If you hate your job or just aren’t fulfilled, starting your own business can sound really tempting. But, before you get ahead of yourself: launching a business comes with its own set of challenges.
For starters, you’ll need to factor in expenses, like paying for new software, buying insurance, outfitting an office, and even outsourcing certain tasks. Your income can also be spotty, especially when you’re just starting out. And, let’s not forget: unpredictable income can throw off your own personal finances.
So, what to do if you’re still nervous about branching out on your own? We’ll show you how to save money and build a budget so you can afford to work in your dream job. Read on to learn more.
How much money do you need each month?
In order to know exactly how much you need to save, you’ll first need to tally up your monthly living expenses.
If you already have a budget, this will be pretty easy. Just add up all of your line items to see how much you can spend and save each month. Voilà. If you don’t have a budget, this will be a little more challenging.
Take 20 minutes or so to tally up all of your monthly recurring expenses — bills, food, clothing, entertainment, etc. Then, add up any monthly savings you already have (such as for pets or education), as well as the monthly share of your infrequent bills (like semi-annual car insurance payments or annual life insurance premiums).
Gold Plan: Create a Runway
Far and away, the best way to budget for your dream job is to save up a cash cushion of at least six to 12 months’ worth of your living expenses. People in the startup world call this a runway. That’s because it’s essentially just a long period where you can focus on launching your new business without having to worry about being derailed by money troubles at home.
It sounds like a lot of money, and indeed it is, and doubly so if you’re starting from scratch. But if you can shave off expenses from your budget and commit to setting aside a certain dollar amount each month (plus any extra income), you’ll get there even sooner.
Silver Plan: A Mini Runway
Alright, so we realize that saving up a years’ worth of expenses is out of the question for some folks. If you can do it, then all the more power to you.
But if you can’t, the second-best option is to at least save up a few months’ worth of expenses. Ideally you’d have at least this much money in your emergency fund all year, even if you’re earning a stable income.
A shortened runway or savings buffer of at least a few months’ worth of income may not allow you the full freedom of a years’ break from money stress, but it will at least provide you a little bit of time.
Bronze Plan: Earn at Least What You’re Making From Your Day Job
Pretty much any responsible financial adviser will tell you that you need to save something before you quit your day job.
But, even that’s not always possible. Sometimes you lose your job for whatever reason — maybe it was a temporary position, maybe you were laid off, or maybe even fired (womp womp).
If you’ve already been hustling on the side, one option is to take your side hustle full-time and turn it into your own business. In this case, it’s best to already be earning the cost of your monthly expenses, solely from your side hustle. So if you need $2,500 per month to get by, you’d want to make sure you’re at least earning that much from your day job before you take the leap.
Again, it still sounds like a lot of money and it is. But if you’re down to this last option with no savings to sustain you while you launch your business, you need to be sure that you can earn a full-time income first. And the best way to ensure that this happens is if you’re running an existing side hustle. If not, you don’t need to abandon your hopes of a dream job quite yet. Instead, a better option might be to find another job now just to pay the bills. You can still focus on growing your business on the side, but think of it as using your day job to support your business until you have enough savings to safely take your business full-time.
You Can Do This
Budgeting to launch your dream career as a business owner sounds like tough work. But it’s the best way to give your business a fighting chance.
By planning ahead and saving up for your leap, you can sustain losses and wonky paychecks until your business is established. You won’t need to shut down at the first bad month you have because you won’t be able to afford your rent, for example.
Owning your own business is challenging, but you can do it — especially if you get your personal finances in order first.