While you’re still contemplating about quitting your day job, let’s continue our conversation about taking a leap of faith (Not caught up? Read my last two blog posts here and here). If you recall, the three barriers that I (and many others) face when taking a leap of faith are 1) doubting my abilities and/or experience, 2) fear of running out of money and 3) fear of failure. In my last post, we addressed self-doubt. Now, let’s talk about the fear of running out of money.
What the heck is a runway?
When talking about taking a leap of faith and the fear of running out of money, you will often hear the word “runway” thrown around. What is your runway? Simply, it’s the amount of time (usually measured in months) before you run out of money after quitting your day job.
Before I go on, let me make two points: 1) there is no right amount of runway that you should have before you take a leap of faith and 2) everyone’s financial situation is different so it’s ultimately up to you to determine your available resources and comfortable risk level.
As you prepare to take a leap of faith, I highly recommend you take some time to figure out the following amounts:
- How much money you need each month for absolute necessities (housing, food, etc.)
- How much money you have to spend on your monthly needs (I do not recommend considering home equity, retirement or college savings as these resources can all come with a huge cost).
- The amount of money you can save before quitting your day job and taking your leap of faith.
Once you have these amounts figured out, add #2 and #3 together and divide by #1. This will give you your runway.
How To Think About Your Runway Before Quitting Your Day Job
OK, so figuring out your runway is the easy part. The next part is where it gets difficult. Before you take your leap of faith, I recommend you ask yourself the following questions:
- How long do you think it will take before your “leap of faith” starts generating income? How long before it generates enough income to cover your monthly necessities? (and always build in a buffer – be more conservative!)
- What will your “leap of faith” cost you – are there start-up expenses that you need to consider? If you are using your own funds for those, make sure to factor that into your runway calculation above. As above, build in a buffer – start-up expenses are ALWAYS more than you think they will be.
- Are there “necessities” that you can give up either now or down the road if you need to extend your runway?
- Are there additional sources of funding you can obtain either now or down the road? If yes, what are they, what is the likelihood you will be able to access them and under what terms, and what needs to happen before you will go after those funds? For example, if you reasonably think you can get money from your parents but they will insist on it being a loan, and you can’t imagine asking them for money (oh the shame!), you might say that you won’t consider that funding option until you have one month of runway left with no other viable funding sources.
Rethinking Your Runway
Some of the best advice I received when I first took my leap of faith contradicts the concept of the runway, as defined above. After whining on about my panic that my runway was running out, a mentor of mine told me I needed to rethink how I defined “runway.” “Your runway is as long as you make it,” she told me. Uh, what? After a bit of badgering, I got to her meaning.
What she was telling me is that if you want it bad enough, and you work hard enough, and you think and act smart, you can keep extending that runway out as far as you need to. And she also encouraged me to realize that the way I was defining runway was simple and conservative – how much money I need vs. how much I have in the bank.
Think outside the box
My mentor also encouraged me to think outside the box and push the boundaries of my risk tolerance a little (without making bad decisions). For example:
- Was I able to take on some debt to finance my leap? If so, how long would it take me to pay back this debt? How easily would I be able to pay back this debt if my leap “failed” and I had to return to a stable-income job?
- Did I have any side sources of income? Could I find any that wouldn’t take away (too much) from the time I needed to devote to my new venture? Would I be able to find passive sources of income that would work for me?
- Could I get over the shame and embarrassment of asking friends and family for money? Instead of asking them for money, could I ask them to invest in me and give them an opportunity? For example, can you create your own sort of crowd-funding campaign on a small scale? Contributions to your leap of faith don’t have to be huge dollar amounts, especially if you can get a lot of people to make them.
The Cold, Hard Truth
Look, I’m going to level with you. I still have moments when I’m terrified of running out of money. But since I took my leap of faith, I’ve already had opportunities to implement most of the above suggestions – I participated in a think tank with a local marketing company which earned me an unexpected paycheck, I created an online course which will bring in passive income and I took advantage of a zero-interest debt opportunity to finance some of the start-up costs of my business (thereby freeing up more cash to extend my runway) with a solid plan to pay that debt back whether or not my business takes off.
As you consider taking your leap of faith (or if you already have, as you are sobering up from the reality of what you did!) I’ll leave you with this thought: understand your runway, but realize that you have it in your power to keep extending it.
Author’s Note: This picture is not of me. I may fly planes, but I’m not brave enough to stand in the middle of the runway!
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