When Should You Quit Your Job To Run Your Side Hustle?

A dream for many people is to build a side hustle or an investment portfolio into something so great it can replace their work income and allow them to quit their job. This is what gets a lot of people through the hard slog of working in their spare time and on weekends on their side hustle and investments. Once that dream starts to become more real, is there a time when to quit your job to run your side hustle or online business & investments? 

In most cases this doesn’t usually occur overnight, there is usually a reasonable time frame to prepare for this or at least enough time to give you options on what you can do with your time and financial situation going forward. Let’s discuss some of the points to go through to determine whether you should quit your job and if so when to quit your job.

1. What are your monthly (or annual) lifestyle expenses?

We’ve discussed this point in previous articles however in short we believe people should know approximately what their monthly (or annual) lifestyle expenses are off the top of their heads (at least to the nearest thousand). In our experience we’ve found that more financially successful people are on top of this as well as having an understanding of monthly/annual household income (including that from investment and outside business sources) as well as approximate asset valuations and debt levels. 

If you don’t do this, find this out as soon as possible and possibly look at setting up a budget. If you are looking to get on top of your finances or at least to have some structure towards these we suggest you look at automating this or setting up your own version of a personalized automated financial hub. 

If you have a very limited understanding of your debt levels and the valuations of any assets we recommend you investigate this as soon as possible or even undertake a personal financial audit and we also recommend you look at setting financial goals. 

Don’t forget to add personal retirement plan contributions and possible additional medical insurance/costs to your budget/future lifestyle expenses given you will need to fund this in most cases once you leave paid employment. 

Once you’ve got a detailed understanding of how much it costs to run your household each month/year you can then determine the level of revenue needed from your side hustle, online business or investments.

2. Build your emergency fund

Everyone should have an emergency fund, the better your financial situation the more will be in your emergency fund. We suggest an initial emergency fund goal should be to save at least 3 months of your basic lifestyle expenses. The more your financial situation improves, look to have 12 months of (decent) lifestyle expenses. 

This emergency fund should be separate from any transaction accounts though you could offset this against a loan account should your financial set up allow this. 

Following on from the above point about knowing your monthly/annual household expenses this will then allow you to set your emergency fund goals. 

Once you’ve got up to or exceed 12 months of lifestyle expenses (with your outside income getting close to the income provided by your job) you are getting close to the time to decide whether to leave your job and go full time with your own efforts. 

3. What is the revenue generated by your side hustle or investments?

Now that the money is starting to flow from your side hustle, online business or other investments, how much is it and how close is it to your current salary? How has your monthly investment income been tracking over the last 6 months?

Based on the way this is tracking, how soon does it appear that it will surpass the monthly amount that you earn from your current job? 

If this increase in outside income tracks steadily from month to month (other financial points aside) you can make plans to leave your current job. 

Don’t forget to take into account the source(s) of the income that you earn from other sources. Is this revenue spread across several sources, such as several online businesses or websites or investments? Or is this source from only one additional source? Diversification of income streams offers a cushion to you if something happens to your side hustle, online business or other investments.

4. Worst case scenario planning

What happens if your side hustle, online business or investment income decreases substantially once you leave your job? 

Never do your planning on a best case scenario, we suggest you plan for the worst and expect the best. 

What happens if you lost half your clients or your website portfolio lost half its traffic or revenue overnight? If you have sufficient emergency funding/savings in place, if a worst case situation happens then it’s a lot more likely you will be able to weather a financial storm like the examples above.  

Having an emergency fund in place with at least 12 months of lifestyle expenses should be the minimum. Prepaying some of your regular bills or utilities for the next 6 to 12 months or even paying extra debt repayments could be a suggestion. 

Before you leave your job, you could also look to see if your employer provides or offers additional education or courses that can boost your qualifications and experience in the case of you having to go back to work.  This additional education/courses (hopefully they won’t be needed) could even allow the option for consultation services should you wish to add another income stream. 

5. Max out your retirement fund contributions

As we mentioned above, your improved financial situation due to your business or investment activities is unlikely to occur overnight and will likely give you plenty of time to plan. 

As part of the planning process once your outside activities/investments are providing more income to your household (and assuming you have taken care of emergency funding and debt repayments/additional investing) it may be worth your while (both tax wise and benefit wise) to look at allocating money towards your retirement account/fund. 

Whether this is matching and maxing 401K benefits or maximizing benefits to a pension or superannuation account whilst you have surplus cash flow to see what is best for your situation in the lead up to leaving paid employment.  

Another suggestion could be to increase debt repayments (if applicable) in the lead up to you leaving your job.

6. Have sufficient health care, insurance, legal planning, etc in place

Depending on which country you live will determine the amount you will need to fund any medical/hospital bills. Some countries offer universal health care (or at least basic health/hospital cover in an emergency) whilst other countries require significant money to be paid for a health/hospital emergency. 

If you are living in the US as an employee, it’s likely your employer has a decent medical plan that you would lose access to once you resign your job. Medical costs can be a huge financial impost and if something goes wrong with your health or you become ill with a serious health event such as cancer, a stroke or heart attack, or even a debilitating illness this can sink your personal finances real quick! 

Medical costs are one of the biggest burdens to a person’s financial situation and are one of the biggest causes of bankruptcy in the U.S. Plan for this before you think of leaving your job if you are in this situation. 

Also make sure your insurance situation is also sorted before you leave your job. Do you have personal insurance in place? This doesn’t just mean your home, contents or car insurance. This means sufficient life, disability, income protection and business insurance to make sure that if you do move full time into your own gig that your (and your families if applicable) financial circumstances aren’t affected by an unexpected event or a health crisis occurring. 

For those looking to take out a loan or additional borrowings after leaving their job you may have restrictions due to being classified as self employed so bear this in mind before leaving your job. 

7. Reducing your hours or going part time

After taking all of the above into account and having readied your finances for leaving, you might prefer to keep your current job but would like to reduce the time. This could mean reducing your work week by a day or even going part time but you have the confidence that you are still receiving a regular paycheck and receive all the relevant benefits for being an employee. 

This extra time off can be used on your side hustle, online business, outside investments or it could be used as time for yourself and your family. Try this part time work and once you are more confident after working reduced hours you can eventually quit.

8. Keep your job if you enjoy it

For some people, they really, really enjoy their current job and the people they work with. No matter what success they achieve with any side business or any investments they will want to stay with their current job until they reach retirement. 

If this is you, great, keep doing what you are doing. You are in the minority of doing a job or working for a company that you love! 

Building a side hustle, online business or successful investment portfolio is all about choice. If you are generating a great income from these then you have the choice to do what you want with your time and if you choose to keep working at a job/employer you love then keep doing it. You might want to look at reducing your hours or going part time however it’s your life so do what you want! 

There’s no right answer for when you should quit your day job and move on to run your investments or your side hustle that becomes financially successful. With the right set up, planning and following some of the above points you will allow yourself the best chance of financial success once you make that decision to leave your job! 

Just take steps to cushion any potential financial blow if your investments or own business struggles (or fails) once you’ve quit your job or plan for the worst and expect the best and go out and do something great!