Question: I'm thinking of taking an early retirement package from a large company to go out and be my own boss. My wife is a bit nervous about this and suggests I get more information on financial planning for the self-employed. What do I have to consider if I'm serious about being my own boss?

Answer: Real estate agents, carpenters, writers, plumbers and other independent contractors have cut the corporate umbilical cord in exchange for more flexible hours and the independence to pursue their dreams.

According to the U.S. Census Bureau, businesses without paid employees grew from 16.2 million to 16.5 million between 1999 and 2000.

However, if you've been thinking about joining the ranks of the self-employed, you'd better have a financial plan. Working for yourself affords some new freedoms but presents financial challenges. Here are some important considerations:

-- One of the first decisions you'll need to make is whether to be a sole proprietor or choose some form of incorporation. Most self-employed individuals operate as sole proprietors because it's less complicated and less expensive than incorporating.

However, incorporation may be attractive if you have concerns about legal liabilities because the various forms of incorporation can offer limited liability protection. Be sure to consult with professional advisers who can help you choose what's best for you.

-- Effectively managing cash flow is crucial. The influx of cash is often uneven for the self-employed. Without scheduled paychecks, you could end up flush one month and penniless the next. To ensure that you always have cash at hand, develop a budget that allows for swings in income.

Determine an average of how much revenue you can count on, and use that as a base for monthly expenses. During months that you make more, stash the extra cash in an interest-earning account and draw from it during months you have little or no income.

Also, consider paying yourself a salary and keeping your personal and business cash in separate accounts. Combining them can complicate tax deductions and potential reimbursements.

-- Before obtaining insurance, do some research and see if you can piggyback on your spouse's benefit plan. Otherwise, you must make plans to provide your own health, disability and life insurance.

Many self-employed individuals ignore the need for health insurance after they leave their companies. According to the National Association for the Self-Employed, more than 60 percent of America's 41 million uninsured are from households headed by a self-employed individual. If you can't get health insurance through a working spouse, consider a medical savings account, which lets you take a tax deduction for out-of-pocket medical expenses associated with a high-deductible health care policy.

Finding a good, affordable disability policy to replace lost income can be tough for the self-employed because disability insurers generally work with groups. One solution is to join an industry trade association or alumni organization that offers access to disability insurance.

Life insurance can help provide money to pay off your mortgage or send your children to college if you die. There are many types of life insurance, ranging from term insurance (death benefit only) to cash value (cash accumulation and death benefit) to combinations of the two. But, be aware that getting life insurance on your own might be a problem if you have medical issues that sometimes aren't questioned under a group plan.

-- If you're self-employed, you're solely responsible for your retirement savings.

Setting up a 401(k) plan is often too complicated and expensive for your purposes. Instead, research other tax-deductible vehicles, such as Keogh plans and simplified employee pension plans, as well as traditional individual retirement accounts.

You also may want to consider nondeductible alternatives, such as a Roth IRA and annuities. If you choose to incorporate as a small business, consider a savings incentive match plan for employees.

-- When it comes to managing taxes, the bad news is that taxes aren't automatically taken out of your income. You're responsible for paying income and Social Security taxes.

As a result, it's important to save for taxes from each payment you receive, before you start spending the income. Otherwise, you may not have the money to pay taxes when they are due.

On the other hand, the self-employed may be eligible for certain tax breaks.

Contributions to retirement plans, health insurance premiums, auto expenses, travel costs, meals, entertainment and office-related expenses all may be deductible. Make sure to keep all of your receipts so you can claim your deductions during tax time.

Working on your own can be intimidating and exciting. Be sure to meet with a certified financial adviser to help you manage your finances during your pursuit of independent success.

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John Gin is a certified financial planner in the New Orleans area office of a national financial services firm. If you have a question about money, credit or investments, write to Money Watch, The Times-Picayune, 3800 Howard Ave., New Orleans, LA 70125. If you want a reply, enclose your phone number and a stamped, self-addressed envelope.