Spend for your Next Job
Lots of people talk about startup burn rates. But there isn't quite as much said about personal burn rates. But if you want to accomplish anything in your life, managing your personal burn is far more critical. Lack of control over personal finances is the biggest reason why people who want to start companies don't. It's difficult (often impossible) to do a startup the right way while managing a full-time job. But quitting the day job cold-turkey is pretty much impossible for most people. Why? Well, expenses have a strange way of rising to meet income. It's a rule with spooky consistency, especially in a city with so many opportunities to spend money like San Francisco or New York. People who make $50K a year tend to spend approximately $50K, and people who make $200K a year tend to spend $200K. And from from what I can tell, people who are used to making $200K don't "feel" remarkably wealthier than people who are used to making $50K.
But since expenses tend to scale to meet income, we spend for the job we have. We lock ourselves into apartment leases, phone contracts, credit card debt, car leases and lifestyle expectations based on our current salary. And that sucks, as our material obligations lock us in to work that we don't want to do forever. Thus, I propose a new rule of personal finance: set your expenditures to meet the anticipated salary of your next job.
If you are planning to leave the corporate world to start your own company, cut your personal burn now. Move into a cheaper place. Ditch your cable TV and your car. Stop going out to expensive dinners. Suddenly, you'll find that your job becomes a lot more of an option and a lot less of a necessity. Then, you're free.
And from my experience, you won't feel much poorer.
Oddly, I think this principle actually works in the other direction as well. If you are solidly on the corporate track and are expecting a promotion to the next rung on the ladder (and salary level), spend a bit more than you would otherwise. Keep following the rule -- set your spending to the salary of your next job. Lock yourself into an apartment that is slightly nicer than you can afford. Make yourself a little desperate to have that raise. This is, of course, counter to most of the personal finance advice you'll read out there. But I think most of the people dishing out financial advice for a living are more interested in telling you want you think you should hear ("Clip coupons!" "Don't go to Starbucks!") than something actually meaningful. Necessity on the path to desperation can go a long way to making meaningful things happen.
But so can freedom from material obligations. If you are unmarried and without children, loans or serious health issues in New York or San Francisco, it is entirely feasible to lower your monthly personal burn rate to $1500 - $2000/mo. I know people who have gone lower -- the lowest I've heard in NYC is approximately $900/mo -- but I wouldn't wish that lifestyle on anyone. And you can reasonably make $2000/mo by tutoring on weekends, waiting tables on Friday and Saturday nights or doing some very part-time development work -- which leaves the rest of your time to make startup magic happen.