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.
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It is definitely hard to just pack up and leave a job without a plan AND without research. I started venturing away from my job by pursuing an online opportunity on the side of my full time job. It was away to really see my potential…..I haven’t looked back!!
It shouldn’t be a hard number to find. Unemployment rate, how many businesses (new ones) in your area, where you stand is far as your skills and training etc etc will help you figure this out. I don’t know of many people who can *quit* their job and still have a substantial cushion.
Quit on 31 August 2003 at age 58, and had no incentive to ever work again!
That’s because you married a rich sugar daddy/momma with one foot in the grave and the other foot on a banana peel.
Or maybe you planned, schemed, worked hard, got rid of debt, reduced expenses, and managed your money effectively so that you weren’t wiped out by adverse stock market, life or health events.
But clearly the rich sugar daddy/momma is the way to go.
Yes these days there are many home based jobs coming up and one such website which I found was http://www.feverfive.com where everything is for a fiver or in the multiples for 5 and users can make money from the website as I did.
If you are going to quit your day job, make sure that you are not paying any expenses so you can loosen up and use your money practically. When I quit my day job I made sure I am done paying for my car and house. Then, I started my business.
I guess once you have saved a lot you don’t want to put your hands in it yet. I mean owning an apartment is great but its only a liability if you don’t take any rent of it. It’s only an asset if you are making something out of your saving.
As a property investment, if you are making money from the rent you can take part time and relax.
I think “half your expenses” is a good rule of thumb. When your part-time side business provides half of your cost-of-living income, you can quit your job and pursue it full-time, knowing that if you double (or more) the amount of time you spend at your side-business, you’ll hopefully also double the results.
That said, its important to note that the side business doesn’t need to replace half the INCOME you earned at your day job … just half of your expenses (including an emergency cushion).
One last note: If you have to stop contributing to your retirement accounts in order to make the transition, be sure to repay yourself for those lost contributions as soon as you’re able.
Even for someone like me who doesn’t have a side hustle (yet), it’s a good idea to keep an eye out for market trends. Brainstorm a few back up plans or exit strategies, so you can be more prepared in case you run into a situation where you lose your job either voluntarily or involuntarily.
When I quit my day job to pursue my business, I only made the jump because of my lack of expenses. Without a confidence that I can sustain myself for long periods of time, I wouldn’t dare make the jump because if putting food on the table was in question, it would be hard to make any business work.
A cushion would be ideal, but if you have a solid plan and let’s say you’re laid off, you’re basically forced to swim with the sharks to make it work. That’s why I always advocate having a side hustle that you can possibly ramp up if you’re ever laid off or need extra income.