There are plenty of people who swear that, someday, when they have enough money, they’re going to quit their job and start up their own business. Some of these people actually succeed, but a lot just never seem to have enough money to make the transition — they don’t even know how much they need.
How Much Money Do You Need to Quit Your Day Job?
If you’re serious about setting up your own venture and leaving the daily grind behind, you likely need a cushion: enough savings to get you through the time it takes to get your own business up and running. Depending on the type of business you want to start, that may also include enough money to actually cover the costs of starting a business.
There are differing opinions on just how many months you should be able to cover out of your savings. You may assume that it will only take you a few weeks to get a new business up to speed and you only need a month or two’s worth of expenses in the bank in order to leave your current job. If you haven’t done some preparation and actually figured out how much work it may take to get your business going, it’s best to calculate that first. Take the number of months that you expect to need and double that number. The simple fact is that unless you are a serial entrepreneur, it will probably take longer than you think.
From there, you need to figure out how much money you need each month to pay your living expenses. It’s easy to say that you’re going to cut back when you open your business, but if you’re relying on economizing at home to make a business venture work, it’s best to start living more frugally now rather than waiting until your business starts. Add a little extra padding to your estimate of your monthly expenses, as well. There are are always expenses that are forgotten or are entirely unexpected, that can upset a delicately balanced budget when you’re living on your savings.
Relying on Side Income Instead of Savings
If you’ve already started pulling together your business on the side, you may already have a little income coming in from your business. The more you can build up that income source before you leave your day job, the less money you actually have to have in savings. Of course, the more cushion you can provide yourself, the better — but if you’ve already got your business to the point where it’s covering half of the amount you need to live, you can probably get away with banking about half the total cost of your monthly expenses for a couple months out.
After all, you can skip the time necessary to get the business operating in the first place. With a business that is already earning money, you’re that much closer to having it cover the amount you earn working at your day job. It may not be immediately possible to cover the difference, even with more hours to work on your business, but you’re a lot closer than if you’re starting from zero.
Leaving Without a Cushion
Having savings or a side income before you leave your job isn’t always possible. There are plenty of inspiring stories about people who get laid off and have to start their own businesses immediately. There are more than a few people who also found themselves in intolerable situations at work. Personally, I started freelancing full-time after college when I was looking for a job. When I actually found a job, I’d already built up enough income that I could afford to turn it down.
There’s something to be said for not having a cushion. Of course, if you can make the transition a little more financially feasible, you should do it. But if you can’t, don’t let that stop you. The simple truth is that for many of us, the knowledge that we’re low on money can be the key driving force that helps us succeed with a new venture: when you know you can’t afford to fail, you work harder to avoid it. That means that if you don’t have as much in savings as you’d like and the right opportunity comes along, don’t let that fact stop you.