The Strategic Life // The "Quit Your Day Job" Fund

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Recently a dear friend came to me and asked me how much money I would recommend an individual saves before quitting their job. Not surprisingly, given my own job history, this is something I'm asked fairly often. 

The very short answer is about $10,000 USD. 

The short answer is 3-6 months worth of monthly expenses, plus an emergency fund.

The long answer and how I arrived at those numbers (and how you can, too!) is a little more complicated.

First and foremost, sit down and make a very, very realistic list of exactly what you are spending each month right now. This includes all the big ticket recurring items (i.e. rent, utilities, insurance, car payments, 401k, student loans, credit card payments), as well as the smaller ones, (i.e. any monthly subscriptions, like Netflix or your gym membership). Then review your non-fixed spending for the past couple months. Be COMPLETELY HONEST with yourself about how much you spend on groceries, eating out, coffee, shopping, gifts, etc. There are several great apps for this. I like Mint and a ton of people swear by You Need a Budget, but for me, a plain old spreadsheet has always worked best. This is the starting point for your budget. Don't forget to make a note of those expenses that only come once or twice a year (I always forget my car insurance and holiday shopping!) It is also a good time to evaluate what might be missing from your monthly expenses - do you contribute to an emergency fund? Do you have life insurance? 

Second, make your ideal budget. If you had your dream (but realistic) salary, how much would you like to spend on your current expense items and any additional expenses that you can't currently squeeze in? For example, in my "ideal" budget, I would max out my IRA and also contribute more to an emergency fund. I would also make room for a little more "fun money" to fuel my book buying habit and travel bug. 

Third, make your bare bones budget. This is the absolute minimum amount you have to spend to maintain a comfortable lifestyle. This budget should not be extremely austere (by all means keep your Netflix subscription if it brings you joy!) but cuts out the majority of extras. If you are planning on leaving your job, make sure you budget properly for health insurance in this version! 

Fourth, take your bare bones budget and multiply it by something between 3 and 6 (whatever makes YOU feel comfortable) - this is your emergency fund. Realistically, if you're looking to quit your job, you may plan to dip into an already existing emergency fund and that's ok! However, try not to let this fall below at least one month of expenses, if only for your own peace of mind.

Fifth, get the median of your bare bones and ideal budget. Save up 3 months of this, plus 1-2 months of your bare bones fund for emergencies (or more, if you need that to feel comfortable) and there you go! For me, this usually comes to about $10,000 plus a small emergency fund of about $1,000. (Because I rent my home and always carry a variety of excellent insurance policies, I usually feel comfortable having less money in this stash, but that is totally my personal preference and risk.)

Note: This plan is designed for a single person. If you have a partner, you will want to consider which shared household expenses one or both of you would be willing to take over should the other be on a reduced or fixed income. For example, a great way to save money is to turn off the AC, but if your partner is uncomfortable in the heat, they might be more than willing to pay a little extra towards the electric bill. This also includes lifestyle choices. Your partner may not want to give up their habit of fancy Friday night dates and would be delighted to treat you, so you both can continue to enjoy them. If you're not comfortable with that, make sure you are willing to come up with alternatives and solutions so money does not become a point of contention. 

It's also possible to do this on a lot less - this is just where I personally feel ok leaving a salaried job and what I would recommend to my clients. If you enjoy a little risk, have good credit, and a decent earning potential, get yourself a low interest credit card and have that in hand in case of emergency or to cover a month of expenses. However, the biggest mistake people make when leaving their jobs is not having proper health or car insurance. Even a minor illness or fender bender can bankrupt you! Insurance is NOT where you should cut corners.  

Final disclaimer, if you are truly miserable in your job, I believe in just getting out of there. Make sure you can cover at least one month and cut the cord. Life is too short to be miserable and there is always, always work to be done for those who are willing to do it. 

**Hey all! Please take any and all advice from this blog at your own risk! 

Shea Keats