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How much money do you need to save in order to leave your day job to focus on your business full time?
This is a question every person asks themselves when they think about leaving their job to pursue their dream life as an entrepreneur.
I know I Googled this question when I was making my plans and could never seem to get the answer I was looking for. It seems that most articles I read said to save at least one year’s worth of my current salary. But that, my friends, seemed near impossible and I thought there must be a better way at looking at this.
1. Save 12 months worth of expenses NOT 12 months of your salary.
This is a much more realistic number to be focusing on.
2. List out ALL your expenses in a spreadsheet.
I listed ALL of my expenses for ONE month in a spreadsheet which included the following:
Mortgage, car payments, car insurance, electric bill, water bill, cable/internet bill, credit cards, eating out, entertainment (movies, etc), children’s activities (swimming, ballet, etc.), Netflix, gym membership, groceries, etc.
You can download my free spreadsheet by clicking below.
This spreadsheet will help you track expenses through an entire year. I use this simple method to track my personal expenses.
3. Have a close look at expenses to eliminate what you can live without.
I eliminated eating out, entertainment, gym membership and removed the cable portion of my cable/internet bill.
I knew I had Netflix, could workout and cook at home.
How bad do you want to leave the corporate world for your dream lifestyle? Then cut it out for a year!
4. It will be a challenge but you can do it!
Eliminating these items would mean I could save money faster and bring my monthly budget down.
- This reduced the amount I would have to save to leave my job.
- Increased the amount of money I could put towards my savings goal.
- Lowered my monthly expenses for when I leave my job.
How awesome is that?!
Focus on your EXPENSES not your salary.
5. Here’s how I figured how much I would have to save.
When I considered my savings, I also considered my spouses income in my budget. It will inevitably take a person with one income longer, which I will review, but for now I’m going to review how I figured out how much to save with my husband’s income in mind.
Here is a reflection of one month:
Ok, so at the end of the month we have a positive amount of $82 dollars left. That is NOT much but it is a good place to start.
Now, this DOES NOT include any expenses I would need to run my online business like hosting, online storage, email management, GoToWebinar, etc. Those would cost approximately an additional $160 per month so now we’re in the hole.
So the way I figure it, to make sure we have a little emergency money and a little low budget entertainment money, I’ll want to save $800/month, which would mean a nest egg of about $9,600. Living frugally, this would definitely get us through 12 months worth of living if I brought in $0.
Now, you may have noticed my grocery bill is quite low at $500. I am sort of a low level extreme couponer which means I’m not a hoarding couponer but rather a practical one. I’ll go into that in another post because it really requires its own but is definitely worth speaking about.
6. Now, if I was single I think my expenses would look more like this:
Focus on your EXPENSES not your salary. Meaning, in this scenario of a single person situation, you would focus on saving $2,083 (expenses) X 12 months = $24,996. This is a much more realistic number than trying to save up $48,000. In the example above, a person could save the money in just over a year.
If you’re single, you can also try to fast track it by finding a roommate to split your expenses while saving your money for your business.
The main lesson here is to focus on saving for 12 months of your expenses rather than 12 months of your salary. Saving for your expenses is MUCH more realistic than trying to save for your salary.