I was reading this article and found to be very informative so I am sharing it with you.
Self-employment is the dream of many would-be entrepreneurs. The problem is, sometimes you have to take that dreaded leap of faith before your side income grows big enough to support you.
And those who plan to leave 9-to-5 jobs to start a small business should be worried; only about half of small businesses survive five years or more, according to the Small Business Administration. If you are counting on self-employment or a small business for a paycheck, that means the stakes are rather high.
But, are they too high? Before you walk away from your 9-to-5, you should make sure you’re prepared financially for what lies ahead. Here are five questions that should weigh heavily on your mind before you take the plunge:
Do I have an adequate emergency fund?
Having an emergency fund is crucial if you plan to walk away from the security of your day job. Not only will you need it for any true “emergencies,” but you may also need it as a buffer if your plans begin to unravel – or worst case scenario – your new situation doesn’t work out at all. Most experts suggest you have three to six months of expenses stashed away in an emergency fund, but those who plan to strike out on their own may need even more. Regardless, make sure you’re covered before you take the leap. Because once you do, it will be far, far too late.
Do I have health insurance?
Open enrollment for 2015 is over, but Obamacare allows for a special enrollment period if you’ve moved out of state, had a baby or experienced a job change. Since quitting your job is certainly a change that qualifies, you can still enroll in a new Affordable Care Act-approved plan and avoid the penalty for not having health insurance. If your spouse is covered, also see how much it might cost to add you to his or her plan. Compare your options and choose which one makes the most sense. Just make sure you’re covered.
Do I have a backup plan?
Starting your own business may sound grand at first, but if you’re in that 50 percent that doesn’t make it for the long haul, you might be back to your job search sooner than you think. If you’re currently licensed to work in a specific field, plan on keeping up your license while you make sure your new career is working out. This may require continued education, attending career seminars or simply staying on top of changes in your field. If you-know-what hits the fan, you’ll be glad you put in the effort.
Will I still be able to save?
Saving for the future is easier when your retirement contributions are deducted via payroll and your company is kind enough to make a 401(k) match. But when you’re on your own, not so much. Before you quit your 9-to-5 job, it is essential to start planning how you will save for retirement and for the future without any help from an employer. Consider opening up your own SEP IRA or Solo 401(k) with a quality brokerage firm and make your contributions automatic – or else you might forget.
How will I cover my fixed expenses?
Your regular career may be on hold, but that doesn’t mean your monthly bills will stop rolling in. Before you quit, ask yourself if you have a realistic plan to pay things such as your mortgage, utilities and transportation expenses. The last thing you need when starting a new business is a ton of unpaid bills hanging over your head, so create a plan ahead of time that will cover your monthly expenses while you grow your income.
Starting your own business might be the best thing you’ve ever done – or it could be a complete nightmare. Either way, you’ll have much better chances at success if you are adequately prepared and realistic about your financial situation.
Because, job or not, life goes on … and so will your bills.
I am Destiny Brown saying, Do. Or do not. There is no try.