Gigs are big. An estimated 34% of the U.S. workforce is part of the gig economy today. By 2020, that number is expected to hit 43%. And whether you’re looking to quit your day job to make a living as a driver, or to launch your own business, the gig economy can offer plenty of upside.
But while freelancing may offer more flexibility and freedom than traditional employment, it can come at the cost of the stability that a salary and benefits provide. Before you make the leap, here are eight steps you may want to take:
1
Don’t quit your day job just yet. Before you embrace the freelance life, you’ll want to bank a few paychecks and ensure that your exit from your current job is orderly and amicable. If things don’t work out, you’ll want the option to return. Also, you can use your last weeks or months on staff to do the other things on this list.
2
Check with your accountant. Tax season is about to be a very different experience for you. A good accountant can let you know which items will soon become deductible that weren’t before—anything from bottled water to a trip to Miami.
3
Start shopping for health insurance. Unless you have a spouse whose policy covers you, you’re now on your own for health insurance—and it won’t necessarily be cheap. Work with an insurance broker to find a policy that suits your needs but won’t put you in a financial bind.
4
Brace yourself for quarterly taxes. Remember we said tax season was going to be different? For one thing, it now comes five times a year—April 15 and four quarterly payments. As a freelancer, your paychecks probably won’t have Social Security, state and federal taxes withheld. Keep track of what that’s likely to add up to, and set aside money to make those heavy payments every three months.
5
Establish a rainy day fund. Because your income levels are likely to fluctuate, you should be prepared for the worst. To get ready for the possibility of lean times, set aside four to six months of your current salary in a high yield savings or money market account.
6
Set up a Roth IRA or SEP IRA. Working for yourself means there’s no company-sponsored 401(k) plan. To fill that gap, a Roth individual retirement account (IRA) is one way of saving for retirement while still being able to access those funds if necessary. Another option is a Simplified Employee Pension (SEP), which offers a tax-advantaged way for freelancers to create retirement savings. A solo 401(k) is an additional option worth considering.
7
Buy accounting software. A good accountant is ideal, but if you can’t afford one right away, you’ll want to invest in accounting software to track your expenses and help you remember when your tax payments are due.
8
Increase your access to credit. Even with a rainy day fund, it’s good to have access to additional cash if you need it. While you still have a reliable source of income via your day job, you should apply for an increase to your credit line or a low-interest credit card—in case business slows down, or clients take longer than expected to pay.
Chris Morris regularly contributes to national outlets including Fortune, CNBC.com, Voice of America, Variety and Common Sense Media, as well as dozens of other major publications.