As others have noted, the 4 months of living expenses requirement can be quite excessive. I've seen similar advice in the past and can't help but recall my personal anecdote of starting a company with barely enough money for one month of expenses. What is far more vital to one's success as a solo contractor is not having savings, but having guaranteed future revenue generation – clients with signed contracts.
As the author notes, the legal business entity and business infrastructure should be set up in advance. This enables one to acquire clients and do business before putting in a two-week notice at your full time job. I no longer operate my company, but had I abided by the 4 month of living expenses rule I would have never gotten off the ground. Within 4 months I was earning slightly more than double my previous salary. Don't shackle yourself to rigid startup rules. If you have clients and believe in what you're offering, go do it.
Generally a client can end your contract pretty much at any time without recourse. If you're client doesn't have mutability of obligation clause, that allows this irregardless of notice period, you probably fall under ir35.
So this advice is based on that, but obviously if you're good and marketable, you'll probably be OK. I myself really became a contractor after a relationship breakup when I was in about over £3000 O/D, a mortgage to pay and about £4300 credit limit.
Discussed this with agent, they agreed to pay me the day they were paid and I drove 400 miles for a contract which wasn't actually signed by the client yet. Luckily, they were happy to see me on the Monday, and I got paid at about £4200 into that limit.
This was 2 years ago. Now I probably earn 5+ times my highest perm salary, so in my case the gamble was super worth it, but if you're not somewhat charismatic and decent at your job with a marketable skill, it could go the other way.
* I planned to exit the company months in advance.
* Signed two clients
* I was a director of a small development team. I architected much of the company's critical infrastructure (most importantly, credit card/payment processing) and knew that I could leverage my knowledge to negotiate an advisory contract.
* Put in my notice
* Signed ex employer as my third client with weekly payment and a two month minimum. They obviously could have broken the minimum agreement, but kept me on until I severed the contract several months later. Weekly payment was key.
A little strategy can go a long way, but obviously it could have turned out much differently for me. And as noted, this is purely anecdotal. While four months buffer is generally wise, it is not de facto necessary.
Signed contracts are not guaranteed future revenue generation! An accountant would not for example allow you to recognise it as revenue in your accounts. Clients can go bankrupt, they can be slow to pay, they can not pay, etc etc.
Calculating how much capital you need to have in reserve before you go contract can be done using a couple of basic probability/finance measures. Look at reasonable worst cases (client bankruptcy, tax investigation, unexpected dismissal) and make sure that you have the current assets to survive them!
But you're doing this as an employee right? (Right!?) I hope everyone on this forum is going to be ok if they are made redundant tomorrow.
The whole point of this is that you need to be able to survive a setback. You should not be living at a 10% chance of missing rent each month! You can count on that probability eventually happening over a long enough period.
As the author notes, the legal business entity and business infrastructure should be set up in advance. This enables one to acquire clients and do business before putting in a two-week notice at your full time job. I no longer operate my company, but had I abided by the 4 month of living expenses rule I would have never gotten off the ground. Within 4 months I was earning slightly more than double my previous salary. Don't shackle yourself to rigid startup rules. If you have clients and believe in what you're offering, go do it.