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:
- You have more financial wiggle room than you imagine right now (because you haven’t really evaluated your true expenses yet!) and, thus,
- 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.
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.
- If you have a runway, factor it in. Some entrepreneurs come to the table with a “runway”, or cushion of savings they can rely on to help them offset that minimum viable income for a few months. If this is a possibility for you, figure out how many months your runway buys you, or if you can use a portion of the savings each month to fill any gap between what you’re earning and what you need.
- Explore business archetypes to figure out your revenue model. If you’re wondering how you’re going to make money with your business idea, spend some time studying up on different revenue models by exploring business archetypes. As you make a plan for reaching your MVI, understanding the different models available will help you figure out how to monetize.
- Start running the numbers. Armed with your monthly number, this is the part where you begin to play with prices and gain an understanding of just how many workshops you would have to run or widgets you would need to sell. If you’re a Coach or Freelancer, toggle your client prices in order to see how many sessions you need to book. As a Teacher or Maker, work backwards from your MVI to determine the number of ebooks or pieces of jewelry you need to sell.
- Experiment with mixing services and products. While we recommend focusing on one service offering at a time in the beginning, you can start to plan for the future by envisioning how you can work in an additional income stream. For example, if you plan to offer coaching sessions, you might decide to put together an ebook in the future based on the lessons you teach in your individual sessions. If you’re able to sell 40 copies a month at $25, you won’t need to run as many coaching sessions in order to hit your monthly number. As you start imagining your future business state, our free one page business plan worksheet can help.
A few strategies if you need to hit MVI, ASAP
- Consider 1 on 1 work. While you might ultimately wish to sell products on your website that don’t require trading dollars for hours, you may be able to reach minimum viable income faster by working with clients 1—on—1.
- Hit your network hard. If you’re working with a time crunch and you need to hit MVI fast, it’s time to dive deep into your rolodex. Reach out to your network and use social platforms like LinkedIn to dig up some work. In these early innings you’ll need to hustle & sell, so take it one prospect at time.
- Don’t neglect referrals. Once you do start working with clients (or having conversations with potential ones), always ask for referrals. The difference between having another project to work on or not could lie in simply asking for a new lead, so build this practice into your process.
- Consider a second source of income. When all else fails and you’re desperate to hit MVI, you might need to think about a second source of income, sometimes known as a “bridge job”. Get creative and find out whether it’s possible to reduce your hours in your day job, or consider whether some part time work would allow you to keep building your business without the mental strain that full time work brings.
Stay motivated & build your runway
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.
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:
- What To Do When You Need To Get To Minimum Viable Income Fast (FS139)
- “Back to Square One.” Rebuilding a Freelance Career
- “When I started my first business I lost my wife, and it was worth it.” (FS145)
- 5 Reasons Why I Quit my Business to Pursue my Dream Job (FS144)
- Personal budget – Wikipedia
Expense Tracking Tools Mentioned:
I’ve taken a lot of courses and been involved in several paid communities since I started my business, but I’ve never ever felt like anyone CARED as much about seeing my reach my goals as the Fizzle Team. They show up for me as much as I show up for myself. Thank you SO much, you guys!
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