of what I earn, and they get banked until they have an assigned task.

I tell you this now—and I’ll reiterate it in the money sections of this guide—because all freelance income is unpredictable. You don’t have the clout of a major corporation behind you when you send your bill. You can cut off your service, but often that means little since the services provided by most freelance businesses aren’t essential, the way electricity or cell phones are. So you have to realize where you sit in other people’s financial payment schemes and plan accordingly.

In other words, just because you have $5000 in accounts receivable, doesn’t mean you’ll receive all $5000 on time. You’ll probably receive $1000 on time, $2000 within that three-month time limit I mentioned above, and the remaining $1000 in dribs and drabs over the upcoming year.

You must plan for that.

You also need contingency plans for when someone does not pay you. I don’t mean how you handle the client—again, that’s a topic for later in the Guide—but how you handle your own finances.

Most people live from paycheck to paycheck. Freelancers can’t afford to do that. We must earn more than we need because of that fictional example above. If we need $5000 to live, and we only get $4000 in a timely manner, we’re in trouble. If we need $3000 to live, and we get $4000 in a timely manner, we’re doing all right.

Which brings me too another aspect of what you need to know about your finances before you quit.

You need to know exactly what your bills are every month. Use the highest bills you can find—the cell phone bill that your daughter added $100 extra in unauthorized text messaging charges or the heat bill from the coldest month in the winter. Those are your expenses, not the summer heat bill and the cell phone bill the month you confiscated your daughter’s cell as punishment. You need the highest bill as your example, not the lowest.

You also need to factor in those once-every few month bills, like the lump-sum car insurance payment or the tuition for your son’s annual summer camp.

Then add in emergency expenses. Assume that you’ll have to pay the deductibles on at least one of your insurances in the upcoming year. That might be anywhere from $500 if you have a low deductible, to $5000 if you have a medium deductible.

And finally, add in the cost of business travel and continuing education. Dean and I factor in about $1000 per month for that in our computations—figuring two freelancers @ $500 per month, or $6000 per year each in unexpected business travel or continuing education expenses.

Except for 1992 when we traveled every other weekend, we’ve never hit that amount. But it does build in an automatic cushion, one that can be used for other things, like the purchase of a new bicycle for your new exercise program (remember that?) or just to build up savings until you actually gain that emergency fund I’ve been talking about.

Finally, know what your available credit is. You won’t have a lot. Except for the blip of the last decade, when a cat could get a credit card, you won’t be able to get new credit. In the eyes of the banks, freelancers are unemployed. So all that credit you got as an employed person has suddenly become a luxury.

Once you quit, you won’t be able to get a home equity line of credit or a third credit card. You won’t be able to lease a car or qualify for a car payment. And you certainly won’t be able to get a small business loan, especially if your business, like mine, doesn’t require a storefront.

So take the available credit you have now as an employed person, and mentally cut it in half. You will probably lose some of it to a credit review or be denied the credit entirely when you try to use it (in the case of home equity lines of credit).

And then—this is essential—try not to use that credit. Again, we’ll deal with this later in the money sections, but here’s the short version. Just because you’re short $1000 now, doesn’t mean that $1000 will come in before you have to pay your credit card bill. I know freelancers who had to stop freelancing because they wracked up tens of thousands in credit card bills, just paying their expenses.

Don’t do that. Ever.

In short: You must know how much money you have (and how much is liquid), how much money you’re owed (and approximately when it will come in), what your current bills are at their highest monthly rates, what your additional expenses are, and how much credit you realistically have available.

Put this information in some kind of accounting program and update it weekly. More on that in the money sections down the road.

3. You need to have all of your insurance in place.

You need health insurance, business insurance, homeowners or renters insurance, car insurance, and other insurance that pertains to your particular freelance business (if any). Purchase this before you go fulltime freelance—and add it to your monthly/quarterly/annual expenses.

Things can and do go wrong. Believing that you’re immune to disaster is the first step toward one.

4. You need to have a business plan.

Again, this is a topic I’ll explore in depth later, but for the sake of this essay, here’s what you need.

You need goals. Daily, weekly, monthly, and annual goals. You also need a 5 year plan and a 10 year plan. You must keep these goals under your control.

(For example, we tell writers they can’t control what sells. They can control productivity and quality. So no writer should make a goal like “I want to hit the bestseller list by the end of this year.” But they can plan to write two novels this year.)

For more on this, see my husband Dean’s blog posts on goal-setting from last year. There are several. You can find them here.

5. You need a dedicated workspace.

I already dealt with this in a previous installment, because a reader wanted to know how to do it. You can find that installment here.

But as you set up your workspace, keep in mind something journalist Randy Tatano told me in an e-mail: “The freelancers I know who have had problems are the ones who set up fancy offices and buy all kinds of equipment.”

In other words, keep your overhead low. In fact, unless you need a storefront, set up a workspace at home.

6. You need a schedule

You had a schedule at your day job, but someone else imposed it on you. Now you need to design your own—and post it on the door to your (home) office.

Stick to this schedule, but make it realistic. For example, I’m not a morning person (I can hear my husband laughing at the understatement). I work best later in the day and like to stay up late at night.

When I first started freelancing, I set my writing time at 9 a.m. Usually, I rolled out of bed at 9:30, and didn’t get to the office until 11, already behind and feeling bad.

Now I get up between 10 and 11, (usually closer to 10), exercise, do my e-mail and phone calls, have lunch around 3, and then go to the office for an extended stay. Aside from a quick dinner, I am in the office from the middle of the afternoon until the late night news.

This schedule suits me. I used to go to work at my day jobs in the morning, but I hated it. Since I’m self-employed, I can set up any schedule I want so long as I follow it.

And I do, religiously.

You need that schedule up front, and you need to follow it, or no one else will.

7. You need to budget time and money for continuing education

Most professions require their practitioners to keep up on current trends. Often that requires a seminar or two during the year, as well as some materials. Schedule these when you’re doing your budget and when you’re setting up your day-to-day schedule.

You also need to keep up on the blogs for your type of business, subscribe to industry magazines, and read other industry publications. All of this takes time, but it shouldn’t take work time, like it used to do in your day job.

I will deal with continuing education later, but have the first year’s dose set up before you quit that day job. And, remember, if you can’t afford it—if you’re not earning enough or if you don’t have enough saved—don’t do it.

8. You need to make an appointment to reexamine your goals every six months.

Freelancing is a fluid business. In the first six months, especially, you’ll learn what works and what doesn’t. You might have to reassess your time, your budget, your goals, and your possibility for success.

Do this with your family—and be brutally honest. That’s the only way this will work.

Set up the appointment, write it on the family calendar, and then keep that appointment. Do this at least twice a year. (Quarterly will work better for some families.) That’ll prevent some panicked discussions about whether or not the freelancing is working (remember, honey? We’re going to reassess in November), and it’ll also prevent problems from getting out of hand.

9. You need to have a contingency plan…

…for everything. What happens if you can’t pay your bills? What happens if you don’t get enough work? What happens if you can’t keep your schedule?

And the biggest contingency plan of all: You need to have a line—agreed to by all concerned—about when (if) you go back to a day job. You need to have all aspects of this plan in place—except for the day job itself—before you quit your current job.

That means you and your family have to agree on how much money you’ll need to make, at what point you declare this first attempt at freelancing a failure, and what is not great but good enough by everyone’s definition.

Remember what I said in earlier pieces: Most first-time freelancers go back to their day jobs. Most first-time freelancers fail. I did. Almost everyone I know did.

But that doesn’t mean you can’t try again when you have enough knowledge under your belt. The next time, you’ll do it smarter.

As you can probably tell, freelancing is all about organization. Organizing your money, organizing your time, organizing your family—all in the best manner for you and your chosen profession. You can impose this organization after you’ve started to freelance. But those of you still contemplating the jump have an opportunity to do so before you leap.

Don’t just quit and then figure out how to live your new life. Figure out what you need and want first, then figure out the best way to get there. Be cautious, be prudent, but most of all, be informed.

You’ll have a greater chance of success if you follow the nine steps listed above.