May
28
How Much Money Do You Need To Quit Your Job – And Why?
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.
You don’t need anything to quit your job. Your job is about to quit you even if you don’t know it yet.
The next bonus, review, whatever is always coming. And it’s always there to keep you out of focus. It’s a fucking ruse.
And the only reason you’re staying is that you’re a prostitute. You’re not an almost entrepreneur, that’s a fantasy. You’re a whore. Because you’re staying for an after tax payday of $10k? That took a year to earn? C’mon, man up and grow a pair.
If you’re pretty sure someday you’re gonna do something cool, and another year goes by then you’re lying to yourself. You’re living at the top of your fucking potential.
Whoa- strong words. I get it if someone truly is unhappy. But everyone working in an organization is a whore? Just shocked me with the strength and sweepingness of the statement.
I think it’ll always be an approximation, much of which can be done in our heads. If you aren’t doing that appropriately without the benefit of this post, I have the feeling that you really aren’t capable, at least yet, of making a living as a freelancer. Things change drastically. Something goes right. Something goes wrong.
If we can’t calculate this stuff accurately without a nudge, I have the feeling that said person is probably miscalculating their own chances of success.
A few thousand. I know this because…I quit. Tuesday’s my last day!
I used Mint.com to take a sober look at where I spend my money and why.
I built a business on the side, doing marketing consulting for small business owners.
I scaled back costs around the home. I canceled a luxury subscription or two.
And now, with careful saving and budgeting and a cautious growth strategy, the only thing standing in the way of my business’ growth is the 40+ hours I spend in a cubicle. I’ve set it up so I’d be stupid NOT to quit.
Highly-recommended.
I went for three months of spending money (rent, bills, food, etc). I spent very little (made my own website, first clients were people I already knew, etc, used my old laptop from student days to work on).
Basically, I was desperate to quit, I had a bit of freelancing income already, and whilst I didn’t want to shoot myself in the foot by jumping too soon (I was about to start a part-time MA too, so throwing everything I had into the biz wasn’t really an option) … I didn’t want to hang around longer than I felt I absolutely had to.
In my first 4 years I earned $30k gross without spending much of anything on business expenses. No website. Mostly word of mouth marketing.
Like Ali, I started with contacts I had made in my previous job. And I asked the first couple if they were happy to act as a reference for future clients, if they wanted one.
Initially I did a few different things and gradually started focusing on the stuff I most wanted to do.
Most people with a figure of, say, $30k in their heads are hung up on that number becuase it seems unobtainable to many and if the pick a number like that they subconsciously know they will never get there and thus will never have to really work for themselves. Reading about it is a lot more fun than doing it.
I always ask 9those who still have a “dirt-based” job that is, “Why are you planning to quit”? The answer usually comes back framed around the idea that hey don’t have time to start their own business while still working at their “day job”. My answer … nonsense.
If you still have a day job, keep working. Start you own business on the side and grow it. You do have the time, if you want to.
Hey, Lee won American Idol already, that’s about 4 hours of useless time that just dropped into you hands for building your business.
There are dozens of other hours every week that are not being used effectively. Why quit your day job until you have so much in the bank you don’t even think about it being enough?
I had about 6 months of basic spending rent etc, but I didn’t plan that number and I really didn’t want to use it.
I just needed to make that jump. There’s a balance as well, as too much of a buffer can make you too relaxed and less likely to hustle and get creative and hungry about your business.
Too little and you just want to jump back into employment to get something in by the end of the month.
If I was doing it again, I’d have jumped sooner and been like Ali with about 3 months of costs.
My squeak-by number is pretty low, so it shouldn’t take too long to build up to it. Fortunately, my job provides a lot of free time where I can work on my business and get paid to do so.
If I had to quit, I would want about 3 months worth of expenses plus a bit of emergency money (car trouble, health deductible, etc).
My love! My favourite part: “It should be noted here that I started with $400, and I had to borrow it.” Awesome.
I started my business with 15 euros. Which at the time was like twelve bucks. Which I’d also borrowed. And I got a website in a trade (no, not *that* kind of trade).
But I was also young and stupid and living in a squat. So it really wasn’t all that hard of a decision to make.
Five years later I can look back and go wheee! And laugh at parts of it. But five years gives you a lot of room to appreciate all the OTHER fool-hardy decisions you made … AND it gives you the perspective to see that most of them turned out fine.
It’s good to allow for chaos as a general life rule. I love this reminder.
And I would also say that getting-over-being-risk-averse is another useful quality worth working on for people planning on being entrepreneurs. Add some kind of contingency plan and a sense of humour, and it might even happen.
Which is the other gem of this post: the most important thing is getting you to do the thing. And if you’re not going to do your thing without a serious plan, get that serious plan in place because the rest of us are waiting for your thing.
*hops off soapbox and goes to have a beer*
Comment #1 is why I love Chris Johnson.
More important than how much you have saved, IMO, is how many realistic ideas you have about bringing money in — ideas you have tried and know work for you.
That’s exactly it (or it was for me). I had reached a point where I had enough regular students to cover my rent for the next month.
I was tutoring from home, and basically had no costs over what I would normally have. Board pens, maybe, and extra paper.
Your number also has to do with your *best estimated guess* about how long it will take until you can start selling your stuff on a regular basis.
There’s that period of time when first starting out where your sales are hit or miss–some months good and some not. And then magically after plodding along for a while, your sales become steady, you can exhale and maybe even see a few months into the future in terms of income.
Part of your number has to do with still being able to pay the monthly nut until your business picks up and becomes reliably steady. This period of time is unique to everyone so of course it’s difficult to guesstimate.
When I *had* a day job, the number was 3 months of living expenses, plus enough clients on retainer to be making half of my salary. It was all working out too, I had a few hundred in savings and was adding 2 new clients a month….
Then, I got laid off, which was probably a good thing because it was a kick in the ass. Now this is going to work, dammit, because being at home is so much better than going to an office, because my kids like to eat, because I like my clients so much more than I liked my co-workers, and about 5 million other reasons.
Scene: this summer.
Me: Hey, so, Naomi, I want to quit consulting and do my own thing only. Any advice?
Naomi: What are you doing now?
Me:
Naomi: QUITCHER BITCHIN AND QUIT ALREADY! What the hell are you waiting for?
Me:
Naomi:
I did quit. It took me 4-5 mos to inflate my balls to sufficient size. After one last consulting hurra!, I quit while the check was still warm.
I can say in reflection, I didn’t need the $40k. It was a nice, safe, hard-to-reach sounding number… and a purely psychological barrier.
You were right.
Now I’m truly hitting my hustling stride, 5 months later, and just a couple days ago I set up an online class — in order to pay for the 6 mos down on a new office — and it’s half sold out already. Today I literally slapped my forehead and asked myself why the hell I didn’t do THAT sooner.
My advice would be that the idea of 6 mos’ expenses is nice, if you can achieve it without a lot of effort, otherwise, it’s quite probably something you are setting up to give yourself permission not to make the leap. Better to put that effort on creating a new income stream and hustling, then leap — not trying to scrimp every penny for a decade.
I didn’t quit my dayjob. I went part-time while building up the business. Then, when I did quit and go solo, the first year I made around $30K.
There’s your mythical, unplanned for $30K.
I agree totally- it’s great to plan. It’s great to allow some chaos.
And a lot of people are scared to even ask to go part time. This is a great strategy. More people should try it. Even going down to 4 days a week frees up an incredible amount of time and energy in my experience.
Whoops. Let’s try that again.
Me: Hey, so, Naomi, I want to quit consulting and do my own thing only. Any advice?
Naomi: What are you doing now?
Me: [what I was doing & how much it was earning]
Naomi: QUITCHER BITCHIN AND QUIT ALREADY! What the hell are you waiting for?
Me: [talking about my expensive rent]
Naomi: [not buying my excuses]
(Our conversation wasn’t half-full of silences. I never shut up! ;)
Haha, I was imagining you and Naomi in one of those Meaningful English movies.
“Sebastian, I…”
“…”
“… I’d better go.”
“You better had.”
Actually, I love my day job. The people I report to are intelligent and funny, the work is interesting and pays well, and the organization where I’m employed does critical work helping the neediest people in our community.
I know this isn’t the rah-rah, drop-everything-and-start-the-rest-of-your-life answer you’re looking for.
Having been a free-lancer by circumstance not by choice (I was laid off), I found that I didn’t really need much money to run my own business. The hard part was finding the steady stream of paying clients with needs that I was able to meet. I got by for a year or so, but it didn’t bring me any joy. The work was okay, and I learned a lot.
But when I went back to work full time for a non-profit, it was like my heart began singing again.
If I won the lottery, I’d quit my job, sure. But guess what? I don’t play the lottery.
My feeling is that you shouldn’t start your own business JUST because your job feels like selling out, or you feel you are fantastically underpaid, or your working environment is deadening. First you should think about what’s going to bring you the most happiness. Money? People? Fame? Creative freedom? Personal freedom?
Then decide whether you should (a) start your own company or (b) find a really awesome place to work.
(b) isn’t a bad answer.
Ooh, yes!
KNOWING is always a good thing!
Especially when it’s something know-able (how much X will cost).
But even more important: Knowing that you won’t know.
Like, ever.
As Havi said, “getting-over-being-risk-averse is another useful quality worth working on for people planning on being entrepreneurs”.
Because it’s always a risk.
Whether you have the $30K or the $0K.
My story? I got some money, paid off some bills, and essentially started the full-time part with $0.
But before that? 3 years of dayjob slavery, while doing the love-job at night and weekends.
My advice? Do your thing for a while before you quit the dayjob. At least put up that website! Check out some ad spaces! And then, even if you quit with $0, you know how you’ll make the $30K!
Well, depending on how you look at it, I either started with $0 or $40,000. :)
I’m a militant saver, but while I was working and drunk with the idea that I’d buy a house, hang out in it for an hour or two a day and maybe someday visit a neat place I’d heard about in a few years when I had enough vacation time, I wasn’t saving anything to jump ship and start a business.
Fast forward to February where corporate axe meets my insane denial and all of the sudden, I have a decision to make – a house and occasional vacation I never have time for, or a life I can actually respect myself for living?
3 months ago I’d have told you I was starting with nothing, but now budgets have been reallocated and priorities rearranged. I’m starting with $40,000.
Gosh, I don’t even remember how much we started biz with. Like 10 Euros for the domain name or something? Having 25 euro cents to our name in those days wasn’t all that uncommon actually.
Thank god for being a web designer so I didn’t have to hire one. That’s all I gotta say about that, lol!
I was a Dairy Queen whore making $7.50 an hour. Of course, I didn’t know I was a whore until Chris called me one.
It’s only been a few hours, but I drove to work wearing my SCRUMP DILLY ISHUS! t-shirt, grabbed a big bag, stole all the ice cream sandwiches from the freezer, made myself the biggest Blizzard you’ve ever seen and hollered out “LICK ME” as I ran out the door with the booty.
Good bye, Dairy Queen. I’ll miss my $277.50 (gross) weekly pay…eventually. But first, I’ve got all these ice cream sandwiches to eat. I forgot I didn’t have a freezer. And I don’t give a rat’s @#! cause it’s a 3-day weekend!
I simply never took a day job. Out of high school I worked with my dad building Grain bins (I made 30%) I did that through the summer, and in the winters (Canada – 6 months) I taught myself Web Design and Flash. Did that for 2 years, co-founded a company. Left that company a year later and just stayed working from home.
The whole way – up until a few years ago – it’s been a juggling act as to how bills will be paid. I also NEVER operated on credit. I have no credit card and have never gotten a loan. (I now have a pre-paid mastercard).
For me it would have been a case of ‘how little food do I have in the cupboard’ or ‘how far behind am i in my rent’ before I would have considered GETTING a job. At one point I was 5 months behind. But I paid it all up in one lump when I landed a great client. My landlord never panicked because I ALWAYS paid up.
Do it. Take the leap. That leap is what will cause you to soar.
I have friends – who got big money for their ‘start-up’. They spent it stupidly, cause they had it to spend. If you don’t have it to spend, you’re gonna get creative.
Honest to God, this is the funniest fucking site I’ve ever read.
Hey Naomi, I’m not sure I agree with you and as you are the wisest women in Christendom that shocks me to the core and then past my core to that bit in the middle of my core.
I think this is one occasion when ignorance can sometimes (depending on the individual) be bliss. I have started two business in which I hopelessly under-estimated how much money I’d need.
If I’d gone into more depth the reality is I wouldn’t have done it and I’d still be working in sales. Same goes for moving to the UK, I was about 40 grand out on that one! Still glad I did it though even if I am sick of fucking snakes hanging out in my garage, the skinny bastards.
Tim, you bring up an interesting point: There’s a difference between starting a business and starting this business.
(I am about to exaggerate for effect. I promise I’m not making fun of you. :)
Sure, if you want to sell gold-threaded yarn to stay-at-home knitaholic moms without Internet access in Tempe, AZ, you’re going to need a bit of money. (Gold thread gets expensive, yo.) But there’s always something you can do to make money that requires very little financial investment at the front end. Maybe you’ll postpone your gold-threaded yarn sales and instead be a yarn courier, delivering from Gosh Yarn It in Phoenix to those stay-at-home knitaholic moms in Tempe. Check prices and stocks daily, get payment in advance, charge a little more than bus fare and the cost of the yarn, and you come out ahead. It’s that simple.
A good place to start with this is to recognize that people are far more willing to part with their money than with their time. (This is why we hire plumbers instead of going to the library and getting Replacing Sink Flanges For Dummies.) Find out how people are spending their time when they’d rather not be, and step in and say, “I’ll spend my time doing this so that you don’t have to.” The world will beat a path to your doorstep.
Good point, Chris, on people wanting to hire those to do what they don’t want to (or can’t) spend time on…
Here’s another angle to your point.
You (wisely) wrote: “people are far more willing to part with their money than with their time.”
Some people will part with their time first, then their money for what they want to experience, (or due to having the former more than the latter.) Like, I’m the kind of girl who likes to do it myself once (say, replacing a toilet ball & cock) so I do, big satisfaction/conquered new thing, etc. But once IS enough, so I lose interest and hire out if it needs doing again (different toilet, my ball– er, my plumbing work held up.)
So a future IttyBiz 1000-er (?!) may be that person to teach/educate/advise (or provide the download or video that does!) those of us who want to spend our time (wisely) on the task w/o having to go to the library to read the whole Dummies book on it — THAT’S a way to provide (market/sell) What You Already Know & Are Swell At (your hobby, interests, day job skills, talent — your “thing”) to others (if they’re buying/using/wanting/needing it) before quitting said day job.
Or they can marry rich, I won’t judge…
~GirlPie
I think a lot of people are hung up on the idea that when they start a business, they have to Start A Business. A Business has a fax machine. A Business has an office chair and a desk. A Business has a professionally-designed website and a real, professionally-vetted business plan and a virtual assistant to handle email. And so Starting A Business costs money. A lot of it.
But starting a business doesn’t. You know the phrase “starting on a shoestring”? I want to see your $30,000 shoestrings.
I think a better question than “Could you quit your job and start a business right now?” is “If your boss walked up and said, ‘You’re fired,’ could you start a business right now?” (A lot of people here in the comments are acknowledging that, which is awesome.) The answer is almost always yes. Get a free WordPress blog. (Or get hosting; if you’re reading this comment thread, you know someone who’d be willing to spot you the hosting space and the cost of a domain name while you get set up.) Get on the internet from the library. Set up a Gmail account and answer it yourself. Your business plan can be as simple as “I want to do X for Y set of people.”
Man, you don’t even really need a website. Go to local businesses saying, “I’m a copywriter and I’d like to help you with your sales copy.” You can do that with the pen at the receptionist’s desk and a piece of paper you stole from their printer.
The only thing you need to start your own business is yourself. If you’re fully behind it, everything else will follow.
There are no jobs (awesome or otherwise) for broke and broken ex-wives so working for myself is the only option.
Oh and there is only 400 in the bank; and while I do get half support the rent, food and my attorney get that.
(Sorry Naomi, I know you hate semicolons.)
I’m no whore. I’m like Fred Garvin, a Male Prostitute.
Oh, Naomi, I just want to quit my job and I don’t want to worry about all that money stuff…….but then again, I’ll need to pay for my internet and some food and some DRINKY-POOS too. And I thought once the money started rolling in then I could by a Mercedes-Benz with air conditioning. On the other hand, hmmm. I’ve just got to get a cycle of earning for myself going….and I guess I could live on $50,000 okay enough. I’ll continue thinking about it…hmmm.
Happy Memorial Day!
~~Lyn
I’m ancient. Had day jobs I quite liked that paid fairly well for about 40 years, had some savings, then quit and started a business. It paid less, but I enjoyed it for about 20 years, then got restless and “retired” with enough money to live on comfortably. Couldn’t stand that, made a little writing fiction (I mean a very little), then started a business with some friends. That’s been going on for two years, and we’ve made no money–I financed it for not much per year. But we need more help, and can’t afford to hire people. We need most of all somebody to work part-time helping our webmaster, and somebody who knows about advertising and PR who can help us learn to make money off our project. Otherwise, we’ll probably fold pretty soon–it’s just too much work for the six of us involved, though all of us are very good at our jobs.
Moral? Try it, whatever it is. If you fail, but can still eat for a while, no big deal–it was worth a try.
I escaped the corporate world back in 2001 after 14 years. It had become a life sucker and I wanted freedom to live, work and play on my own terms. Up until that point I had always been employed so having a big financial security net felt important to me as I had never had to make my own income before.
The last 18 months in Corporate life I saved like fury and had a 3 year financial safety net when I left. Once I left I quickly realised that I could actually get by on less than I had budgetted for.
I think the answer to your question of how much do you need to quit your job is – it depends. It depends on your risk tolerance, mindset, what you know, what you don’t know.
I do feel that having some financial backup is important as financial scarcity can have an impact on the qucility of decision making that not only impacts business life but personal life too.
I used that same illogical logic for my scrape by number. We have a baby due in less than a month and thanks to the need to be responsible, I’ve been working harder than ever (while having fun of course) on my site. I’m not sure how to revise my number, but I’m sure I’ll find some twisted alchemy to get me to another illogical formulation.
I also thought you might enjoy this…
http://www.slantlab.com/?p=204
If you choose to leave my shameless plug, super awesome. If not you are still awesome, just not super.
Keep rockin’ the Casbah.
Man, I loved this post. I relate to it. I’d tossed around the idea of starting a business for awhile, but never thought about it because I had a day job. I had security, so I was fine, right? Well, I finally sat down one day and looked at the numbers of my day job, and realized that even if I started a business and it completely failed? I’d probably still be making twice as much as I did at my day job. When I started my business, I think I had two pretty small paychecks left and a tiny savings account to make things work. And that really lights a fire under your ass to build something that will do more than sustain your soul; you end up building something that you love, but that will also be solid and long term and help you fill in the gaps by the time those paychecks are gone. I’m doing really well, but I’m not sure I could have done it if I’d had $40,000 worth of security socked away somewhere.
And now, eight months in, going into a big expansion of my business, this post is a great reminder that basically, the only thing standing in between you and a business is not a number, or a lifestyle, but yourself. If you’re determined enough to make it work, it will.
Very interesting post.
I have thought about this in the past.
I would change jobs into one I liked for about 100,000 U.S.$ a year. I already have a job I love, I am self employed as an artist, read not a lot of money. Enough but not yet at my goal. Changing jobs would mean I lose something I value very highly, time freedom and a few other things too. That doesn’t mean I slack but it means I have full ownership of my time now. To trade that it would take 100,000$ and the job would have to be something I am interested in.
The trade off in my estimation means I would trade lack of guarantees for lack of guarantees. I only make now what I can kill and drag home, so to speak. I would only make 100,000 a year as long as I killed and dragged home what my boss decided was the thing to kill. I would lose my time freedom and the life style I have. In light of this I might as well make what my goal is in my current, only as stable as I make it, job.
Dave
I would like to see a decent amount of income from my side business/potential full time business before I quit my day job.
Money in the bank would be nice, but if you ain’t making jack savings only goes so far anyways.
I agree that one has to ask few questions for himself to answer or to reflect on specially if it would affect one’s everyday survival. Asking what sort of business you can turn into is also an important question to answer.
Well, before I enter in the RE business. I’ve been working as a communication specialist. At first, I feel that what I’m earning and what I’m gaining are enough for me to say that my lifestyle will pretty improve. Somehow, yes, I got higher earning than that of my previous work but as time goes by. I fiind myself looking for other avenue where I could earn higher and get a new experience where I will act as the boss. So now, I’m actually enngaged in real estate industry. I browsed websites where I can get more information and background..Good thing! I was able to get useful information at reiwired.com and ge updates in rehabhardmoney.com These sites really made me more confident in handling deals.
I had NOTHING when I started my new career as a freelancer. Oh, sorry, am lying, I had debts. Yeah.
In 2-3 months of working like crazy was able to earn as much as I was paid back when working for others. In another 3 months I’d make 4 times more. It’s always good to have a ‘cushion’, but you can start from zero too. As long as you want it and are willing to put the extra effort.
I have been employed in the educational world for the last 14 years. I have a Master’s Degree, and after all this time, I don’t even make 40K per year. My video business generates far more income. Why do I feel stuck? Because I am type 1 diabetic and need health insurance, but it is getting harder and harder to stay.