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How Much Money Do You Need to Quit Your Job?
Quitting your job is scary. You’re essentially walking out of the most “comfortable” position you’ve ever been in financially, and from pretty much everything you’ve considered “normal” about making a living over the past few years.
You’ve made friends at work, learned a lot, and have been challenged beyond belief.
At the same time, leaving safety also represents that freedom you’ve been yearning after for years.
Many people think that leaving your cushy day job is asking for trouble. And they are right to a degree – by choosing to leave your job, you’re up against one of the more difficult things you can do in life…both mentally and emotionally, as well as financially….and you’re doing it voluntarily – you badass. 🙂
But You’re Going to Need Money Before You Quit
One of the things you must get right is the money piece of this. If you walk away without enough money, you’re likely going to have to go back to the workforce, and potentially get a job you hate even more than your current position.
If you save too much (unlikely), then you’re wasting precious time you could have been using to work on your business and are staying stuck in a position you’re so ready to get out of.
You need money to live, eat, and grow your business. So don’t underestimate the importance here. At the same time, don’t worry about every dollar to a point of exhaustion, and put yourself in a place where you’re paralyzed with fear of getting it wrong.
That won’t help anyone.
What is a “Runway”
A runway is essentially how much time you have left before you run out of money. It helps us answer the question: “how much money do I need before I can ‘safely’ quit my job.”
For example, if you have $2,000 monthly expenses, and $10,000 in savings, that means you have 5 months of runway (10 divided by 2). Of course, this is given that you’re bringing in zero dollars of income, which hopefully isn’t the case.
What You Need to Calculate Your Runway
The example above is an overly simplified way of calculating your runway. There are plenty of other details that go into finding this number for yourself.
Here is a free spreadsheet you can use to quickly find out how much you have left to save and how long it will take.
Some of those things include:
1. How much you’re currently making with your side hustle
This is important because it helps you get a feel for the amount of income you’re going to still have once you quit your job. And it’s probably the only income you’ll have at that point, so you’d better figure out how much that is worth.
2. The amount of money you have saved (that you can spend if you need to)
This might seem easy, but if you’re like me, you have a few savings accounts set up for different expenses. In addition, you’ll probably want to have a starter emergency fund on top of your runway money just in case your house heater breaks or something unexpected happens.
Gather all of that data together and get it into one number that you’ll feel comfortable spending. Again, try not to run yourself dry here.
3. How many months of runway you feel comfortable with
Some people are confident that they can turn a profit in 4 months, others want the safety of 12-16 months to relieve themselves of the stress of having to get it done that quickly. Everyone is different and works better in different situations, so use your self-awareness muscle and figure out what time period is best for you.
I wouldn’t recommend anything under 8 months. The reason I appreciate this time frame is if you can’t make it work in 6 months, you at least have a 2 month buffer to find a decent job and build up your runway again. If you only saved for 4 and couldn’t make it work in 2-3 months, you’re really pushing to find a job as fast as you can. That’s not a situation I would like to be in.
Of course there is something to be said for working under pressure, but again, not everyone works best that way.
4. Your Current Monthly Expenses
These are going to be what you’re currently shelling out each month to live your life. Now, I want to emphasize that if you’re really into quitting your job, you should start looking for ways to cut back your expenses so you can get their quicker.
This could mean cutting cable and getting Netflix, Hulu, or SlingTV instead. Most shows are available without a cable subscription, so check those out and see if any of them work for you.
Aside from cable, it could mean downsizing to a smaller home, or cutting back on eating out.
Here is a list of common monthly expenses (although you may have others) you might need to account for:
- Food
- Utlities
- Mortgage/Rent
- Cable bill
- Phone bill
- Entertainment
- Clothing and household purchases
- Student loans
- Childcare
- Medical bills
- Transportation costs
- Car insurance
- Gasoline
- Car repairs
- Car payments
5. New Expenses You’ll Have Once You Quit
The good thing about leaving your job is you generally have less costs, unless you’re opening a brick and mortar store. But you will likely find yourself with new expenses as well.
This could be anything from new software to help manage your business, to an office or coworking space, a health insurance plan, etc.
6. Expenses You Might Not Expect to Have
Planning is necessary to properly prep for leaving your job, but there are going to be things you just don’t anticipate. This could be anything from an increase in electric or utility bills, a more expensive phone plan, faster internet, that lunch your boss isn’t going to buy you ever couple of weeks, etc.
Try and account for everything, but leave a little room in case you do forget something, because it is likely.
Have a headache yet? Download the free spreadsheet to quickly find out how much you have left to save.
How Much of a Runway Do You Need?
Once you have the numbers above gathered, you’re going to need to do a little math (or you can use this spreadsheet). You’ll want to add up all of your monthly expenses, multiply it by the number of months runway you want to have.
Monthly expenses x # of months you need for your runway = Amount of money needed to fully fund your Runway
That is the amount of money you need to save in order to quit your job.
You can take it a step further by subtracting any recurring income you have, as well as how much you have saved up to get a number of how much you have left to save.
That is going to be the number you pay attention to and work towards saving.
Once you have that in place, you’re theoretically ready to quit your job. Of course, there’s letting family and friends in on your little secret, mentally preparing to be your own boss, and a slew of other things, but they’re pretty simple once you have this in place.
Saving up enough money for a runway is a big step, and congrats on even thinking about it enough to find this post and read this far.
Squashing Other People’s Fears
Now of course, quitting your job is a very personal decision. It takes a lot of courage and responsibility, as well as some insanity, to decide you’re going to venture out on this new path. But you have to remember that other people’s opinion’s will impact you along the way, whether you want them to or not. So this next part is important for helping to minimize those.
I can’t underestimate how great it felt being able to tell my family and friends that I had saved money before quitting. A lot of people don’t understand leaving a job, and they think it’s a really irresponsible thing to do.
How did I counteract that? Well the conversation typically went like this:
Me: “So I’m going to quit my job in June and make the client work I’ve been doing on the side a full-time gig.”
Them: “You’re quitting your job?!”
Me: “Yea, I’ve been waking up at 3am and going to bed at 9pm. I can’t do it anymore, something’s gotta give.”
Them: “But you’re quitting your job?!”
Me: “Yes, but I have 8 months expenses saved. So even if I don’t make a dollar during that time, I’ll still be able to cover my bills.”
Them: “Oh.”
And then you could see the wheels in their heads turning, realizing that I actually planned this out and wasn’t just making a rash decision to leave my job.
After having this talk with lots of friends, family members, etc. you start to learn that you need to start with the “I have money saved” line to avoid them not listening to everything else you’ve said. 🙂
People get nervous when someone in their life makes a decision that could be super risky. I totally get it. People inherently care about those close to them, so their first concern is your sanity (ha!) and well-being. Assuring them you have money set aside can help reduce those fears.
It takes a lot of planning to get your runway just right, but having the peace of mind to not worry about money while you’re building something meaningful is so worth it.
And don’t forget to send the free spreadsheet to yourself to make your life a bit easier 🙂