Transition From the Corporate World to Your Own Business – Lessons Learned

Today’s post comes from Mr. Credit Card of www.askmrcreditcard.com. He read my story about how I went from earning six figures in a corporate setting to being an entrepreneur. He’s been through a similar situation is here to share it with us.

I read Mrs. Frugal’s life story and it really resonated with me. In this post, I’d like to share my journey away from the corporate world and my transition to entreprenuer. I started my career about sixteen years ago working in the financial industry. After a few years I was earning a decent amount. Mrs. Credit Card was also working. Life was great. We were living alone, no kids and few responsibilities

There were advantages to our situation.

• We could spend freely – You can afford certain luxuries when you don’t have kids or a mortgage. We could eat out if we wanted. We could buy stuff if we wanted. Mrs. Credit Card could go to the nail salon and spa anytime she wanted. Yet despite being free to spend, we never got into credit card debt. In fact we saved and pretty soon had a decent emergency fund.
• We could travel often – Another benefit of renting and not having kids was that we could travel often. We both held sales jobs. I was given a company business credit card from Amex. I also got the same personal American Express Credit Card and with all of my business travel I managed to rack up a lot of air miles. That was a great perk of being a salesperson!

But there were downsides to our lifestyle too.

• We both worked very long hours – Very often, Mrs. Credit Card worked on Saturdays. And I would be so tired on Saturdays that I would sleep until noon. We were always tired over the weekend.

In 2004 we started a part time business. We started it even though I had a job. It was challenging because, despite my long hours at work, I had to put in extra effort on the new business when I got home. And it took perseverance. The business didn’t really take off for three years.

A couple years later, I was laid off and was out of work for nearly 10 months. These 10 months were a real eye opener in terms of how fast money drains from your bank account. Before we were kid free and renting, but by the time of my layoff we had three kids and a mortgage. We were running through our emergency fund like crazy. We found we had to cut back on many things. Here’s what we did.

Cut back on eating out – Eating out was cut back to a minimum – only for special occasions.

Stopped taking vacations – If we wanted to go to the beach, we would get up early in the morning for a two hour drive, enjoy a day there and then drive home later that same day.

Cut back on unnecessary expenses – We also cut back on luxuries like going to the movies. We downgraded our cable service and canceled magazine subscriptions.

During this time of unemployment I essentially drained 10 months worth of expenses from my emergency fund. It is not a pretty sight seeing your bank account dwindle every month! But the little side business that we had started was beginning to grow and was bringing in decent income. Hence, I was slowly able to rebuild my emergency fund. A couple of years later I was able to move away from the corporate world and focus on our business full time. The transition was smooth. There wasn’t any anxiety about where the money was going to come from, it was already coming from our side business. That was the benefit of seeing a second income grow.

There are several lessons that I have taken away from my experience in the corporate world.

You need a larger emergency fund than you think – Dave Ramsey says people in debt should have $1000 in an emergency fund. Suze Orman recommends you have at least 3 months living expenses. Mrs. Frugal has also written a post about what size emergency fund you should have. I advocate having at least one year’s worth of living expenses in your emergency fund. In my experience you can be unemployed a very long time. I have friends that were unemployed for a couple of years. That emergency cushion was very important for me. What is also not known to most is that when you are unemployed, you have to take care of your own COBRA health insurance payments as well as life insurance premiums if you decide to continue with company coverage.

Having a decent emergency fund allowed me to continue to pay my credit card bills in full (I did not have to tap any extra credit lines) and therefore maintain my credit history. And since I was still paying in full, I continued to rack up reward points!

Having an alternative income is so important – I wished my side business had taken off sooner. But having an alternative (together with a large emergency fund) is so important. This may not apply to everyone, but if your job does not require insane hours, make some sacrifice and think of ways to build an additional income source. It could be part time consulting or freelancing. But if you have this in place, you will have a better cushion should your primary source of income go away.

Do not quit your day job before you have an alternative income source – This advice is controversial, but for folks like me who have kids and have a mortgage to pay, this is probably sound advice. For a twenty something who is single and rents, then yeah, you could find ways to live cheaply and go make your business idea a reality. But for most folks, my suggestion is probably the safer way.

Don’t invest in the stock market until you have enough emergency funds – I see many young people make this mistake. They get a few thousand dollars in bonus and want to invest it. They frequently ask for advice like “if you have $10,000, where would you invest it?” Wrong question. They should put it in their emergency fund until they are satisfied that they have an adequate cushion. Only then should you even think about investing.

Networking with peers is your best chance to get back into the market – There are lots of internet job boards around. By and large I have found them to be a complete waste of time. Your best bet of getting another job is through networking with your peers. In fact, it is best to build industry wide relationships when you actually have a job.

Ask yourself if your plan B is in place – I’ll end this post by asking you if you have a plan B in place in the event you lose your primary source of income – it could be due to a layoff, illness or some other circumstance. How many months emergency fund do you have? Do you have an alternative income source? I urge you to think about these issues and have a credible back up plan.

To end, I encourage you to share your stories with us in the comments below.

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Tagged as: Do What You Love, Goals, Money Management