It’s one thing to dream about quitting your job to start your own business and another thing to actually do it. If you’ve ever considered taking the leap, or if you’ve already made the jump, you know that there are about 3 million worries that crop up at the first sign of losing your steady income.
How much should you have saved up before quitting your job? Can you survive on savings alone for a while? What extras and luxuries will you have to cut out? What are your options if things don’t work out and you have to return to the working world as an employee?
We don’t claim to have all the answers, but we came across some pretty good advice from Ycombinator users who have been there, done that, and gotten the t-shirt. We can all learn something from their findings, experience, and mistakes – including one entrepreneur who “…wasn’t planning on touching [my retirement account] for any reason short of ‘I’m dying in the snow.'”
10 Entrepreneurs Share: “How much did you have saved up before quitting your job?”
Review the plans and strategies 10 entrepreneurs put into place before quitting their jobs and starting their own businesses. How much did you have saved up before quitting your job?
“On the order of $4,000, though in my circumstances it was less risky than that number would suggest, since I already had covered-the-day-job cash flow from Bingo Card Creator and strong odds of successfully filling a consulting pipeline by that point.
I’m not counting my retirement account, which was in the low five figures, since I wasn’t planning on touching it for any reason short of “I’m dying in the snow.” User patio11
About $2K + multi-month consulting gig
“I only had about $2000 (half a month’s paycheck at the time), but the change in work was prompted by a multi-month consulting gig that was paying in the low five figures over the course of a few months.
My advice is to start looking for work before you leave your industry job – think of it as though you’re doing lean testing on your product, except your product is yourself. If you can’t find clients while at your day job, then iterate on yourself (website, services offered, your client pitch, how you’re looking for clients, etc) and try again.” User robertnealan
About $2K + 1 month consulting gig
“I have a similar story. I only had $2000 saved up before quitting too, but I also had a 1-month consulting gig that would pay me about 5 months’ salary. That was enough to spur me to quit my job and start working on my own. I earned over a year’s salary in the past 3 months since I quit and haven’t looked back since.
Also, I’m 35 years old, so not just some kid who could afford to take risks. Just was never able to save up on a salary, went through a few periods of unemployment, and a few of my other startups failed. I’m finally on course to make some real dough and it never would’ve happened if I didn’t quit.” User bwangsta
6 months’ salary
“Six months is a decent starting point for one-size-fits-all advice, which is why it is the standard context-free recommendation, but I honestly think there are circumstances where you can skimp on it.For example, in the totality of your personal situation, you might have:
- Multiple independent sources of income
- Insurance against common forms of risk (e.g. very good health or occupational coverage)
- Strong non-market safety nets, either via your government or social network
- Better than average marketability of your skills
- A lifestyle which was amenable to belt-tightening in the event of an emergency
- Access to credit which would survive events likely to cause a hit to your income.” User patio11
1 year of expenses
“One year of expenses including rent, healthcare, food, etc. saved up before quitting my job. When doing financial planning you should always try to save up to 6 months of all expenses. This is hard to achieve but the recommended number even if you are staying at your industry job. You never know what can happen.” User doppenhe
“My situation was extremely similar, though I had a car and half my salary for the year came out to more like 20k. Two years and a lot of raises later I am maintaining the same lifestyle, still have a roommate + a fairly cheap apartment, and putting away around 70% of my salary each month.Not having any dependents helps…a lot.” User jdc0589
3 months’ salary
“I had 3 months worth of pay in savings. My plan was to start looking for work if there wasn’t enough income to keep me going after month 2. One year later and still going strong!” User alanbyrne
$10K in liquid assets, $15K in withheld taxes
“$10k liquid + $15k in withheld taxes the government owes me. At least 5-8x that in an HSA, 401k, SEP, IRAs, Roth IRAs and tax-advantaged government bonds paying 7.5% that I bought a few months after I cashed out of the Janus fund in Dec 1999. (My broker fired me for that)
I’m going to hold on to those bonds as long as I can, and I’d much rather borrow against the equity of the “home” I own at a lower rate. (I bought the home in cash, so this is my “first” mortgage — I opened the account when I wanted some capital to take a chance at buying an adjoining property at a tax auction.)” User PaulHoule
“I quit my job two months ago with close to $10k saved up. It’s too early to claim success, though. I think location is really relevant. In Pittsburgh, rent is quite cheap, but I’m sure the situation is different elsewhere in the country.” User gw
About 3-6 months’ salary
“I had either 3 or 6 months of salary saved up – whatever it is that experts always say. And I’ll tell you this, I was super freaked out about money the entire time. I felt like I was just about to go broke almost every step of the way until I landed my first good client. (That took 4-5 months, if I recall correctly.) And I’m a pretty mellow person able to deal with some amount of risk.
If I had to do it again, I’d make sure I had at least one year’s salary. Several people have asked, “How is that possible to do?” I wouldn’t have been able to do it at the time. Well, all I can say is that it gets much easier as you get older and get better jobs with stock options that are worth something, and if you’ve been saving for a decade or more. If you’re just starting out, it’s a lot harder if you aren’t incredibly lucky. (Although you also have fewer repercussions if you mess it up.)” User vitd