One key lesson has been absolutely crucial for me in the past 18 months of self employment: the importance of having financial breathing room.
Creating financial breathing room involves making sure you have enough money in your savings account so that decisions made about your business (and/or life) are not reduced to all-or-nothing outcomes.
In order to make bold decisions, you need some runway. In other words, you need some room for error. The worst possible position you can put yourself in is needing to be right. In life the only certainty is uncertainty: you never really know what’s going to happen. You need to be able to fuck up without the consequences being lethal.
You need to put yourself in a position where it isn’t all-or-nothing.
Consider: if you’re a military commander with your back to the wall, not enough troops and a fierce and well equipped enemy, you have a lot on the line. If you make a mistake, you’re screwed: you and your troops are dead.
And for most people, it doesn’t have to be this way.
But here’s the problem: most people make it so that it’s all or nothing.
They over extend their financial means with mortgages, car loans and (unnecessarily) expensive lifestyles. Or they decide to have children or get married, even when their bank account balance is screaming “not yet.” Suddenly they’ve put themselves in a situation where it’s all or nothing. If they drop one of the many plates they’re trying to keep spinning, they’re screwed.
That’s why the first step to escaping the rat-race is to put yourself in the position where you don’t need to worry about these things. You need to get rid of your credit card debt, pay off student loans and reduce your living expenses. You need to have money in the bank before you take the leap and start doing your own thing.
Why is it so important? Because it gives you the room to experiment. It means that the risks you take in terms of career, travel and/or business don’t need to be home-runs. It means you can go 3-6 months working on a project that doesn’t work out and not have it kill you (financially, mentally… literally).
Doing your own thing (freelancing, consulting, entrepreneurship) doesn’t have to be risky. People make it that way by manoeuvring themselves into positions where they need a monthly pay check to get by. It’s been said before that a pay check is like a drug. Once you’re addicted to it, it’s almost impossible to kick the habit.