6 Killer Financial Tips for Young Earners Transitioning From Job to Entrepreneurship

You finally decide one day that enough is enough. The time has come for you to pursue your cherished dream and stretch your horizons. You finally make up your mind to leave the comfort of your cushy and well-paid job to move into the treacherous terrain of entrepreneurship. This road does not offer the assurance and comfort of a monthly paycheck. It is easy to miss out on the financial well-being in the busyness towards making your transition. This mistake can bite you later big time. This article explores some financial tips that you can implement to better prepare yourself for the transition and see through it in a smooth and stress-free way.

#1: Take your family into confidence:

Shifting from the comfort of a full-time job to the uncertain sea of entrepreneurship is a big decision. It impacts your family’s well-being in many different ways. Your family will have to bear the brunt of your decision, and you will need their support big time. That is why you need to have them on board in your proposed decision. Have frank conversations with your family members on this plan. Be ready for some initial reluctance and disapproval. Instead of feeling disappointed and angry with those reactions, reframe those behaviours. It is their loving attitude of care towards you and your well-being. Do your best to resolve their concerns and take everyone in the family on board with your decision.

#2: Plan for a supplementary income:

No matter how skilled you are in your chosen field, you can experience a sharp reduction in your monthly income for the initial few years. The first year is the most difficult, the second becomes more manageable, and so on. You need to make a cash flow projection for at least 3 years into your own business and prepare an entrepreneurship fund to see you through that phase. It can be excellent support if your spouse is working during this lean period. This will help you keep your money anxieties at bay and allow you to focus entirely on building your business from the ground up. You and your spouse can also re-think your plans for starting a family in these initial years, as that can put a lot of extra pressure on your finances.

#3: Tweak your financial goals and investment plan:

When you drew up your financial goals and made that investment plan a few years back, you made it under an assumption of a steady income that you will receive every month. You also assumed that it is going to increase by a set percentage every year. The entire plot changes once you decide to move into your own business. With no certainty of a stable income (at least in the initial few months to some years), you may need to revisit and prioritise your financial goals and asset allocation. For example, that bigger home can be postponed for a few years, and that luxury car needs to be dropped altogether from the equation. All this money that gets free can go towards beefing up your emergency fund and insurance coverage.

#4: Relook at your expenses:

Transitioning to your own business will put a strain for a few months to a few years on your finances. This depends upon how quickly your business picks up to match your pre-transition income levels. A tight rein on expenses in this phase can really help you stay longer in the game and increase the chances of success in your new venture. A proactive approach is to start evaluating your expenses and slowly prune the unnecessary expenses starting few months from the transition. This will help your family adjust to a reduced lifestyle in a better way, rather than it coming as a shock. You can also decide to relocate to a smaller city to benefit from a lower cost of living. An excellent way to build more awareness of your expense patterns is to maintain a simple expense tracker and update it daily.

#5: Relook at your emergency fund and insurances:

When you have a stable job, you don’t worry too much about having an emergency fund. You are also covered in your employer’s group insurance plans, so you are not inclined to buy your own insurance coverage. However, these things start to matter the moment you decide to move on your own. The emergency fund for any medical or unexpected expenses differs from the entrepreneurship fund to meet your expense gap during the initial post-transition years. Make sure to purchase your own pure term, mediclaim and personal accident insurance of sufficient amount without delay.

#6: Pay off all loans and credit card liabilities:

Getting on the entrepreneurship wagon with loans and liabilities can tire you down, not to mention the risk of derailing your investing journey. Hence, a much better idea is to try and close all existing loans and credit card liabilities before transitioning. The only exception to this rule can be something like a home loan. A risk of continuing with loans after a transition is that any default on EMI payments can impact your credit score and chances of getting a new loan.

Conclusion

Moving from a job to own venture is a phase that is filled with excitement; however, a lack of proper financial planning can put you in financial jeopardy. Taking the family into confidence and revamping the financial plan given the change in circumstances can help you align your financial life with this significant change in your professional life. Along with these changes, you must also pay enough attention to your financial health and track your expenses regularly.

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