Every entrepreneur faces the dilemma of deciding when to quit the day job to focus all efforts on a startup venture. But, at the end of the day, those bills must still be paid. It’s likely a startup owner will need one full year of living expenses in savings before making the leap. So, how much should you save before you quit your job? Here’s a list to help with your estimate.
Housing – Your largest expenses will likely be housing. You’ll need 12 months of payments plus renter’s insurance in savings. Fortunately, New Orleans has relatively low housing costs compared to other major startup cities. This example assumes monthly rent of $1,200. $14,400 rent + $400 renter’s insurance = $14,800
Health Care – Even if you’re young and healthy, you need a minimum amount of health insurance in case of large expenses. If you are covered by a health care plan at work, you may qualify for COBRA benefits for up to 18 months, which allows you to keep the same coverage at the same price. If your employer was paying a part of your premiums, keep in mind you’ll need to pay the full amount after you quit your job. If you are not currently covered by a plan at work, consider taking a high deductible individual plan to reduce monthly premiums. In this example, we are considering a single person, so be sure to round up for spouses and families. $3,000 premiums + $360 prescriptions + $600 vision/ dental = $3,960.
Transportation – It’s probably a good idea to pay off any car loans before you quit your job. That does not mean you won’t have auto expenses. You need to save for a year’s worth of gas, insurance premiums, oil changes, car washes, and maintenance. You should also round up for unexpected major repairs, just in case. $1,200 gasoline + $1,200 insurance + $400 routine maintenance + $1,000 extra reserve = $3,800.
Other Insurance – Don’t forget about life insurance, disability, and long-term care policy premiums, if any. There’s no reason to chance losing your insurability and rate, so plan to keep paying these even while you’re not working. Estimate: $1,440.
Groceries and Personal Care – A reasonable estimate for food costs is $5 for breakfast, $10 for lunch, and $15 for dinner. Don’t’ forget about personal hygiene (toothpaste, soap, shampoo, etc.) or routine grooming (haircuts, manicures, salons). This example estimates two meals per week dining out (covered in the next section). $9,450 groceries + $1,440 personal care = $10,890
Dining Out – Assuming two meals per week at $35/meal. $3,640
– Pet Care $1,000
– Travel – $5,000 (To the Bay Area or NYC)
– Pocket Money – $5,200 ($100 per week)
– Clothing – $2,500
Grant Total – $52,230
Keep in mind, you won’t be eligible to contribute to a retirement plan or IRA if you have no earned income for the year. You might plan ahead or catch-up when you return to work. You will also lose a year of Social Security eligibility, since you have no wages. Quitting your job to focus on your start up is an exciting decision, but it can also be nerve-wracking. Plan ahead by saving enough to cover your living expenses for at least one full year before you quit your job.