5 Financial Considerations Before You Quit Your Job to Be Your Own Boss

For many, the dream of working from home is a strong inducement to quit a job.

After all, if you could be your own boss and set your own hours and still make a living, wouldn’t it make sense to walk away from “the man”?

Quitting your job is about more than just making sure that you have enough income from your side hustle to replace the income from your day job.  You might not realize all the benefits you’re getting from your current job.  You will need to a way to make up for those losses as well.

Before you take the plunge and quit your job, here are a few questions you should have answers for:

Are you financially ready to quit your job and be your own boss?

1. Where Will You Get Health Insurance?

Our health insurance system is tied tightly to traditional jobs.  Those with traditional day jobs often receive employer-subsidized health insurance.  When you quit, you might not have access to that same health insurance.

Those who quit, but want to retain health insurance, can enroll in COBRA.

When I left my last traditional job (at a newspaper), I was stunned by the cost of COBRA.  While COBRA provides you with access to health insurance, you have to bear the entire cost.  Your employer is no longer helping you pay for it.  The result is often that COBRA is practically unaffordable for many people.

Glen’s Note: My wife was recently on maternity leave from her job.  Since blogging doesn’t have a health insurance plan we were on her employee plan, which is a really comprehensive plan.  With four kids we couldn’t risk being without health insurance so we opted to go on COBRA.  The cost is stunning.  We were paying over $1,200 a month for coverage.  It hurts to write that.

We just ended up going without health insurance for a year while I worked on my Master’s degree.  After I began freelancing, we searched online for family health plans.  Web sites like ehealthinsurance.com and healthinsurance.org can help you find health care coverage for your family if you are self-employed.

Another option, since October 1, 2013, is purchasing health insurance on a government-run exchange.  This is a provision of so-called Obamacare, and, if you qualify, you might even get help paying for your policy via a government subsidy.

Yet another option, if your partner is employed, is to check into the health care possibilities that he or she has.  At some point, my husband will have a full-time teaching job and the benefits that come with it.  At that point we will evaluate the situation, and see whether or not his plan would be more cost-efficient for us.  We might also check into the possibility of getting separate policies.

This is a big question that you need to be prepared to answer.  Without adequate health insurance, one major accident or illness could set you back financially.

2. Do You Have Other Insurance?

Don’t forget to consider your other insurance needs.

In many cases, you probably already have home insurance and auto insurance covered.  But what about life insurance and disability insurance?  Many workers only have these types of coverage because they are available through work.  If you leave your job, will you also lose your life insurance and disability policies?

In some cases, it is possible to keep the policies, as long as you take them over and make the entire premium payments on your own.  As with health insurance, you might be surprised at how much help your employer is providing when it comes to paying the premiums.  Figure out how much coverage you have, and whether or not it is adequate.  Talk to human resources about your options for retaining the policy.  If you need to buy more insurance in order to better protect your family, make sure you have the funds available to do so.

Glen’s Note: Also consider any discounts you may be getting through your employer for insurance.  I used to get a nice discount on my auto insurance because my previous employer had a group plan.  When I left I didn’t qualify for that discount anymore.  Not that you should stay at a job because of insurance discounts but you do need to take any price increases into consideration.

3. What about Your Retirement Plan?

While we’re on the subject of benefits, you will also need to have a plan for your retirement.

Once again, when you are self-employed, you don’t have someone else to provide you with a plan, and possibly help you fund it.

In many cases, when you leave an employer, you are required to do something with your retirement plan.  Even if the company will let you keep your 401(k) where it’s at, the reality is that you might not have access to the best investment options.  On top of that, you might be charged extra administrative fees, since you no longer work for the company.  In many cases, experts recommend that you roll your company retirement plan into an IRA.

If you have a Traditional 401(k), you can roll it into a Traditional IRA without too much trouble.  If you want to roll your Traditional 401(k) into a Roth IRA, though, things get a little trickier.  You will need to prepare for the tax hit, as well as take certain steps to make sure that the transfer is done properly.  You can ask your IRA custodian for help with the process.  Anyone with earned income can open an IRA, so as long as you are earning money in some way (even if you are self-employed), you can open an IRA.

As a self-employed person, you also have other options when it comes to funding your retirement.  Some of the retirement plans available to the self-employed, on top of a Traditional or Roth IRA, include:

  • Solo 401(k)
  • Keogh (although few people use this plan anymore)

Before you open a retirement plan as a self-employed person, you need to consider the implications.  Some of these plans require that you offer the benefits to any employees you have, and you might be subject to any number of restrictions.  Be sure to understand the process and the requirements before you open any of these accounts.

4. What Happens in an Emergency?

Don’t forget that you need to be prepared for emergencies.

Do you have a big enough emergency fund to cover unexpected expenses that crop up?  When I started freelancing, I was fresh out of journalism school and I hadn’t had a job for a year.  We’d been living off student loans.  I just started freelancing as my “job.”  Since we were already living in difficult circumstances, the fact that I didn’t get a “real” job when I finished my program didn’t matter much.

However, if your day job is one that provides substantial support for your family, you need an emergency fund before you quit.  This is especially true if you have been relying on your day job income plus your side hustle income.  Take a look at your cash flow.  Have you been using your side hustle income as an addition to your “regular” income?  If so, quitting the day job is going to take its toll.  One way to avoid the issues that can arise in such a situation is to take your “regular” income and put it in a high-yield account for a few months before you quit.

That way, before you walk away from your day job, you can practice living in a situation where your side hustle income is your main source of revenue.  And, while you’re practicing, the money you set aside can build up your emergency fund.  When you are already established as a family, quitting your day job can be a big decision, and it can also have a bigger impact your finances.

You need to be ready for that.

5. Is Your Family Ready?

If you’re single, quitting your job to pursue your dream isn’t quite as big a decision.  You only have yourself to care for.  You can live in a crappy apartment if need be — or maybe even move back in with your parents.

The dynamic is different if you have a life partner.  It’s even more different if you have children on top of that.

Before you quit your stable source of income, you need to make sure that your family is financially ready to handle the change.

Does your partner have a job or business that can help ease the situation?  How does your partner feel about you quitting to pursue your dream, anyway?  And does he or she wish that the same could happen in his or her situation?  What about your children?  Will you still be able to meet their needs?

For the most part, the decision to quit your job doesn’t happen in a vacuum.  It’s not just about you, and the money situation is one that can affect your entire family. As a result, you need to carefully plan your next move. Make sure that you are ready financially for the challenges, and that your family is on board 100 percent.

What are some of the other questions you should ask yourself before you quit your job? If you quit your job to pursue a side hustle, how did you make it happen?

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Published or updated October 10, 2013.


  1. These are really good points. I’m really glad we purchased life and disability insurance independent from our jobs — we have both changed jobs twice since then!

    • Glen Craig says:

      Gone are the days where it’s expected you stay at a job too long. Glad to hear you have your insurance in place!

  2. These are all great tips to go over if you’re wanting to run your own business. I believe we went through all of them when I left my job and it wasn’t quick either as it took us a number of months to save more and see if we could really swing it. There can be benefits to working for yourself, but if they’re not there for you then you should take a hard look at if it’s for you.

  3. If you are quitting to become self employed don’t forget about the SE tax which basically doubles your SS and Medicare tax that came out of your paycheck.

    • Glen Craig says:

      Great point about the taxes!

    • As we are aiming for the goal of being self-employed, I keep hearing of all the “tax breaks” one gets when running a business. Knowing that most people haven’t a real clue, what is your take on, or the reality of, the tax incentives vs the extra tax burden associated with owning a business?

      Appreciate the help!

      • Glen Craig says:

        You always have to make sure you take legitimate expenses and also don’t go crazy expensing things just because it’s going on the business.

        But I think one of the big tax breaks you can get is in your retirement savings. There are a lot of different ways you can put money away for retirement that exceed the limits you have when you’re an employer working for someone else.

        There are burdens that depend on how you set up your company. For example I have an S-Corp so that means I have to pay myself a reasonable salary and make sure all payroll taxes are sent in on time as well as other documents. There are programs and companies that can help you do this but it is something else that needs to get done.

  4. Leaving your job could be one of the very best decisions of your life or one of the worst. It is a huge risks especially when you have a family. I think one of the most important things is having a back up plan and at least 1 year of income to live off of until your business gets off of the ground.

  5. The “is your family ready” point is so important when taking the plunge and quitting. I’m not there yet but my family I don’t think will ever be ready 🙂

    My wife is supportive and wants me to do it, and like you mentioned earlier will continue to work to give us some breathing room.

    I’m working on a post that focuses on how I’m preparing financially and your post has some great points that should be taken into account.

  6. Working from home takes an incredible amount of discipline and mental toughness. There is no one telling you when to come in or when to finish your work. You must set limitations on yourself to get things done, otherwise you will quickly grow broke. Its not for everyone that’s for sure, but there really is only way to find out. Good luck on your endeavors…

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