Startup ecosystem in India has come a long way. No longer is it a taboo to quit your well-paying job and start your own. However, startup journey is not as smooth as your corporate job. It is important to manage your personal finances well – this way you can devote your energies in solving for your startup rather than worrying about personal finances. If you are planning to quit your job, you should take care of following things before you do so:
In this article
1. Keep runway of few years
Here we are not talking about runway for your startup but for your personal expenses. You need money for your personal needs – housing, food, kid’s education, clothing etc. If you have dependents, it becomes all the more important to have a bigger runway. Next question arises – how much money should I keep aside for this? Well, there is no definite answer to this but keeping 2 years worth of expenditure can be a good amount. And as we always do with our estimate, keep 20% buffer on your needs.
2. Keeping your money safe
Be careful about where you invest your money. You need to account for risk factors, liquidity, and potential returns. If you are not taking any salary from your startup, you need to make sure there are some assured returns with limited downside from your investments while you are working hard on your startup. It is a good idea to put a decent amount of money in debt, either through mutual funds or bank deposits. Besides this, it is also better to allocate some amount of money in liquid funds (say, 6 months worth of expenses) – so that you don’t have to look around if you have immediate cash needs.
3. Take a term insurance (if you don’t have one)
You should take a term insurance in any case. Calculate your term insurance needs by considering your expense needs and your current investments and savings. I will cover how to calculate your term insurance needs in my next article. The point here is that better to take an insurance before you quit your job – will help you save a lot of hassles when you should be focusing completely on your startup.
4. Health insurance for you and your family
Jobbers typically have family’s health insurance covered by their employers. When you start up, it is your responsibility to do this for yourself and your employees. Again better to cover this in your checklist before quitting.
5. Start tracking your expenses
When money flow is on, we typically tend to splurge with keeping track of our expenses. And old habits are hard to die. With low salary or no salary, it is very important to start tracking your expenses. I was surprised to find that people do not even have a fair idea of their monthly expenses. Tracking your money will help you in managing it better. There are plenty of expense management tools available that you can use without wasting any time.
Bonus point: Align your spouse/family on the financial plan
Life can be different when you do not get your monthly dope. Make sure your family is aligned with your plans, it is your family that is going to support you in your journey.
Another bonus point: Don’t Panic
Do not panic in case of any unforeseen circumstances. Relax and revisit your assumptions, re-plan your personal finance strategy! And hope for the best.