Listen instead

Can I work for myself and will an online budget planner help with that decision? Good question. Having just grappled with this, let me share some pointers.

Being an entrepreneur, especially starting out, is challenging. Much has been written about startups. This blog entry is about how to afford it.

Chances are you are a bright, self-motivated individual, working for some large corporation or a mid-sized company, earning a reliable paycheck, but frustrated. You are frustrated because you don’t have enough time to focus on your own business ideas and you just can’t build momentum with your full-time job taking so much time. Furthermore, you are noticing that management in your full-time job is not as competent as you once thought and this too is frustrating you, making you start to dislike your job.

If you’re like me, you even went down to part-time employment to try and “make it work” to give yourself more time for your business but still have a steady paycheck to support your family and/or lifestyle. This didn’t work for me either. It made me loathe the days I had to go to work (because when I’m “working” on my own business ideas, it doesn’t feel like work, it’s fun!). Finally, I decided to take the plunge into the unknown and quit my full-time job. [switch to clip from the 3rd Indiana Jones movie, where, searching for the Holy Grail, he steps off the cliff, in faith that the path will be shown].

Other than frustration and motivation to work on my own ideas, lots of financial decisions had to come into play here. Can I afford to do this? Will my own business actually generate enough money for me to live on? How long can I survive without a paycheck?

This decision has to be made with confidence, otherwise, you’ll second guess yourself and probably fail, so you have to gather facts and build up your own psychology to commit to it. I got lots of inspiration from books like “Who Moved My Cheese”, “The Secret”, and “The Millionaire Next Door”. But my finances are my own, I was left to my own on this matter.

Making changes to the family budget with an online budget planner

Fortunately, I had my family living well below our means already so planning for this was not hard. In fact, once I made my decision, figuring out if I could afford it took less than 1 hour, thanks to the CalendarBudget personal finance app. Here are the changes I had to make in my own family budget:

  • Discontinue Retirement savings (RRSPs in Canada, 401K in the US)
  • Reduce monthly miscellaneous fund to $50
  • No more eating out, except for very special occasions
  • Gifts now get to be homemade or taken from my regifting pile
  • Cancel superfluous subscriptions (audible.com, ZIP Video direct). I already don’t have TV, otherwise, I’d have either removed it or gone down to basic cable.
  • In my case, tithing also disappears without a paycheck coming in.
  • Re-amortize my mortgage. I had previously increased my biweekly payments to more aggressively pay down my mortgage. By returning to my original amortization, I get back about $350/month.
  • Since I’ll be working from home, I’ll save on gas for my minivan. (from about $60/week to closer to $20/week)
  • I may even be able to have my car insurance rates reduced because I’ll no longer be traveling to work
  • I called my dentist and arranged for appointments for my whole family (far ahead of schedule) to have them completed before my last day at my full-time job and take advantage of the benefits. Same for other benefits.
  • I need computer equipment, so I buy those while still employed to get employee discounts (since I work for a big computer company).
  • Do I live on retirement savings or use a line of credit? After discussions, analysis and advice from my financial advisor, I feel its better in my situation to leave my retirement savings alone and use my line of credit. My retirement savings are earning a higher interest rate than my LOC is. Besides, if I use my retirement savings, it gets taxed at tax time, so I only get about 70% of it (30% goes to the government). That’s no good – so LOC is an easy choice.

Also, I arranged with my bank about using our LOC to ensure I have the proper capacity in my line of credit while I still have paychecks to prove I could pay it down. Keep in mind, anything done with your bank, they are probably going to want to see a few recent paychecks, so arrange these things before your last day!

CalendarBudget let me make all these changes and see what effect they will have on my future finances all within about an hour.

Things still to be done:

  • apply for government grants
  • better understand how much money will be needed for the startup – particularly marketing.

In the end, there is always a risk with something like this, but it can be mitigated with proper planning. Also, I’ve timeboxed this whole plan of mine. After X number of months if the startup is not showing promise, then I head back to the job market to find a paycheck again. This helps the family feel more comfortable with the idea since they know I can always get another job if needed rather than put everyone at risk or not eating :)

So, I know I can afford it, at least for about 1 year. Then we’ll need to re-evaluate the complete situation.

Let the games begin!

What experiences have you had taking on big financial unknowns in your life?

CalendarBudget is easy-to-use budgeting software that could help you decide whether working for yourself is possible.  View the 90-second video that provides an overview of this online budget planner.