Income tax (Photo credit: Alan Cleaver)
So I’ve been off on my own for a couple of months now, and while it hasn’t been too easy, it’s certainly been a lot of fun. However, at the end of the day, I need to ask myself: does this have a future? Can I keep “having fun”, or do I eventually have to snap back to reality and start putting my CV out there? While one must be prepared for both eventualities (if you haven’t planned for that, then you haven’t been giving the matter enough thought), I don’t think that diminishes in any way from the great experience that I’m gaining in the present.
I’ve setup a few milestones for myself, to help goad me into making continual progress, and ensure that I’m not slowly turning into just another unemployed bum. A lot of people call themselves freelancers, but that’s often an euphemism for couldn’t get a job! Here are my milestones:
Milestone 1: Transition from an unemployed bum to self-sufficiency
It’s a little harsh to say, but if you aren’t able to generate enough income to at least pay for your bills, then you’re just screwing around, like an unemployed bum. As fun as it is to joke around and have fun doing your hobby all day, if you can’t even pay your bills, then it’s nothing more than a hobby.
I’ve estimated that I need about $50/day (365.24 days a year) to reach this goal. This would be enough to pay for the food, the car, the mortgage and property taxes, repairs that come up; basically all of the day to day expenses that one has to pay. This is the floor. So long as I can reach this point, I’m not going to be eating the seed corn. On the other hand, this is a mile-post and not an end-goal. I don’t want to be an unemployed bum, but nor do I want to remain on the margins.
Milestone 2: Come into my own as an independent worker
How much income do you need before you can consider yourself as having come into your own? My opinion is that you should be making at least as much as you were at your day job. This will probably be some multiple of your self-sufficiency level, such as 3x. Keep in mind that I’m talking about gross figures here. At self-sufficiency levels, we don’t have to pay much in taxes, but as income rises, we do need to start setting aside a substantial portion of revenue for Uncle Sam and the other uncles out there.
I think that if anyone can make what they were making at their day job, but do it on their own, that is pretty sweet. Imagine having all the benefits of working on what you love, working your own schedule, being your own boss, and still earning just as much as you were before! I think this is a great goal to strive toward, and once reaching that point, I think it’s fair to say that you’ve achieved a measure of success.
Milestone 3: Self-actualization
As an entrepreneur and freelancer, you are not bound by the relatively narrow confines of your job. You don’t have to deal with “salary scales” and other BS that the HR department will put in your way. It’s certainly a challenge and a struggle just to match your day-job income, but you don’t have to stop there. For me, a good level of self-actualization would be 10x the self-sufficient level. Although taxes would greatly cut into this, I would still be able to bank plenty for the future, as well as re-invest into growing the business.
The hardest part is getting the ball rolling.
Speaking from personal experience, I think that things are toughest in the beginning. You’re learning what to do, you’re learning how to manage your time, and dealing with the shock and stress of no longer having a steady income. You may feel more socially isolated, and since there is a long delay between work and results, you might feel that you’re working for nothing. Why not just go back and work for the man?
I think that reaching the first milestone is the toughest, but at the same time, if you plant many seeds, you will get there. My seeds are starting to bear fruit and I have real hope for passing this milestone soon, so I can focus on coming into my own.
The world is not black and white, and there are pros and cons to both lifestyles. It definitely comes down to priorities. That said, I think that there’s no reason to be afraid, and to not give it a shot. I think that you can gain valuable experience from both sides of the fence. Does the fact that I quit my job after 7 years mean that I was wasting my time there? No. I learned a heck of a lot, and that is in fact how I got started in the mobile business. No matter what happens during your freelancing experience, treat it the same way: as an opportunity to gain some real great experience, and have a blast while doing it!
I would love to hear your thoughts and stories, as always! 🙂
I think it would be INCREDIBLE to match one’s day income w/ their new entrepreneurial endeavors at some point.
Perhaps have a 2-3 year goal after leaving one’s job to shoot and perhaps surpass that? That’s what I would do. A nice 2-3 year runway. If I could get my online income to equal 50% of my day job income, I’d probably make the move.
Sam
Hey Sam,
I certainly hope I’m past that milepost by year 1! Even at month 6 would be super sweet, but the difference is I want to get there with the more sustainable path of business, like my own apps, rather than via working for others.
I agree with you, hitting this goal would be sweeeeeeeeeet!
Personally, I think that the fear of not having a steady income is the the hardest step. After you conquer that, everything else is easier.
It is a fear no doubt! It feels muuuch better to have some income coming in rather than $0. Releasing the pro app was a great first move in getting the ball rolling.
I agree — matching my current rate would really be an accomplishment! Although this would be easier for me than my friends who make 2-3X what I make!
Living on less is a great way to get there, especially if you believe in early retirement extreme (or at least, accelerated). I was saving a big portion of my income when I was working, so while my savings rate has collapsed, it also means I don’t need as much to retain the same standard of living. That is good for sanity and peace of mind.
Matching your income is a great goal. With your savings, it must be nice knowing you don’t NEED money right now. At the same point, I am a little more cautious now and want to have at least a good base before making the leap. Plus, with working full-time that makes any money i earn from the blog/online efforts extra to be re-invested!
Having a good base is very important. If you can do a mixed approach, that is great, too! I by no means advocate that it has to be one or the other, though for my own situation that is how it was.
Kevin, I think it is important to remember that Milestone#1 is most crucial. Once you can provide all the necessities your life demands, you then cruise uncharted ocean without fear. In fact, you will rekindle your inner passion to achieve other milestones. And, I am confident that, you will achieve far more than or initial desire.
I agree, Shilpan! The closer I get to matching and surpassing Milesone #1, the better I feel, and the more optimistic and motivated I get.
Matching your previous income is a nice goal, but I assume that that figure included a certain amount of discretionary spending and also savings. For the short term, as you correctly stated, matching living expenses is what matters.
Definitely. I was saving a good deal of money, and paying a good deal of taxes, as much or more than the money I was saving! I was not making a six figure salary, either, but you know how taxes are up here. 😉
What this means is that vastly lower income doesn’t have to mean vastly lower standard of living. I most definitely don’t want to continue living on the margins, but it’s great that the requirement is not too high and can be met, which is one step on the road forward.
I’m pretty jealous Kevin. Even though I have a great job that I love and am finally making the kind of money I have always wanted, I still have that nagging entrepneurial itch. It’s going to have to wait for now, because I have some big dreams and goals that require all of that income. Keep plugging away.
All about priorities! No one path is the “right” one, unless you’re satisfied. Let me know if you do end up scratching that itch. 😉
Gosh, man, you really resonates with what I’m thinking but you expressed it ever so articulatively and “elegantly”! The salary scales thingy and HR BS – that’s just so true. I suppose this very post will serve as note in the time capsule, say, 10 years down the road – when you have accomplished something and can actually said “Ahh, it makes sense when I connect the dots looking backward”. Cheers!
Thanks, LCF! Just one more step on the road ahead. 😉