How to Afford an Entrepreneurial Lifestyle: A Comprehensive Guide to Minimum Viable Income

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Episode 150: How to Afford an Entrepreneurial Lifestyle: A Comprehensive Guide to Minimum Viable Income

If you’re like the rest of us, you’ve probably found yourself daydreaming about the life of an entrepreneur: set your own hours, live where you want, make money from passive income while you sleep and wake up to the “cha-ching!” of a cash register as you check your bank account.

As much as you might feel giddy about leaving your day job behind, the truth is that employment provides at least one very attractive feature: a steady income. You have a lot to figure out before you can tell your boss to take a hike, and most importantly you need to know exactly how you’re going to put food on the table.

Okay, so you probably already knew that part. But where is the money going to come from, and how are you going to make it happen? These are the tougher questions, and ones we consistently hear inside the Fizzle forums.

It’s all about your minimum viable income

In many cases, making the leap into a new entrepreneurial lifestyle involves some element of financial risk. Many aspiring business owners are making a comfortable living as they contemplate a new path, and this inevitably means a reduced paycheck to start out with.

But just how low can you afford to go? Some people call it a “spaghetti number”, others like to think of getting to “ramen profitable”, but all of these pasta analogies boil down to exactly one question: how much money do you need to make in order to support yourself (and possibly a family) on a monthly basis?

ask yourself:how much money do you need to make in order to support yourself (and possibly a family) on a monthly basis?This monthly number should not be incredibly comfortable — in fact, it might scare you a little, which is why the word “minimum” is in there — but it should be enough for you to keep the lights on without having an anxiety attack.

Think of minimum viable income (MVI) as survival mode; while you won’t have to stay here forever, you will likely have to do some cutting back in the early stages.

It’s probably lower than you think!

It’s easy to get worked up over the unknowns of starting a new business, and the nagging question knocking around in your brain is probably along the lines of, “But how am I going to pay for everything in my life?”

Our minds invent so many reasons why we cannot afford to take a step back financially: we’ve worked so hard to get where we are, we have a mortgage to pay, a family to support and perhaps a partner who is very opposed to the idea of short-term turbulence. The prospect of figuring this out is so overwhelming, it’s no wonder most people quit before they’ve even begun.

Here’s a crucial piece of the puzzle: “all the expenses in my life” is not a number. As is the case with most of our fears, putting a real name on it renders it far less scary. Unless you already have a very tight handle on your day-to-day spending, it’s likely that two realities can work in your favor:

  1. You have more financial wiggle room than you imagine right now (because you haven’t really evaluated your true expenses yet!) and, thus,
  2. You don’t need as much as you think you do in order to make this work.

Yes, there will be sacrifices to make here, but know going into this that you might just be pleasantly surprised at how possible your dream is once you’ve ironed out the true dollars and cents.

Step 1: Determine Fixed vs. Variable Expenses

In order to determine your minimum viable income, the first step is to gather up all of your expenses, sit down with them and put them all in one place. A simple Excel or Google spreadsheet will do the trick here as you just need to create two columns — one for the name of the expense (i.e. “mortgage”, “car payment”, “groceries”, etc.) and the second for the amount of money you’re spending on average in each area every month.

For right now, make this exercise about the current state of your spending. You aren’t making a budget for yourself by estimating how much you think you need in each category, but instead you are simply recording what you do on a monthly basis currently.

Once you have all of your expenses laid out in front of you, it’s time to differentiate between fixed and variable.

Fixed expenses do not change month after month. They are rigid, predictable and always stay the same. Examples include your rent or mortgage, cell phone, internet or cable bills and car, student loan or minimum credit card payments. Gather up all of your fixed expenses and arrange them together or mark them with a special color.

Variable expenses, on the other hand, fluctuate or vary month to month depending on your habits. This category would include things like groceries, gasoline, entertainment, clothing, dining out and travel. Just like we did with fixed expenses, find a way to visually group your variable costs.

Every expense you incur should fit into one of these two categories. If you have trouble figuring out where something belongs, ask yourself, “Am I able to influence this expense each month, or is this a standard cost I’m incurring every month?”

Step 2: Trim the Fat

Now that we have all expenses sorted into fixed or variable categories, it’s time to pinpoint any financial wiggle room that will make attaining your MVI that much easier.

Total up all of your expenses as they sit in your spreadsheet right now. Jot that number down, then turn your attention to the variable expenses. Take a hard look at these numbers, because they’re the ones we have the most control over and thus are the easiest levers to pull when it comes to lowering our financial needs.

Are you surprised to see how much you spend on dining out at restaurants? Do you find that you are throwing a lot of groceries away and could more carefully plan your meals to lower the bill? How about nixing the monthly manicure in the short term?

For example, when my husband and I did this exercise and looked at our variable expenses, it dawned on us that we were spending tons of money on entertainment between dinners and drinks out with friends, frivolous Uber rides and mindless debit card swiping on things we just didn’t need.

I still don’t earn quite as much as I did before, and yet we have paid down an aggressive amount of debt in the last year and are now saving money month after month. We didn’t give up our social lives, but we did consciously decide to become more intentional with the plans we choose to make. We didn’t go on a big vacation this past year, but we did make time for fun, rewarding adventures together around our hometown.

Living on your minimum viable income doesn’t mean you can’t have any fun whatsoever, so avoid getting too ambitious and slashing your spending down to zero. Instead, look for the small adjustments you can make that will add up big.

Note: we’ve created a 3 month email series to help you build your runway. It’s free and simple. Check it out here.

Step 3: Get Creative

At this point, you should evaluate how much you’ve managed to shave off of your monthly number by playing with your variable expenses alone. It’s quite possible you’ll feel pleasantly surprised by your MVI already!

But, if it still seems impossibly high, you might need to take a harder look at fixed costs. How creative can you get? Is your cable TV package worth putting on the chopping block if it saves a grand or two a year? How about your living situation? We’ve known aspiring entrepreneurs who chose to downsize their homes, move to a cheaper area or even move in with parents if that’s what it took in order to be successful.

Becoming an entrepreneur does not need to be synonymous with “miserable”, and we aren’t advocating pursuing your business ideas at all costs. But the fact remains that, for some people, these are viable options when they open their minds and seriously consider it.

Step 4: Do the Math

After evaluating your expenses and making adjustments where you can, you’re left with your own personalized minimum viable income number. But the questions still remains, “How will I get there?”

Now that you have a real monthly number to work with, we can start playing around with different strategies to back into that number.

A few strategies if you need to hit MVI, ASAP

Stay motivated & build your runway — a free 3 month email series

Figuring out the financial end of entrepreneurship feels daunting at first, but identifying your minimum viable income and designing a manageable path to earning that monthly number will help beat overwhelm and keep you moving forward. You might not be sipping Mai-Tais on your private island just yet, but this is the first step towards the business and lifestyle you dream of.

If you’re worried about staying motivated about budgeting to hit your MVI you’re not alone. So we created a simple email series to help you build a runway for your business in two ways:

  1. We’ll send you reminders to look at your finances every month for 3 months.
  2. We’re going to help you stay motivated throughout those three months.

Learn more about financial runway email series

We recorded a podcast episode about this!

Steph’s article above prompted us to do an entire podcast episode about MVI. If you want some more details, subscribe in iTunes or listen here:

Show Notes:

Expense Tracking Tools Mentioned:

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