I don’t think there’s a magic formula, but the standard thing I hear is to add 30% to your in-house salary, to see what an equivalent freelance salary would need to be in order to maintain the same lifestyle.

Yes, I think six months’ worth of living expenses is probably about right (although my risk-averse spouse may disagree ), but what about for things like taxes, health insurance, and other things that company employees are largely spared the burden of worrying about, but that can potentially come back to bite unprepared freelancers in a very painful way?

Is there any magic formula for determining how much you need to set aside for things like that?

I don’t think you need to be making as much as your day job, only enough to live on. Some career changes are worth a pay cut; otherwise, we’d be forced to do the job that paid the best, regardless of whether we liked it.

Good question. I personally cheated: when I first moved to Japan to freelance full time, my top client offered me a retainer of 250,000 yen/month; each month I’d bill normally, but if my invoice was under 250,000 yen, they would pay the difference. In return, I gave them priority when scheduling work. That gave me enough courage to make the leap.

Barring an agreement like that, I think I’d want to have at least 3 months’ (preferably 6 months’) living expenses saved, and be making enough moonlighting to support myself (so I’d be able to get by even if I didn’t get more work after going full time).

Do you have any suggestions about the sort of financial safety net one should seek to have in place before quitting one’s day job?

In retrospect, some of the things that worked were: seeking clients in the source-language country; sending out lots of resumes; and declining to accept extremely low rates.