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I got into an interesting conversation with Jamie last night about the issue of financial cushions and day jobs. It seems like everybody has a number in their head of how much money they need to quit their job. I would say the median number I hear is around $30,000. (It should be noted here that I started with $400, and I had to borrow it.)
What I find is interesting about this is that often, they have absolutely no idea how they came up with the figure.
There’s a kind of logic, I guess, if by “logic” we mean “linear but not particularly logical.” It’s like, “Well, I make $40,000 now. I probably don’t need all of that because I’m pretty sure some of that is work related costs. And I could cut down some. Plus there’s probably get some tax write offs by having a home office. So I’d need maybe $30,000 a year. I guess I’d need about half a year’s salary to be comfortable getting started, so that’s $15,000. And I’ll have business start up costs, so let’s double that and call it thirty grand.”
Linear? Yes. Logical? Not so much.
Because when you ask people what they’re going to spend their $15,000 of start up money on, the answers you get are along the lines of, “Well, I’ll need a website.” Yes, and how much will that cost?”
Blank stare.
“And marketing isn’t free so if I want to run ads, I’ll have to pay for those.” What ads? Where? For how long? How much will they cost?
Still staring.
“Plus I’ll need office stuff. You know, a fax machine. An office chair. That kind of stuff.”
Of course, we cannot be expected to know EXACTLY how much YOUR website will cost. You can’t really know if you’re for sure going to that conference and if so, precisely what the dollar figure will be. We will incur unexpected costs. But a dirty little secret of business is that you incur far fewer unexpected costs when you plan for some expected ones. And by plan, I don’t mean allow the idea to briefly enter your consciousness. I mean plan. Including pricing it out.
Dave talked about your quit your day job squeak-by number, and I think it’s incredibly important. You need to know your number. But you need to KNOW your number, not hazard a random guess. Not if you’re serious.
Take some time today and think about how much you need. How much money do you REALLY need to quit your day job? If you really don’t know, it might be time to ask yourself why. And if you really DO know, it might be time to ask yourself if you’re right.
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Comments
05.28.10
I think it depends on what you want to do when you quit. My husband recently quit his job and within a month he was making more than he did at the job. However, we're older (39), he had been an established journalist and blogger, and he spent about six months before he quit collecting freelance contracts. Once he blew the conch shell, people were throwing work his way.
I think what you hit on here, is that there isn't just one number. It's about the planning. If you do the ground work first, things are just easier.
05.28.10
I think taking a look at the rate at which you generate cashflow is more relevant than a target, somewhat arbitrary number. $30,000 in the bank will buy you nothing more than a very extended vacation if you don't have any idea how to generate cash on your own on a consistent basis. I would much rather have $3,000 on hand and a $1,500/month passive-esque income than $30,000 with no prospects or income streams.
Essentially, building a small side business from scratch while you are still working 9-5 is more advantageous than a bucket of savings. Just my thoughts. Good post!
05.29.10
i wouldant be botherd with the ammount of money i had put away in my bank account if i wasent happy in my current job ide be outa there. not a second thort would be given to where my next pay cheque was coming from.
05.30.10
Mmmhh... for me it would be to earn $150/day as a startup. I'm trying to make it consistent before upgrade it into more.
Why $150. Not logical or anything. Just love the numbers. ;)
05.31.10
I jumped ship to live with my parents and work for myself with about $4000 in the bank. I don't think we should be ashamed of other people supporting us if we can prove to those people that we are committed to our work. If I didn't have such support then yes, I'd probably have to save up or work a part-time job.
06.08.10
This is a concept that I want to implement into my life as I'm going up to graduation. This means that I have to have a list of planned income streams and have to get good at budgeting. Thanks for a great article, Naomi.
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