The pandemic forced us to take a long, hard look at what’s important in our lives. With the absence of time-consuming tasks such as preparing for the workday and commuting to the office, people had the flexibility to focus on what mattered to them. As the world begins to open back up, many of us hesitate to give up this flexibility.

A 2021 report uncovered that 40% of traditionally-employed American workers are considering a transition to self-employment in the next two years. Although entrepreneurialism can provide people with more freedom, there are a few things to consider before becoming self-employed.

Considerations before going into business for yourself

Although going into business for yourself provides an exciting opportunity to pursue work you’re truly passionate about, it also comes with a few challenges. First thing’s first, you’ll have to pay Uncle Sam. W-2 employees are employed through a company and automatically have their taxes deducted from their paychecks. However, self-employed individuals must set aside a portion of their take-home pay to cover taxes.

On top of that, you’ll also need to pay self-employment taxes. When you work for a company, you and your employer split Social Security and Medicare taxes. When you’re working for yourself, however, you’ll be responsible for the full 15.3% tax. Before going into business for yourself, you should have an account set aside to save for these additional expenses.

Next, you’ll need to consider your current company benefits such as health insurance and retirement plans. According to the Bureau of Labor Statistics, the average employer paid “78% of medical care premiums for single coverage plans” in 2021, which is a nice perk. If you have a spouse working for a company, you might be able to join their plan. If that’s not an option, you’ll need to get on a health insurance plan for self-employed individuals.

Additionally, many companies offer a retirement plan and match employees’ contributions. That’s free money going toward your retirement that you’ll need to start saving yourself. So before going into business for yourself, you’ll want to explore all the retirement plans for self-employed workers, such as SIMPLE IRAs, SEP IRAs and Solo 401(k)s.

Finally, working for an employer provides a level of financial stability that takes a long time to build when you’re self-employed. As a W-2 employee, you know exactly how much you’ll be paid each month, making planning for life’s expenses easier. However, building up finances for self-employed individuals can be difficult, as it can take a while to get your business up and running. During that time, you might experience dramatic fluctuations in income that you have to prepare for.

What to do when becoming self-employed

So, you’ve looked at your financial situation and considered your company’s benefits, but you still want to work for yourself and pursue your dream job. Good for you! That’s an exciting step toward creating a career you’ll love. To make the transition simpler, read the following tips: 

1. Start saving.

Before becoming self-employed, it’s important to have a financial cushion to hold you over while getting your business up and running. Ideally, you should have at least two years’ worth of non-discretionary expenses in the bank. These include unavoidable costs such as housing, food, transportation and insurance. It takes time to start a profitable career as a self-employed person, but having two years’ worth of expenses covered makes it easier to take the leap.

If you’re struggling to save money, take a look at your budget. There might be recurring expenses you can cut, like unused subscriptions or extra trips to Chipotle. To make budgeting even more manageable, consider using a budgeting app like Mint or YNAB. These apps connect to your bank account and credit card, making it easier to track your expenses.

2. Create a plan.

Going into business for yourself is like training for a marathon. Sure, you can run the race without a training plan, but it will be harder and you won’t see the results you want. Similarly, a strategic business plan is key if you want to succeed when growing a business. It’s easy to let the daily tasks of self-employment fill your day, so it’s critical that you set aside time for strategic planning.

When creating a business plan, you should keep a few things in mind. First, what are you trying to accomplish? What exactly does your company offer? Next, look at trends in your industry and determine what sets you apart from your competitors. Then, you need to consider how you will organize business responsibilities and get in front of your target audience. Lastly, think about how much money you’ll need to start your business. If you’re a freelance writer, you might only need a nice website and a little grit. However, if you want to start a brick-and-mortar store, plan on that being much more cost-intensive.

3. Work with professionals.

Managing money when you work for yourself can be tricky. That’s why it’s helpful to work with professionals who specialize in personal finance for self-employed people. Although working with a financial adviser or business coach might cost money upfront, you don’t know what you don’t know. Professionals can help you avoid common mistakes that can cost you thousands of dollars and stall your business venture.

If you’re unsure who to work with, tap into your professional network and ask other business owners about who they recommend. Your network is one of your most important assets as a self-employed business owner, so take the time to grow and foster it.

If you’re looking for a more flexible work environment, becoming self-employed might be a good option. Although stepping away from the mundanity of an office environment to start your dream job is exciting, there are a few important steps you need to take first to get your business successfully off the ground.

Disclosure: This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors. Photo by mavo/Shutterstock


Sara Gelsheimer is a senior wealth manager at Plancorp, a full-service wealth management company serving families in 44 states. Sara came to Plancorp with a strong financial background and a commitment to financial education, particularly for women. With this passion, she founded InspireHer: Plancorp’s Women’s Initiative, which inspires financial confidence in women through education and impactful support. By giving women a comfortable space to learn and ask questions, she strives to empower them to be more confident in their financial lives. She has a passion for helping others and has spent several years as a mentor through a local non-profit, sponsors two young women in Uganda, and is on the parish council at her church. In her free time, she enjoys live music, hiking, chasing around her three small children, and the all-too-rare date nights with her husband.






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