Is the entrepreneurial bug biting you and forcing you to think of quitting your job and start off on your own? Or are you fed up with the ‘low’ salary that your job fetches you and want to join the growing culture of having a start-up of your own and try and earn much more than your job would potentially get you over a time period?
Quitting a job is a difficult decision and has to be taken with caution, especially if you have liabilities of family and children. There are financial risks involved and one needs to take the steps with care.
Personal finance advisors fees that one of the main steps to take before quitting a job is to have a decent corpus that would meet your expenses for the next 12 months or so.
“Quitting your job and starting your own venture means no monthly salary for a while. This means you need to have 9-12 months equivalent of your recurring existing liabilities. The liabilities may include EMIs, household expenses, insurance payments and other debt payments pertaining to credit cards. If you need Rs 80,000 per month for all these, you should keep Rs 7.2-9.6 lakh of money separately. Giving 9-12 months for a venture to stabilize is not a bad time. Once you have that cushion money, you can have a piece of mind in terms of building your venture,” Anil Rego, founder and chief executive officer, Right Horizons told Moneycontrol.
Nirmal Rewaria, chief executive officer & co founder of FinPeace, feels one should have a corpus that would take care of expenses for around 36 months. “The basic thing is how many months or years your household expenses can be handled even if you don’t get any money from your business. Main thing is that your kid’s education, EMIs and premiums should not be affected at least for 3 years even if no inflow comes from business,” he said.
Rego advises maintaining the separate corpus if you join hands with other to start a business. “Many persons today join start-ups along with a number of other founders. But personal finances still have to be taken care of. If you are putting in any seed capital to start the business, remember that you should keep a separate corpus for your personal and family requirements,” he said.
Amit Kachroo, managing partner, Aaneev Wealth, suggests you take the following four steps before you quit your job:
Take adequate insurance: One of the most important steps is to get yourself insured and medically covered. Take a solid medical insurance cover of at least Rs 25-30 lakhs, personal accident cover of Rs 50 lakhs and a Term Plan of around Rs 1 crore. This should be done before quitting any job without fail. The future is uncertain and if any mishap occurs you will be covered medically and you won’t have to touch your savings or dip into the money kept for the business and family. Clear your debts: Clear all your debts including liabilities like credit card debt and other. If you have a loan and you can’t clear then you need to keep a separate fund for that. Map your expenses: Develop a habit of writing down each and every expense. This way you can keep a tab on all your expenses and at the same time manage your spending habits. Avoid funding initially: Sweat equity is the best equity. Sell your product, market yourself aggressively. Once business is running smoothly you can think of expanding and take funding if need be.
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