“I’m afraid to quit my ‘real job’ and risk my financial life on my ‘side hustle.’”
That’s what an entrepreneurship student said last night after I spoke at a local university. Let’s talk about what keeps you financially “safe” and what doesn’t.
Financial security is made up of 3 things:
- Savings – often referred to as “liquidity.” Basically, how much money can you get your hands on today if you needed it.
- Income – Referred to as “cash flow” by the cool kids. It’s simply how much money you have coming in each pay period, month or year.
- Diversification – This is common sense. Just don’t keep all of your eggs in one basket.
Let’s break it down.
Obviously, one way to increase your financial security is to pay off your debts and build a savings account. If you have a year’s worth of your expenses saved up in a bank account, then you are probably fairly secure and could leave your 9 to 5 and try out your new hustle… at least for a year.
I don’t know about you, but income sure helps out around my house. If that comes from an employer every 2 weeks, a collection of Airbnb rentals, or from multiple clients in my side hustle, it’s a good thing. The point of income is to keep your expenses paid without going into debt or dipping into savings.
Most of us understand the idea of diversifying our assets like retirement accounts or even what our grandparents used to do by stashing cash in multiple locations around the house. It’s just good common sense to take precautions against one investment or location going bad.
Unfortunately, many of us don’t think this way when it comes to our employment income. We feel secure working for one company because we can count on a paycheck. This is usually because the company we work for seems more financially secure than we are. They take the uncertainty of getting paid out of the equation by guaranteeing us a paycheck every 2 weeks. It’s a great feeling, but unless you control the decisions to hire, fire, layoff, downsize, etc., you are not secure. You are simply relying on a single source of income. You are under diversified.
As an entrepreneur, you would never want to have only one client. That is way too much financial risk. But that is exactly what one employer is. An employer is a client. You interviewed for the job. You got the gig. Now you have one client… and only one source of income. Hmmm. Diversifying our income streams into different clients or products is super-important, right? So why do we feel so secure with one employer client? Beats me! Maybe it’s just the way we’ve always done it.
If you want to quit your “real job” to pursue your passion, have more time to play, get rich, save the world, or just to shake things up a bit; you need to create financial security. It makes all of those things way more fun!