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Chapter
6

Consider if you need financial padding

In the last step, you determined whether you would need to rely on savings as you transition to freelancing full-time. 

Now, you’ll figure out the importance of financial padding and how to save up to make the transition. As we mentioned in the previous step, it’s completely normal if your expected earnings are lower than your ideal salary, especially if you’re just starting out. It takes time to build up your income, which is what savings are for!

Start saving to cover gaps in income

If you quit your job today, how much money do you have in the bank and how long would it last you? The more savings you have, the more comfortable and less scary this transition will be. 

Before you make the transition to full-time freelance work, however, you may want to start setting aside savings to smooth over any gaps in your income. You can use your savings to pay your expenses. You never want to be in a situation where you can’t make your rent payments or afford groceries. 

How much do you need to save? 

As a general rule of thumb, you want to have at least three months' worth of expenses saved before you go freelance full-time, but that’s really the minimum. You probably need to save more than that based on your expenses, and we recommend saving between six months to a years worth of expenses. You don’t need to save based on your ideal salary — just your minimum income, or the baseline amount you need to keep the lights on. 

Many freelancers choose to cover a years worth of rent, as that’s typically their single biggest expense. So if your rent is $1,500/month, you may want to save $18,000 before you quit your job to freelance full-time. 

Consider your appetite for risk — maybe you’re comfortable with only having three months of savings and don’t want to wait any longer to take the leap into freelancing. There’s no one-size-fits-all approach, but you want to identify what’s sustainable for you. 

There are a few ways to build your padding. 

  • Develop your client base before making the switch.

  • Getting a part-time or full-time job alongside freelancing can help you buffer and save. 

  • If you have a partner, you can work with them to save together. 

  • Take advantage of any windfalls you receive throughout the year — for example, tax refunds offer a great opportunity to save. 

Build your padding 

Not sure how much you need to be saving for? Go through this list and check off any statement that applies to you:






Based on how many statements you choose, here’s an estimate of how much you should plan to save before freelancing full-time:

1: We recommend you save three months of minimum income.

2: We recommend you save six months of minimum income.

3: We recommend you save a full year of minimum income.

4+: We recommend you save a full year of ideal income.

Once you understand your risk tolerance and the lifestyle you want to lead, create a plan to save! 

Go through your budget from steps 1 and 2 and identify areas you can cut back on temporarily to put that money toward savings. It can be helpful to open a separate bank account for your savings so you’re not tempted to touch that money.

You can also save by increasing your income or using windfalls, like your tax refund or a bonus from a full-time gig. You can also commit to spending less and to paying off debt, which can free up extra cash to put toward your savings. We’ll take a deeper dive into how to start saving in step 7. 

Recap

  • Learned the importance of having financial padding in the form of savings to help smooth over bumps at the beginning of your freelance career.

  • Calculated how much you need to build adequate padding.

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