All right, y’all, last week I gave some general advice with some signs that you’re ready to take your side hustle full-time. But I promised you I’d go more in depth about how to financially prepare – I am a bookkeeper after all. And this is the scariest part. If you’re reading this post, you’re likely already exhausted by your double life and desperate to be able to focus on the thing you’re most passionate about. But unless you’ve got some Kardashian money stashed somewhere, making that leap and not knowing if it’s going to work out financially can be terrifying.
So here’s a little roadmap:
- Assess Your Current Financial Situation: The first step in preparing to quit your job is to assess your current financial situation. Take a close look at your income, expenses, savings, and debts. Understand your cash flow and identify areas where you can cut back on expenses to save more money.
Budgeting – or “Yes Plans”
I recommend you creating three different budgets:
– The first one is a bare bones one you can live with for at least 6 months. This is mortgage/rent, insurance, groceries, heat, gas, car payments, student loan payments…anything you’re going to be in serious trouble if you don’t pay.Do you have to get your nails done or buy the organic produce? Could you work out with YouTube videos and cancel your Spotify, if only as a temporary measure?
– The second one is the one you’re living at now, at your day job salary. This is more sustainable long-term; it gives you a little wiggle room and allows you to have and do the things that bring you joy and add to your life in some way.
– The third is your ideal. Now, I’m not talking the Kardashian budget with this one, (and I don’t mean to slam them OR your aspirations, I’m just saying let’s start with some positively charged reality). This one is more like, “I’d love to be able to save X for retirement, and I’d love a massage once a month, etc.”
Then: - Make a Plan to Build an Emergency Fund based on your bare bones budget. Whether or not you’re at the point where you’re ready to quit, you need to have an emergency fund. This is not money to live off of, it’s money to live off of in the emergency of ZERO income coming in. Aim to save enough to cover at least three to six months’ worth of living expenses. Having a financial safety net will provide peace of mind as you transition into entrepreneurship.
Then: - Calculate Your Runway: Determine how much money you’ll need to cover each of these budgets after you quit your job, add up what you have now and what you’re consistently making from your side hustle now. Then Calculate your “runway,” which is the number of months you can sustain yourself without your day job income. How many months is it? Is it 6-12? That’s a safe enough number where you can expect you’ll be able to fill that new time with generating more income. Anything less than that makes me a little nervous.
And some other things you need to think about: - Pay Off High-Interest Debt, such as credit card balances or personal loans. Prioritize paying them off before quitting your job, or figure the costs of this into your bare bones budget, because high-interest debt can eat into your savings and limit your financial flexibility as you embark on your entrepreneurial journey.
- Secure Health Insurance: Health insurance is a critical aspect of financial readiness when leaving your job. Explore your options for obtaining healthcare coverage, whether through a spouse’s plan, private insurance, or government programs like COBRA or the Affordable Care Act marketplace. Factor the cost of health insurance into your budget planning.
- Diversify and Amplify Your Income Streams: Consider diversifying your income streams to minimize risk and increase financial stability. Explore opportunities for passive income, such as rental properties, investments, or online courses. Having multiple sources of income can provide a cushion during lean months as you build your business.
And/or if you’re not able to do that, take a look at your pricing structure? Are your expenses matching your income, and therefore you’re not taking home enough? Can you cut any of those expenses? If not, it’s time to raise your prices, baby! - Set Financial Goals: Define clear financial goals for your transition to entrepreneurship. Determine how much income you need to generate from your business to cover your expenses and achieve your long-term financial objectives. Having specific goals will help you stay focused and motivated as you work towards financial independence.
- Consult with Financial Professionals: Consider seeking guidance from financial advisors, accountants, or business coaches to help you navigate the financial aspects of quitting your job. A professional can offer valuable insights and customized strategies based on your unique circumstances and goals.
- Be Prepared for Fluctuations: Understand that income as an entrepreneur can fluctuate, especially in the early stages of building your business. Be prepared to adjust your budget and spending habits accordingly during periods of higher or lower income. Maintaining financial flexibility and adaptability is key to long-term success.
Getting financially ready to quit your job and pursue entrepreneurship requires careful planning, budgeting, and preparation. But it also takes something that we all struggle with: believing in yourself. I don’t want you to just leap into going full-time at a business you’re only making a couple hundred dollars a month from, but there comes a point when you’ve got all of the above lined up, and you still find yourself too terrified to jump. So #10, which may actually be #1, and that’s GET YOUR MONEY MINDSET RIGHT. Work with a financial coach to help you work through all of the above, but also to remove some of those money stories that might be major roadblocks to your success.
Good luck, darling! I believe in you!