How to be financially ready to quit your job
One of the most common worries I hear from people wanting to start their own business is what if I don’t make enough money?
The optimist might counter - but what if you do make enough money? and leave it at that. However lovely optimism is, it doesn't put food on the table.
If you are thinking of leaving your 9-5 and run your own business the loss of financial stability can be so scary that you fail to take action. Not only are you losing your steady wage, but you will need to financially invest in your business. In other words you need to put your money where your mouth is and back yourself and your skills.
From my experience most of this worry comes from a lack of financial awareness.
Do you know exactly what you spend your money on in any given month? Likely answer is you have a ballpark idea but nothing actually written down.
When financially planning for your escape from the 9-5 you need to understand the as is situation, in other words how much money you currently earn and spend. As well as your forecasted situation, how much money will you need as a minimum to live each month (taking into account all income sources and personal expenses only). This forecast will give you your monthly income target.
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How should you use this income target to plan your escape?
The target will allow you to answer key financial planning questions:
How much you need to save before leaving e.g. do you want to save 6 months of your forecasted income requirement before quitting? How much money can you put aside each month to meet that target and how long will it take?
Do you need to freelance as well as run your business to make up a large portion of your monthly income target?
Can you drop to part time hours to support yourself in the early stages of your business
Could you continue in your 9-5 and run the business as a side hustle initially?
Can you rearrange your hours so you free up time to work on your business? E.g. work 5 days of hours in 4 days and free up a day to work on your business?
What skills can you monetise quickly once you leave your 9-5?
Answering these will enable you to plan for your escape and take away a lot of the financial what ifs that stop many people from ever taking the leap into starting their own business.
4 Top Tips for Managing your Financial Escape
1) Save save save: This may be the vanilla of the financial world but saving will mean everything once you decide to leave your job. I would recommend having a seperate account that you funnel your escape savings into to avoid the temptation to spend them
2) Cut back: Again not the most glamourous advice but it is key. Review your list of current spending and ask what is essential and what is nice to have, be honest and be brutal. What are you willing to let go of to start your business? Your magazine subscription? Your daily coffee? Fewer drinks after work?
3) Track your finances: Set a time in your diary at least weekly to review what you are spending your money on and to make sure you are on track with your budget. This also starts a good habit for when you need to track your cashflow in your business
4) Plan, plan and more planning: Plan you business spend carefully. Again ask the question is it a nice to have, or a need. In the early stages it is easy to spend on things you don't need such as web designers and brand new iPads. Whilst you are in the early stages you can do those things yourself through programmes such as Squarespace and Canva and make do with old technology.
So the moral of the story is do not be afraid of your numbers. Any business owner will tell you that getting used to handling figures and understanding the key ones for your business will set you up well for success.