The end of a calendar year is a good time to take stock of your life and see what’s working and what isn’t — this is the idea behind New Year’s resolutions, after all. A financial resolutions survey conducted by The Ascent’s research team at about this time last year found that a whopping two-thirds of respondents planned to set a personal finance goal for 2023. This isn’t so surprising — many people likely want to save more, pay off debt, and make the kind of money moves that can be truly transformative.
Throwing off the shackles of a W-2 job that isn’t working for you and embracing that freelance life can definitely be one, too. I quit my W-2 job at the beginning of 2023, and it felt like leaning into all the other changes I’d made to my finances in 2022 (paying off debt and amassing real savings for the first time in my life).
If you’re dreaming of saying sayonara to your job and becoming a full-time freelancer in 2024, there are other questions to answer beyond just “Should I quit my job to freelance?” Answer the following questions, and you should have an easier time answering the big question.
No one enjoys paying income taxes, but contributing your fair share to society is important. As a W-2 worker, you probably don’t spend a ton of time thinking about those taxes — but if you become a full-time freelancer, taxes become a much bigger part of your world. You’ll be required to pay estimated taxes four times a year, in January, April, June, and September, and if you short the IRS, you’ll be assessed penalties. Plus, you pay taxes as both an employee and a business owner.
If you’re seriously contemplating going freelance, I recommend lining up a good tax professional (such as a CPA) sooner rather than later — this person can tell you how much to pay the IRS and your state (if you live in a state with income taxes), as well assist in filing your annual return. Remember, self-employed folks have access to a lot more deductions, but since tax laws change every year, having someone who knows how the system works will be a big weight off your shoulders.
If you’re currently a member of the W-2 world, you likely have benefits through your job. These might include a 401(k) plan for retirement, health insurance, and paid vacation time. As a freelancer, you will have to procure these for yourself. There are more options for self-employed retirement plans than you may realize, and you may be able to save more for retirement in a tax-advantaged manner than you could before — for example, with a Solo 401(k), you contribute money as both employer and employee and wind up with a much higher limit than you would on an employer’s plan.
For health insurance, you’ll either need to get on a spouse’s plan (if you have one), or face the healthcare marketplace. Right now is open enrollment, but if you leave your W-2 job, that counts as a qualifying life event and you’ll be able to sign up for new coverage at any point. Be prepared for plans to be quite expensive, especially if you earn too much to qualify for any assistance.
Finally, you won’t get paid vacation time, so it’s on you to build that into your financial life. I recommend working a little extra every week and banking the money you earn from those extra hours and assignments into a special fund for vacations and sick days. Face it, there’s going to be days where you won’t be able to work for whatever reason.
Speaking of building your savings in the form of a sick and vacation day fund, it’s best to enter the new freelance phase of your life with as much savings as you can muster. Many experts recommend that your emergency fund cover three to six months’ worth of bills, and this is a solid target for W-2 employees.
If you lose your W-2 gig through no fault of your own (say, because of layoffs at your company), you’ll generally qualify for unemployment benefits. As a freelancer, you have no such luck. So if you have more in your savings account (perhaps nine months to a year’s worth of bills?), you could be in good shape to quit your job to freelance in 2024.
Finally, the last question to answer before deciding whether to quit your W-2 job concerns the nature of your work itself. If you have difficulty staying on task and maximizing your working hours, you might struggle with managing your own workload. Remember, while you will have clients, they will not be bosses in the traditional sense. Freelancing can be a great fit for those of us who are self-motivated and don’t need a manager checking up on our work. If that’s not you, think twice about becoming your own boss.
2024 could be the year you throw off the shackles of W-2 employment. Just consider the above questions carefully to make the best decision for you.
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