7 Things to Do Before You Quit Your Day Job

Things to Do Before You Quit Your Day Job

Is it your ultimate dream to quit the rat race and open up a small business? Maybe you have a side hustle already and you’re thinking it’s time to make the leap to do that full-time?

Not only would you get to be your own boss and set your own hours, but you could also build something meaningful instead of just punching a clock.

Taking the leap to full-time entrepreneurship means more than just saying sayonara to your day job–even if you already have your small business plan and financing in order.

Your personal finances also need to handle your transition from employee to small business owner.

If you’re thinking about opening a new business, make sure you have considered these financial issues first:

1. Get a Quick Life Insurance Quote

Starting a new business is not often a time to think about your own mortality. After all, this is an exciting new beginning.

But quitting your job to become an entrepreneur without having adequate insurance in place could make you, your family, and your business vulnerable if something happened to you. Before you leave your day job, make sure you have a plan for your life insurance.

You likely have a small life insurance policy through your current employer. It’s probably just enough to cover your funeral expenses if something were to happen. You don’t want your family to be left without your income, so take the time to get a better life insurance policy.

Most people just need a simple term life insurance policy.

Here’s the thing, getting life insurance traditionally has been a daunting proposition. You have to: do the research, pick a plan, get a quote, and wait for your medical exam results to get covered.

These days, you don’t have to worry about that.

Though it can be tough to find money in your entrepreneurial budget for life insurance, a site like Bestow could help you get an inexpensive policy in just minutes.

Bestow is a new online life insurance provider that uses proprietary algorithms to provide you with a quote, application, and approval process that takes just a few minutes.

With Bestow, you can get a traditional 10 or 20-year life insurance policy to cover you as you transition.

The starting premium price is $8 per month, which means you don’t have to dig deep into your new business coffers to afford it.

In addition to keeping premiums low, Bestow also wants to make sure the purchasing process and payment process are painless. According to the site, each policy has a 30-day Free Look period. During the Free Look period, you can get a full refund if you cancel within 30 days after making your purchase.

Read our full review of Bestow here.

2. Get a Health Insurance Quote (or Try Medical Sharing)

Health care costs can take a big bite out of any budget, so you need to make sure you have a health insurance plan in place before you quit your job. Even if you have always gotten your insurance through your employer, there are a number of different options for getting coverage as an entrepreneur:

  • Spouse’s Plan: If your beloved has insurance through his or her employer, getting onto that plan is likely to be the cheapest option for you.
  • COBRA: If you have insurance through work, you can take advantage of COBRA continued coverage after you leave. This means you’ll convert your existing group plan into an individual plan and pay the full price tag, which could be a pretty penny.
  • Healthcare.gov: Another option to find health insurance is through Healthcare.gov, the government health insurance marketplace. You can find coverage for either an individual policy or as a small business.
  • Professional Associations: Becoming a member of a professional organization can give you access to group insurance at discounted rates. If your new business falls within the purview of a specific professional association, do a quick search to see if you can get health insurance through it.
  • Sharing Ministries: While health care sharing ministries are not insurance, they can provide a coverage safety net for medical expenses. A health care sharing ministry facilitates the distribution of health care costs among members who have common ethical and religious beliefs.

No one health insurance plan will work for everyone. Take the time to comparison shop for what you need. Crunch the numbers to figure out what option will give you the necessary coverage at the best price.

See also: Best Health Insurance Options for the Self-Employed

In addition to making sure you have adequate insurance, you will also want to have the following financial issues under control or planned for before making the leap:

3. Pay Off Your Debts (and Refinance)

When you are preparing to quit your job to start a new business, the fewer financial obligations you have, the better off you will be. Then all of your small business income can either go to your living expenses or back into the business to help it grow.

If you have credit card debt, student loans, or a car loan, setting up a plan to pay it off while you are still working at your day job should be your first financial goal. That will leave you the financial and mental breathing room to focus on your business once you take the plunge.

Editor’s Suggestion: Getting a home loan when you are self-employed is significantly harder than if you are employed, even if your business is doing well. If you are planning to move or refinance your home, do so before you quit your job.

4. Save an Emergency Fund (for the Right Amount)

While you are clearing your debts, put your emergency fund savings into high gear. Having a safety net to help you through the lean months is an essential component of a successful small business launch.

Obviously, the bigger your emergency fund, the more time your business will have to grow into a success. So how much emergency fund do you need? I recommend enough money to cover your monthly expenses for as long as you think it would take you to get hired again.

They say it takes one month for every year of experience you possess to get hired again. So, if you’ve got a ten-year career you are leaving, plan on at least ten month of expenses.

5. Lower Your Bills (Get Lean and Mean)

Would you be able to live on a reduced income while you grow your business? Test it out.

Start by prioritizing your spending. Lower your bills. Categorize which of your regular budget items are necessities, and which are wants. Are there any items that can be cut from your spending plan entirely? Create a “bare-necessities” budget based on just your needs.

With your lowest baseline budget in hand, make it a goal to live on that amount for a few months. During that time, bank everything from your paycheck except what you need for basic living. The rest can go toward debt reduction or to beef up your emergency fund.

You’ll increase your financial readiness to quit your job and also learn how to live lean in case it’s necessary.

6. Prepare for Self-Employment Taxes

One of the benefits of traditional employment is how taxes are handled. Your employer is responsible for part of your taxes when you are working for The Man. But as a self-employed entrepreneur, you need to pay both the employer and employee portions of your income tax.

In addition, as an entrepreneur, you and not an HR department, are also personally responsible for paying your taxes. Rather than having money withheld with every paycheck, you will have to pay estimated quarterly self-employment taxes.

Make sure you are fully aware of what to expect tax-wise as a new business owner. You may want to consult a tax professional as you set up your small business. Just to make sure you stay in the IRS’s good graces.

See also: Am I Required to Make Estimated Tax Payments on Extra Income?

7. Research Incidental Costs

As you get closer to launching your business, make sure you know the potential costs of your new venture.

  1. Do you have all of the proper licenses and fees taken care of?
  2. Do you know how much you may need to spend to hire any necessary help for setting up your business?
  3. Have you met all the legal and financial requirements within your state?

Save yourself from some unpleasant financial surprises. Take the time to research these costs or talk to other business owners in your area. Check out Rocket Lawyer to see what is needed to start an LLC in your state. You can try their services for free for 7 days. Being prepared will give you peace of mind as you start your new chapter.

The Bottom Line

Entrepreneurs tend to be optimists, and that is definitely a good thing. How many incredible products would we have missed out on if it weren’t for the blue sky thinkers of the world?

But it’s important to temper your business optimism with rational financial planning before you go from traditional employment to entrepreneurship.

From life and health insurance to debt reduction and an emergency fund to taxes and potential costs, being financially prepared will position you for success as a small business owner.

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  1. Avatar Danielle Ogilvie says:

    I like your suggestions, quitting your job is usually easier said than done, people quit without realizing the factors they need to do first before doing so in order to have a better life after resigning.

  2. Nice tips! I completely agree with number 4. I have started a couple of companies in the past and I cannot stress how important it is to have an emergency fund when income is sparse.

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