Borrow Sooner Rather Than Later
The time to take out a home equity loan to serve as an emergency fund or to refinance your mortgage is now, when you're still employed. Sure, banks have gotten a whole lot more liberal with lending rules, but they still like to see that you've actually got an income. Besides, once you're self-employed, it will be in your interest to downplay your reportable income to minimize taxes, making you a less desirable borrower. That means not just taking out any home loans before you quit, but also any other personal loans wholly or partially based on income. While you're at it, extend the limits on your credit cards now, too.
Use Your Ability To Get Disability
It's foolish for any income earner not to have disability coverage. For someone who's self employed, it's inexcusable. You'll have no paid sick days, no one to cover for you, no employer-provided coverage -- no matter how short-term or insubstantial -- standing between you and financial disaster if you're rear-ended by a drunken high-schooler one night. The problem: It's very difficult for those who are self employed to get affordable, effective coverage.
Under the least expensive "any occupation" coverage, an insurer can refuse to pay benefits to a software engineer who, despite a severe head injury, can still flip burgers. "Own occupation" coverage addresses that issue, but the cost is prohibitive. The middle ground and smartest option is "income replacement" coverage. But once again, the problem for a self-employed individual is the difficulty in documenting actual income. The answer is to purchase "income replacement" coverage while you're still employed.
Apply to Procrastination U.
One area where showing less income on paper will actually help you is qualifying for college financial aid and government educational loans. While the rules and standards of schools and loan programs vary, one thing is certain: the lower the parents' income, the larger the kid's aid and loan package. Parental assets are also factored into the mix, so if you're planning on investing some of your savings or home equity in the new business, that will also result in more for your child. Put off applying for aid or loans until you've gone into business for yourself.
Hold Off On the New Wheels
If you're thinking about a new car, it may make sense to wait until you've launched your business. For someone who's self employed, leasing could be a better deal than buying. Lease your car and you can deduct the costs proportional to the amount of driving you do for business. Leasing also lets you pay far less out of pocket both initially and monthly, conserving your cash. By having your business both lease and operate the car, you transform a significant personal purchase into an ongoing deductible expense.
Time Renovation Projects to Straddle Your Launch
Home improvement projects are, in the best of times, complex. Scheduling them around the time you're launching a business just adds another layer to the complexity. The first secret is to obtain the financing for the project while you're still employed, in order to get the easiest and best loan deal. The second secret is to then delay actually having the work done until after you've gone solo. That's because, if you work from your home, a percentage of the project's cost, equivalent to the percentage of the home's total square footage used for business purposes, could be deductible. Granted, timing all of these issues while simultaneously managing the launch of your new business is a little like juggling chain-saws. But you might as well get used to it: That's pretty much the definition of self employment.
Mark Levine is the acclaimed co-author of bestselling books including "Second Acts: Creating the Life You Really Want, Building the Career You Truly Desire" and "It's All In Your Head: Thinking Your Way to Happiness"
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