You DON’T need a big emergency fund to start a business
For a lot of people, when they ask, “How can I start a consulting business?” they assume that they need a big load of cash in an emergency fund–generally about 3-6 months’ worth of their current salary. This is a popular assumption, and given that it takes most folks a long time to save that much, the result is that you end up never starting a consulting business.
I’m not arguing the merits of an emergency fund–you absolutely need one. But, if you want to quit your day job, you DON’T need an emergency fund of 3-6 months piled up.
You need a reliable minimum monthly income
That’s a mouthful, but what it means is that you need to figure out what your monthly expenses are (feel free to pad it a bit to allow for unexpected expenses), and then use that as a guide for your monthly consulting income. If you can make at least that much each and every month, then you’ll be able to quit your day job.
When you run the numbers, you’ll also need to keep in mind that being self-employed, you’ll also have to self-fund things such as payroll taxes, health insurance premiums, retirement, etc. Those items can quickly add up, but don’t despair–plenty of people have been able to start a consulting business and end up earning (and keeping) significantly more than they earned at their day jobs.
Start a part-time consulting business
I know: you want to quit your job NOW. Well, the truth is that you’ll likely end up transitioning to full self-employment instead of quitting your job all of a sudden. You need to build up a client list and establish consistent income before you can fend for yourself.
After leaving a full-time job at a software company, I had another full-time job, this time at a non-profit. When I took the job at the non-profit, I also created my consulting s-corp, and started consulting part-time. At first, the extra money was nice, and I didn’t really think about being completely self-employed, since I liked my work at the non-profit. However, as my consulting business grew, I realized that earning more money could bring more freedom, and saw that my time spent at my day job was beginning to get in the way of how much I could make consulting. At that point, I went down to half-time at the non-profit and started spending more time building my client list and getting more consulting work. After 3 months being part-time at the non-profit, I left completely and have been completely self-employed for going on 4 years.
So, my transition from day-job to self-employment didn’t seem risky, because it was gradual, and I had the consistent minimum monthly revenue to pay my living expenses.