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Ask HN: How much savings did you have before quitting your industry job?
66 points by null_ptr on Sept 26, 2013 | hide | past | web | favorite | 72 comments

If you plan on quitting your job, don't just follow what people comment here. The actual amount you need should be calculated yourself, based on your plans.

1) How much money do you need to get round per month.

2) Add a chunk ontop of that for unforseen expenses, broken fridge for example...

3) How long do you estimate you'll be working on your project?

4) Add a large percentage to that estimate for unexpected issues

5) Will you need to make investments? Hardware? Designers? Calculate these figures.

6) Add a month (or 2) to the above, if your project fails to start making revenue, you'll need to find yourself a job - well, depending on how easy it is for you to find a good job...

It's an amount you need to calculate. Don't underestimate.

Then you're ready to roll.

You should also factor in time to get paid. If in your new venture you are going to be invoicing people directly then you should allow at least a couple of months to be paid.

i.e. you say 30 day payment terms on your invoice, but nobody will pay until that 30 days has elapsed, some people will pay you in the 4 weeks after that, and sometimes even with aggressively chasing you will have invoices which are 2 months overdue (i.e. no money for 3 months after they received the invoice)

Also - good one!

This is the way to go (adapted to your circumstances of course)

I did this calculation for myself, and concluded that the only way I have is being fully profitable before quitting my job

Include potential health issues in your unexpected issues if that's possibly calculable for you.

Good one!

This! Everyone's situation is different :)

On the order of $4,000, though in my circumstances it was less risky than that number would suggest, since I already had covered-the-day-job cash flow from Bingo Card Creator and strong odds of successfully filling a consulting pipeline by that point. (I'm not counting my retirement account, which was in the low five figures, since I wasn't planning on touching it for any reason short of "I'm dying in the snow.")

"I'm dying in the snow" hahaha.... Good enough reason, had to comment because it made me laugh right out loud..

I only had about $2000 (half a month's paycheck at the time), but the change in work was prompted by a multi-month consulting gig that was paying in the low five figures over the course of a few months.

My advice is to start looking for work before you leave your industry job - think if it as though you're doing lean testing on your product, except your product is yourself. If you can't find clients while at your day job, then iterate on yourself (website, services offered, your client pitch, how you're looking for clients, etc) and try again.

I have a similar story. I only saved up about $2000 too, but I also had a 1-month consulting gig that would pay me about 5 months' salary. That was enough to spur me to quit my job and start working on my own. I earned over a year's salary in the past 3 months since I quit and haven't looked back since.

Also, I'm 35 years old, so not just some kid who could afford to take risks. Just was never able to save up $ on a salary, went through a few periods of unemployment, and a few of my other startups failed. I'm finally on course to make some real dough and it never would've happened if I didn't quit.

1 year of expenses including rent,healthcare, food ,etc.

When doing financial planning you should always try to save up to 6 months of all expenses. This is hard to achieve but the recommended number even if you are staying at your industry job. You never know what can happen.

6 months is a decent starting point for one-size-fits-all advice, which is why it is the standard context-free recommendation, but I honestly think there are circumstances where you can skimp on it.

For example, in the totality of your personal situation, you might have:

+ multiple independent sources of income + insurance against common forms of risk (e.g. very good health or occupational coverage) + strong non-market safety nets, either via your government or social network + better than average marketability of your skills + a lifestyle which was amenable to belt-tightening in the event of an emergency + access to credit which would survive events likely to cause a hit to your income

I appreciate that there is a wide range of the risk tolerance spectrum represented on HN, and I'm probably towards the "I'd prefer more consistent, smaller returns" side of it, but there are many people for whom six months of savings is underbuying risk given their positioning and preferences.

Seriously, how do you do this?

My family makes a good income, own a modest home, drive 10 year old cars, have $0 debt ex-mortgage and don't do exotic trips. We put 20% away for retirement.

Our baseline cost to live including mortgage, property tax, food & minimal extras is probably around $45k. Our area has a tight rental market, so owning the house is a net money saver.

Other than cannibalizing retirement, building up that much is tough.

When I scored my first job out of school, I moved out into a tiny apartment in downtown Toronto—walking distance from the office. I managed to save about half of my after-tax income for a year and a half which came out to $26k.

No car, no family to support, no travel, no expensive purchases (I remember deliberating for weeks about buying an iPod Nano). Doubt I could have done it with a family to support and multiple cars.

I did have immediately family as a safety net but I covered my own expenses for whatever I needed after moving out, with the exception of a few meals here and there.

My situation was extremely similar, though I had a car and half my salary for the year came out to more like 20k. Two years and a lot of raises later I am maintaining the same lifestyle, still have a roommate + a fairly cheap apartment, and putting away around 70% of my salary each month.

Not having any dependents helps...a lot.

My general philosophy has been moderately upgrade your life style every 3 bumps in earnings- this has led me to live pretty bare bone in a lot of aspects. In my case I was very lucky with my overall earning increasing about 10-15% a year, yet I lived in the same apartment, drove the same car and pretty much only spent money on travel and food (my vices). This also allows you to cut down a lot easier in the case of a pinch.

I don't own but rent - economically in the long run buying would be more advantageous but being able to move in a heartbeat or quit my job to start my own business took priority over that. I am religious about saving cash. Every month before my paycheck (used) to drop in my account I would put a decent percentage into savings - this was after 401k contributions (which I did about ~10%). If i received a bonus at work 90% would go directly to savings either in the form of my personal investment account or cash reserves (with 10% always going to 401k). The remaining 10% was for the family slush fund.

From a financial planning perspective 10% might be low for 401k but I believe I can make my money work harder outside of it. My household cost is similar to yours (~45k), I add 10k to keep sanity (vacations with wife, anniversary presents, etc).

Disclaimer: This is working for a established tech firm paying towards the high end of industry average and working there for 5 years. If you are in a startup your salary is lower and lopsided towards equity so achieving this cushion I imagine is a lot harder.

Well, I'm not sure how I'd do it starting in your situation. When I got out of school I lived in a cheap apartment and took public transit to work, which let me save about half of what I made. I didn't start retirement saving until I had a 1 year buffer saved. Since then I've made sure to always have that much saved when moving to a more expensive place though I haven't upgraded that much.

Currently I put 1/6 of my pre-tax income away for retirement, then put 1/5 of the remaining into savings, and another 1/5 into my emergency/charity account. I donate 1/4 of that account to charity at the end of the year, and I also dipped into it when my apartment caught fire.

I'm probably not going to be able to keep all of this up when I have kids, but I'll be doing it until then.

Most financial planners usually say to build the 6 months before anything else - since if shit hits the fan you're likely to dip into your retirement which has penalties if you're pulling some out early.

I wonder how the penalty + income tax from lower tax bracket for the emergency withdrawal compares to the tax that you would pay at the higher bracket if you chose to take it as post-tax income during your employment...?

Similar. No fancy vacations. No cars. No house. No fancy cloths and only occasional eating out. Only draws are DirecTV, ISP, and phone which I could halve if needed. Put max into 401K, rest of savings in investment fund. Mutual funds are up 71% (yes 71%) YTD. Can easily save that 26K in a year's time, but the reality is when you don't have all the cost sinks of a nuclear family you should save, save, save as that money will grow a ton before you retire over several decades compared to the "shit, I better start investing" thought many people have when they've already gone totally gray.

I think cannibalizing retirement (by significantly reducing how much you save) temporarily is the way to go.

If you make that decision, it also makes it easier because it reduces the amount of money you would need for six months expenses. If you're low on cash, you're less likely to put money into retirement savings anyway (since if it takes too long to get more revenue, you'd have to pay fees to make use of that same retirement money.)


I don't know if it matters but this was in 2000 (and not in SV/SF). I was doing IT/help desk for a UPS call center with a few servers and 75 workstations (on a token ring network!).

We had been doing educational software in our spare time. We landed a couple decent contracts and I decided to quit and go for it (I was also a senior at Cal Poly and quit). At the time, my rent was $400/month and I wasn't married. We found an office for $250/month.

Of course 18 months later things got real tight. After the .com crash, a lot of california colleges got their budgets cut. But we survived long enough to sell the company at the same time a new one started and took off.

I'm sure there's lots of sound advice here and my story shouldn't be a model.

I haven't had a real job since and I'm still a senior ;)

About $100k. It lasted me 4 years. Frankly, I sort of wish I'd had a lot less. I never felt any sort of urgency like "This must succeed."

No regrets though. The last 4 years have been a lot of fun. :)

Did you spend all 4 years on UsableHQ? And why do you think it failed?

About 2 years were spent on Usable, and the other 2 on ... err ... a litany of failed ideas that I didn't much enough effort into. But they were terrible ideas, so nevermind. :)

I had 3 months worth of pay in savings. My plan was to start looking for work if there wasn't enough income to keep me going after month 2.

1 year later and still going strong!

$10k liquid + $15k in withheld taxes the government owes me.

At least 5-8x that in an HSA, 401k, SEP, IRAs, Roth IRAs and tax-advantaged government bonds paying 7.5% that I bought a few months after I cashed out of the Janus fund in Dec 1999. (My broker fired me for that)

I'm going to hold on to those bonds as long as I can, and I'd much rather borrow against the equity of the "home" I own at a lower rate. (I bought the home in cash, so this is my "first" mortgage -- I opened the account when I wanted some capital to take a chance at buying an adjoining property at a tax auction.)

One of the first things I did when I quit was write a check from the heloc to the HSA so I wouldn't have to think about making contributions for it.

It's a little more complex than that because I have two houses on one large lot and my wife's riding academy and the rental income creates a financial situation that's so sweet it's almost a scam. I think last year I got $16k of rent, experienced a positive cashflow of around $14k from it, but the IRS says we made $4.5k of income because of depreciation on our property.

(I have no idea why anybody buys a single family house; as much as muggles make a big deal of the mortgage interest deduction, owning a duplex means you can write off half the principal plus you get a cash flow to help w/ the mortgage and property taxes. Maybe you even get a cool neighbor.)

One key to making this work is that I can get a high deductible health insurance plan through COBRA for $500 a month and that will tide me through until Obamacare comes unless the Republicans defund it. That's important because there really isn't any such thing as individual health insurance in NY. (I'd better write that letter to my Republican congressman before I forget.)

Anyhow, it isn't all roses. I pay $4k a year in taxes for a "persistently dangerous" school that my son goes to where probably 1/2 of the parents w/ college educations don't send their kids to because they homeschool. They haven't had a principal last more than two years so long as I know.

The internet sucks out here too. Github works OK, but it took 30 seconds to create a trouble ticket with the off-brand project management software at my last job, which was one of the reasons I quit. Netflix and Amazon instant video work, but I can't really watch Youtube. I used to use Flickr a lot, but with the latest update it is so slow I can't even use my own photographs when I make a presentation because it takes 1 minute+ to load.

"I have no idea why anybody buys a single family house;"

I can give you a few personal reasons which hopefully resonates with a few others. I prefer having a "detached" home. I dont want the hassle of sharing anything with anyone. That does not mean I dont want neighbors. But I am not interested in hearing when my neighbor flushes their toilet. I like having a backyard with some vegetation. I like having a driveway that I don't have the share (lot of new townhomes do that) etc etc.

Biggest reason: Kids. Yes you can live with them in condos/townhomes etc. but the autonomy/freedom of a single family home cannot be undermined.

It is not always about money and ROI. Life is a lot more than that and this coming from someone who values money a lot.

I've got a kid. There's a kid in the other house.

I grew up in Manchester NH where housing prices are high in the suburbs where I grew up (that's how I traded a 1200 sq ft house for a 75 acre farm with two houses and a barn the size of an aircraft hangar.)

In a really nice neighborhood in downtown (w/ good access to the freeway as well as a local grocery store 2 blocks away, as well as a dunkin donuts and a great ice cream stand not to mention a municipal pool and a beautiful park with a big pond and hiking trails) my uncle bought a huge 3 story house that was "luxury housing" in 1910, lived on the first floor, put up his mother and sister on the second floor, rented out the third floor to one family since at least 1976, finished 1/3 of the basement and built an addition on the first floor, raised 2 kids.

His property values are "depressed" compared to an array of 2 story colonials that were built in 1998 next to the intersection of Rt 93 and 101 (we measured 80 db noise levels outside.) These houses are made of chipboard (we hit "peak wood" 15 years ago and nobody noticed) and they suffered 90% mortality for the yews planted on the foundations because the idiot contractors didn't know that you're supposed to take the burlap bag off yew plants when you plant them.

But I guess they are expensive because of the liquidity premium that you can sell go get an equally bad house in Texas or Las Vegas or anywhere.

this is the only realistic post i saw on here. the people who say they saved 2k before starting their venture are probably 18-22 years old and crashing at their parents' pad.

if you're a grown up, i don't see anyway you can start a venture without a year of savings built up or some sort of income (investments, part-time work, etc). let's say you give your venture 6 months and you fail. you'll need a few months to get yourself a paying job again before you're evicted/foreclosed.

If you're in that situation (can crash at your parent's pad) you should take advantage of it.

Remember now it's not just about "not getting evicted", it is also useful to have working capital.

I have a project I'm working on that will probably cost $600-$800 of computation in a Hadoop cluster in Amzazon AWS assuming I don't screw it up and have to do it twice.

In my situation I can "just do it".

To make an analogy with Poker, you do not want to be short stacked.

I know many "entrepreneurs" have an idea which they could move forward with personal investments in the $50-$5000 range. Instead of making a cool demo or any kind of prototype, they go talking to angel investors and they wonder why they get nowhere.

Somehow though, they manage to find $150 to give to Time Warner and $150 to give to Verizon every month.

For a while, for instance, I was talking w/ people in NJ, CT (imagine a donut centered around NYC) about applications of text analysis in financial services. Lots of talking to investors, but no demo.

I spent about 40 hours and about $12 (domain name) on a demo over the course of six months, which failed. It's material for a blog post. I can say I didn't know anything at all about the problem when I started and now I know something.

Also you really gotta pay attention to taxes when you're self employed. I lost about a year because I owed the IRS and NY about $15k of estimated tax I didn't pay, so I took a job I shouldn't have taken. I can be philosophical about it because I met one of my competitors at a conference and he was bouncing off the walls because he'd spent a year fighting with the technology transfer (prevention) office at his uni.

18-23* :) Use what you have available to you. Took me 6 months and now I'm ready to go. It would have been a significantly harder position to be in otherwise. Before I am even leaving I'm saving up around 20-30k or ensuring a minimum of 4k coming in per month though. A stable income is definitely a must.

Edit: I suck at english apparently.

Wrong question. How much passive income from a side business do you need before quitting your industry job?

I made around $60K/month for a good 2 years from a side project, while still keeping my day job.

Nowadays I make close to $8k/month passive income, and I regret not quitting back then. I could've easily made double the amount if I had focused strictly on that.

What's your side project if you don't mind me asking?

$5,000 is a good place to start

I quit my job two months ago with close to $10k saved up. It's too early to claim success, though. I think location is really relevant. In Pittsburgh, rent is quite cheap, but I'm sure the situation is different elsewhere in the country.

Planning on quitting with 6-9 months of burn (assuming I don't make another dollar). But I'm also planning on putting a startup before freelance/consulting so it might be a while before I start breaking even.

I wish I knew more about these stories. How OLD were you? That's key to me. It's one thing to quit your job when you are 23; another entirely if you are 51. I'm assuming the average age of the commenters below is 28.

There should be a formula that includes terms for age, likely earning potential on re-entry to job market, savings, debt, assets (like a paid-off house), % completion of the start-up project you're leaving for, monthly influx from startup project when you quit, etc., etc. The formula would pop out a single number, the Gutsy Factor.

Number is pretty irrelevant if you're not relating it to expenses. Living with 4 roommates or something for $200 a month is going to take a lot less cushion than if you have a family of 3 and a mortgage.

Numbers can be described, as they are throughout the thread, in multiples of monthly expenses or other types of scales.

I had about $11,000 USD after working for 20 months at IBM, lasted for about year and a half. Best decision ever. =)

What did you do after that?

About $20k, in a mutual fund. Didn't plan to spend it all but I did, quickly. I was working at a grocery store though, so little "risk". :)

As others have said - you need to learn to live cheaply. Savings dwindles amazingly fast when you have no income.

Personally, I dropped my cell phone & cable TV, and got rid of my car. It took about 3 years to get back to "normal" - would never have made it without slashing expenses.

$20k in the bank

$500/mo recurring

negotiating a $15k consulting project

several other potential projects in early talks

Remember that runway = cash/burn_rate. Lowering burn rate was a key enabler: I was able to find a rent-free living situation for a few months and that put me over the edge to quit. I also have a nice safety valve in that at the end of the runway, I don't crash and burn, I walk right back into an industry job.

Because my burn rate is much lower than my former 6.5k/mo industry pay rate, I expect this to go much further than the 3 months pay I have in savings. That said, I'm being conservative and would only commit myself to 3mo terms at the longest for office/rent.

I don't claim to know anything about the sufficiency here, it was just my best guess. Comments welcome :-)

* There are no guarantees, but I received 3 offers @80k+ in 1mo of searching, so I like my odds. On a related note, always prefer data like this to a gut feel of your employability.

(throwaway -- don't need prospective clients seeing my financials)

I had either 3 or 6 months of salary saved up - whatever it is that experts always say. And I'll tell you this, I was super freaked out about money the entire time. I felt like I was just about to go broke almost every step of the way until I landed my first good client. (That took 4-5 months, if I recall correctly.) And I'm a pretty mellow person able to deal with some amount of risk.

If I had to do it again, I'd make sure I had at least one year's salary. Several people have asked, "How is that possible to do?" I wouldn't have been able to do it at the time. Well, all I can say is that it gets much easier as you get older and get better jobs with stock options that are worth something, and if you've been saving for a decade or more. If you're just starting out, it's a lot harder if you aren't incredibly lucky. (Although you also have fewer repercussions if you mess it up.)

First time: about two months salary. I'd just been laid off for the second time in two years, and rather than find another job in the same industry, I decided to try doing my own thing for a while. It was a great learning experience and I eventually came out ahead, but I basically lived month to month for several years.

Second time: about a year's salary in savings, and I had enough revenue to live on by the time I quit my day job. I was probably overly cautious, but my wife was pregnant and I didn't want to blow it.

About $26k, though a good chunk of it was commissions that were still incoming (with no guarantee of receipt).

That said, I think there is a similar concept to the Minimum Viable Product that I'll call "Minimum Acceptable Savings". If you're going out on your own, your job is to Figure it Out. You need enough to be able to start figuring it out, but any more than that and you're stalling the move and ultimately falling behind.

Don't be scared to sell your couch, y'know?

I had almost a year worth of normal income stashed away. Plus my wife's income was also coming in. To be honest that was a really conservative move and not really required. I made a pretty comfortable amount plus had some pretty large side web jobs I helped build up my savings. It was a lot of after hours working though.

Pretty ironic to be talking about this today, because this is a year to the day I left my day job. I still can say it was the best thing I ever did.

I had about my annual salary minus taxes in savings. I also had 2 or 3 contracting gigs lined up.

In addition to all of that, I had zero debt.

Same boat here.

I had about $9k and the expectation that I would do some consulting on the side to help out with expenses. I don't think I'd do the same thing again, because consulting ate up a lot of time that I could've been iterating on my project and that became a large source of frustration for me over time.

I quit my day job this September, with €14,000 ($19,000) in savings. But I already have cybranding.com making some money - and very good reasons to think things will move fast now. Otherwise, having a family to support, I would never have done so before raising some money!

I was making around $3000 before leaving my job (it's very good money for Turkey) and I had $3000 when I left my company. It's been almost 3 months now and I have $1000 more. My project is ready to sell. And we will start selling next week. I hope I can survive.

In my case, I had something like 2,500 saved up before quitting my construction industry related job, moving to Mexico and giving myself 2 months to become a freelance writer. Worked out after all, though it was nerve wracking

Sounds like a material for a story in itself ;)

Hah.. not too much, it was not as dramatic as seemed with my initial post. Mainly full of lots of stress and working fast to keep from starving... and to learn the language quickly.

I think it's better to count in time rather than dollars... I just quit last week with approx 14mo, but I'm just starting so who knows if it was a good move :)

I budgeted about $30k for 3 years off (my wife continued to work), made between $10k and $20k/year from my FemCal app, then went back to work when the $30k ran out.

No regrets.

I never had an industry job. Except when my startups got bought. Straight to a startup out of college, never looked back.

$15,000 in savings $1,600 a month in costs Just quit my job so don't know exactly how long it will last

Wanted to wish ur success in ur adventure - go slay some dragons.

2-3 years worth of living expenses. Should give me plenty of runway to get my business off the ground...

$10,000 savings

I could survive on $2,000 per month.


i should make some of those before i quit my industry job... although i was hoping i would get up and running on the side, and not needing any other peoples money...

i might quit after something takes off enough to need full time attention. :)

my balance was negative 2k. i had to pay a monthly payment to cover that loan and i still quit my industry job because i realised that time was money too. the pressure helped me find ways to survive and i did.

Nothing. I was forced to figure it out quickly or go back to school.

$0. I was stupid, but through sheer dumb luck I made it.

Why do you want to quit your industry job?

$95K. It wasn't enough. My time building my product was cut short by unexpected health problems, which not only accelerated my cash burn, but also made it more difficult than usual to find my next job when I needed it. I landed hard, on my ass, though I eventually got to my feet again.

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