Manage Your Personal Finance Like a Startup - Guide for Layoffs & Side Hustles

The recent?spate of tech layoffs?reminded me of my own unemployment experiences, both deliberate and forced. Regardless of circumstance, once that ready source of income was cut, I began to treat myself like a startup that obsesses over cashflow.

Or framed another way, a venture capitalist who invests in myself.

The latest instance was in 2021 when I left my cushy tech job to?become a creator. To prep for the jump, I did a full audit of my personal finances to determine how many months I could pursue the full time YouTuber life without a day job. More importantly, this mindset helped me let go of my previous company as the source of professional identity.

Thinking like a startup

Thinking like a startup means being aware of your monthly?income?and?expenses. Here’s our only math to solve today:?Income - expenses = cashflow?(i.e. how much money is going in or out every month ignoring savings).

If your cashflow is positive, then you can remain happily “unemployed” indefinitely.

If your cashflow is negative, then you’ll need to calculate how badly it’ll impact your?savings.

This brings us to the concepts of “burn rate” and “runway”. According to?Investopedia:

“The?burn rate?is the pace at which a new company not yet generating profits consumes its cash reserves. The burn rate is typically calculated in terms of the amount of cash that the company is spending per month.”

And?runway?is?“how long the company has before its operating capital?(i.e. your savings)?is exhausted; a higher burn rate means a shorter runway.”

In other words, runway allows us to think in terms of time, which cuts through?a lot?of noise.

I’ll present two scenarios.

For the newly laid off

If you’ve been laid off, your runway determines how long you have to:

1) Wait for economic conditions to improve.

2) Apply and interview for jobs.

3) Upskill and make yourself more competitive for said jobs.

4) Find a role that’s?fulfilling and sustainable.

It’s also how long before you run of money and have to move back with the parents.

For those who need a change

If you’re thinking of taking a sabbatical or in my case, trailblazing as a solo creator, then runway is how long I have to:

1) Travel, network or explore new fields and roles.

2) Explore various content types, grow my following, and find ways to make my endeavors financially sustainable. This is the equivalent of a startup hustling to discover “product-market fit” and the right business model to generate revenue.

How I did it

Yes - I?started with a mind map??? and then migrated everything into a?spreadsheet.

I tabulated my monthly income, which included rental income from my own apartment and meager YouTube AdSense dollars that barely covers my cafe fund (I almost exclusively work out of coffee shops). If I were laid off, I would add unemployment benefits and, if applicable, severance pay.

On the expenses side I added up rent, food, transportation, insurance, subscriptions, daily coffees, a misc buffer for discretionary spending and emergencies.

Finally there’s my cash reserves which included 1.5 months of post-tax salary (I gave my employer a generous 6-week notice), annual tax refund, and money in the bank.

Here’s my table:

Furthermore, these two mindsets helped me detach from the most painful things to abandon from our 9-5 jobs: 1) the steady paycheck and 2) our identity that’s tied to the company and role.

Combined with this new reframing around time, I saw my endeavor as an investment within a limited scope, giving me huge urgency to run as aggressively as possible knowing that I had a shortening window for exploration and execution.

Growing your runway

The most powerful thing about this model is how we’re able to grow our runway by tweaking either expenses or income.

Let’s start with expenses because it’s?far easier to reduce our costs than to increase our revenue, especially in the short term.

San Francisco is a very expensive place to live. Rent is by far my biggest cost. I could move to another city or state and easily cut my expenses by nearly half, which would double my runway, giving me over 2 years to grow my business.

Just to give you some perspective, if I had full mobility and could move to say Bali or Taiwan, my expenses would go down to just $1,200/month (while living very comfortably) and my runway would increase to 11 years!

Okay back to reality. Assuming I were to remain in SF, I can also work part time with my previous employer. If my coaching practice picks up even a bit, the increase in revenue drastically lowers my burn rate and prolongs my runway to 3 years.

Given how aggressively I'm growing my business, this is a conservative estimate as I intend to reach profitability long before my time is up.?Doing this exercise gave me immense comfort in knowing that I have options in controlling my expenses, income and time while working on myself, which honestly is the best investment I can make.

If you want to play with this model, feel free to?make a copy?and plug in your own numbers and scenarios.

I’d also love to know in the comments ??

• What would you do if you could take a year off from your current job?
• How can you grow your runway to keep yourself in the game?