Carrie Smith Nicholson
More and more individuals are quitting their corporate jobs to pursue being their own boss, and I’m no different. In 2013 I quit my full-time accounting job and started my online consulting business. I saved up $7,000 in savings and relied on my background of finances to do what I could to make the transition successful.
Still, even with all my knowledge and savings, I ended up going into $10,000 of debt while launching my business. It’s taken a few years to overcome this financial obstacle but I’m finally on a solid path again. If you’re in the process of quitting your job and have little savings, here’s how to avoid my mistakes and take on as little debt as possible.
Keep fixed expenses low
Obviously the best plan to avoid debt after quitting your job is to save up a large cushion of cash in a savings account. But sometimes life doesn’t go as planned. You may try to save money and either, won’t end up having enough, or need to quit sooner than you expected.
During this transition, take time to review your expenses. Are there any unnecessary bills you can streamline or cut out completely? Take a look at your fixed expenses and reduce them as much as possible. In the event you have a very low income month, you want to make sure you can at least pay all your fixed expenses. This includes:
- Housing payments
- Homeowner’s insurance
- Utilities
- Health insurance
- Property taxes
- Car payments
- Loans and debt accounts
- Food and basic necessities
Start with the basics and be careful not to add in higher fixed expenses during this time. The more you cut back the less debt you’ll take on.
Be careful of credit
During the process of quitting your job to work for yourself you want to be careful with credit. This includes lines of credit and credit cards, as they can bloat your spending without much notice. Use this time to reign in your spending using a debit card or cash only.
If you must use credit, do it carefully and pay off the balance every week. Set yourself a regular appointment with your budget each week and review your expenses. Monitor your credit usage and cut it back if it’s getting out of hand. It’s much easier to cut back spending than it is to pay off a large credit card bill.
Increase your earning potential
Now that your fixed expenses are low and you have a good pulse on spending, it’s time to focus on your earning potential. One of the best tools to help avoid debt after quitting your job is to increase the amount of money you bring in. This can be done through multiple income streams, taking on multiple jobs or working at nights and on weekends.
This doesn’t have to be a long-term plan, just something that will help you increase your earnings in the short-term while you’re in transition mode. So don’t be afraid to hustle to make things happen. Consider freelancing on the side of your day job, or working on-demand with sites like Taskrabbit or Instacart.
Earning more money will give you more control and allow you to reduce the stress on your finances while you’re “taking the leap”. It may not be easy but by implementing these steps you can avoid the spiral of debt after quitting your job to be your own boss. This will ultimately give you more freedom and flexibility with your career.
