The idea of working from home can be exciting. Once you decide that remote work is what you want to do, it can be easy to want to jump right in. But doing so can be dangerous. Just like any job change, you are taking a risk. It may take longer than you anticipated to get things up and going or you may find out that the remote job you chose is just not right for you.
That’s why it’s important to have a financial buffer in case things don’t go exactly as planned. But just how much money should you have saved before you take the leap?
Plan for three to six months worth of income in savings
There are many factors that you will want to consider when planning how much savings you need to have. For example, are you the sole income provider for the family, or do you have help? What are your monthly expenses? Will you have to provide your own health insurance? If your self-employment venture fails, how hard will it be for you to return to a job in your previous field? These questions can help you decide just how much of a buffer you need.
If you are the sole breadwinner in your family, you should count on at least six months worth of income in savings. To figure out what this looks like, you need to figure out what your monthly expenses are. Make a list of every single expense that you have. This should include housing, utilities, food, and any monthly payments like credit cards, car payments, or student loans. Don’t forget to include the cost of health insurance. Once you have figured out your expenses, you are one step closer to being ready to make the jump.
How do I save that much money?
Calculating your expenses and the amount you need to save is the easy part. The harder part is figuring out where that extra money is going to come from. Let’s take a look of a few ways you can grow your savings account faster:
- Cut the morning coffee. The average cup of coffee at Starbucks costs around $5. If you buy just one cup of coffee per day, that’s $150 per month or $1,825 per year. Just can’t do without the morning caffeine? Make your own. Brewed coffee is substantially less expensive than that fancy espresso.
- Bring your lunch to work. Take a minute and think about how much money you are spending on your lunch at work every day. $5? $10? $15 or more? That’s a lot of money that could be going towards helping you work from home. Not only is bringing your own lunch better for your wallet, but it’s better for your waistline too.
- Get a side hustle. There are so many ways you can make extra money online. Have a Bachelor’s degree and experience working with kids? Teach English to kids in China with VIPKID. Thanks to the time difference between the US and China, the peak teaching hours are between 3 and 5 a.m., meaning you can teach for a few hours before heading off to your day job. Great with words? Try freelance writing. There are many online sites looking for new writers.
- Reduce your expenses. Do you really need that expensive cable sports package? How much do you actually use your monthly gym membership? Do you need the most expensive Netflix package? What about your phone? Can you reduce your plan? Take a close look at your monthly expenses and look at which ones you can do without. You’d be amazed at how much you are paying for things you don’t really use.
Being self-employed is an exciting adventure. But it’s not something that you should jump into without having some sort of safety net. The more prepared you are, the less stressed you will feel and the more you can enjoy being your own boss.