March 29, 2011, 5:00 am

How Many Weeks Can You Hold On Without Working?

by: The Financial Blogger    Category: Alternative Income,Make Money Online
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surviveThis is usually a question that can be answered by the size of your emergency fund.  In fact, this is the whole point of having an emergency fund. If you don’t know it by now, I’m not a big fan of emergency funds. I actually don’t have one and I use my lines of credit/credit card as an emergency fund. So you are probably going to tell me; “if you ever need liquidity, you will pay a huge load of interest!”. You are right… well, if I ever get to this point though.

“How can you be so sure that you will never need your emergency fund?”

The question seems legitimate; nobody is shielded against catastrophe. This brings me down to the most important question: How Many Weeks Can You Hold On Without Working? The very first step to answer this question is to answer first answer another question:

How much do you need per month?

When answering this question, you need to get down to the basics; paying financial obligations, eating and taking care of your family. Restaurants, wine and activities are not part of your priorities ;-).

I have calculated that I could live on a budget of $3,500 per month. Therefore, I need to know where can I withdraw my $3,500 per month and how many months I can hold on before things get very bad…

The normal reflex would be to check with easy ways to withdraw money:

– look at your emergency found (my case: $0)

– look at my lines of credit (my case: $7,000 so 2 months)

– look at my retirement investments (my case: $23,000 so another 6 months)

So in my case, I could hold on for 8 months or so without having to sell anything (like my second car or my house).WRONG WAY OF THINKING!

What if I tell you that I can hold on forever on a $3,500 monthly budget?

Instead of looking at how much and where I can withdraw money, I have asked myself how much and where I can make money ;-D. This is where my company comes into play. We have a special agreement my partner and I (told you I was happy to have a partner!): if one of us loses his job, he can work full time for the company and be paid according to his monthly budget needs (survival budget needs 😉 ). So far in 2011, the company income is averaging between 7K and 8K per month. If I was to lose my job, I could cut my business expenses to roughly $24,000 per year. In fact, I could cut down on my VAs and most of my writers’ budget (which is, by far, the biggest part of my expenses). This would leave me with basic expenses (telecommunication, accounting, hosting, etc).

Therefore, this would leave the company with a net income of about $5,000 to $6,000 per month. This is more than enough to cover my $3,500 budget. Then, I could technically live without my day job and keep my house, my cars, my insurance and feed my family without any problems. This is the first step in my quest to financial freedom; being able to live without a day job.

What is interesting about this thought is also to wonder where I could bring my company if I was to work full time. I’m already seeing some interesting improvements with my 2 VAs (wait to see my March income statement!) so I guess it would just go faster if I was working 40-50 hours a week ;-).

While I know I can do it, I am far from being ready to quit my day job. I think I have too much debt right now and I would feel uncomfortable leaving such a great job. In addition to that, I would rather keep my 2 VAs working for me as I really appreciate them and I would be torn to lay them off. On the other hand, it’s always comforting to think that I can hold forever without working at my day job ;-).

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Comments

Nice one, I’m in about the same position as you — though not with a web company, with investments and businesses. And I also believe that, if you can get it, to use debt as an emergency fund. I think that is a big weakness in some of the financial advisers: To build a huge emergency fund in cash. I have access to about 10 months of low interest money, so for me, I don’t keep a lot of cash.

You’re good!

I am not sure you’ll feel the same way but reading your post it sounds like you are reaching the idea/state of “financial freedom.”

Do you think you’ll move to full time once you pay off the debt? Your “monthly nut” would even be lower if you didn’t have to service the debt.

I have a tough time with this myself. I keep on telling myself that I will scale back hours at my part-time job, but I just can’t. I feel like I need to take advantage of my youth and lack of responsibilities to work as much as possible.

I give all the credit in the world to anyone out there that quits a job to fall back on their side business.

This is when multiple income streams is very helpful. In addition, you set up a safety net with your partner, if it occurs. Good planning! I take it that if the impossible occurred and both of you needed to work at your company, you could split the income.

by: The Financial Blogger | March 29th, 2011 (4:54 pm)

@Evan,
I’m actually looking foward to pay off my debt to reach financial freedom at a young age. This is my goal behind applying for a bigger job at work.

That’s an awesome arrangement! I’m working on diversifying income AND building an emergency fund because that reality can/has come when you least expect it.

I agree, $3500/month is living the dream and anyone can live on that if you set up a budget and live by it. I have to disagree with your view of emergency funds though. I love having a nice sum of cash as a cushion. Along the same lines, I also have over 8k available to me in credit. So, from the way I look at it, I’m set 🙂

Great plan! Once your company make enough income to pay out $3,500 each, then you can complete quit working and just manage it. 🙂
nice!

Losing your job isn’t the only type of emergency that could happen. What if you are in an accident or become ill and are unable to work full time? Hopefully you have disability insurance, but if not your plan won’t work. Also, on your “about” page you mention that your wife doesn’t work and you have two young children. What if she became ill or was in an accident? You would likely have to pay someone else to look after your children until your wife recovered, putting your monthly costs above $3500 (maybe you make enough to cover the extra, but you might also have to cut back at work during this time to help out at home). Although these are unlikely scenarios, they are legitimate reasons to have an emergency fund.

by: The Financial Blogger | April 2nd, 2011 (6:57 am)

@Marina,

you bring an interesting point. It is true that my side business wouldn’t cover for situations where I can’t work. However, I do have disability insurance and critical illness (for both my wife and I) insurance. Therefore, if any of us become ill, we will have extra money coming in to take care of our family. There is nothing like a good insurance coverage!

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Then the question should be, how long can you hold on if your online income went to 0 and your day job income went to 0.

It’s all just semantics Mike!

It’s nice to know that you have business income to fall back on if you were to lose your job. You know, a lot of people think a job is the safer bet versus starting a business but I’d rather be the one controlling my income, thank you very much.

by: The Financial Blogger | April 3rd, 2011 (4:25 pm)

@Financial Samurai,

Your question set everybody on the same level: if all income at 0, nobody can hold more than a month! (unless they are living on a super complete farm which and are self sufifcient!).

That make the millionaire to the same level of the jobless… which is impossible.

But, tell me what are my chances of seeing both sources or revenues going down to 0 at the same time (unless I’m dead!)? If I stop working at my day job, this means I’ll have more time to work on my blogs. If my blogs are not earning any money, I’ll just use my free time to do something else to earn money.

[…] Financial Blogger presents How Many Weeks Can You Hold On Without Working? posted at The Financial Blogger, saying, “A look at planning your finances to see how long […]