How To Take Your Side-Hustle Full-Time with Morgan DeBaun
On the Money Rehab podcast, Morgan DeBaun provides strategic guidance for transitioning from a full-time job to entrepreneurship. She advocates starting a business as a side hustle while still employed, then supplementing business income before fully relying on the new venture. DeBaun emphasizes financial planning and management during this process, including building savings, separating personal and business finances, and maintaining diverse income streams like consulting or speaking fees.
She also shares insights on challenges entrepreneurs face, such as securing a mortgage with less predictable income. DeBaun's tips cover demonstrating financial stability through assets, savings, and understanding the specialized lending process as an entrepreneur. The conversation offers a pragmatic roadmap for pursuing entrepreneurial ambitions while mitigating financial risks.
This is a preview of the Shortform summary of the Jul 1, 2024 episode of the Money Rehab with Nicole Lapin
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1-Page Summary
Transitioning from a full-time job to entrepreneurship
Morgan DeBaun advises those looking to start a business to transition slowly: keep your job and start the business on the side. Once the business has momentum, supplement business income with consulting or side jobs before fully relying on the new business for personal income.
Financial planning and management for entrepreneurs
DeBaun emphasizes separating personal and business finances early on for clarity and tax benefits. Build up a 3-6 month safety net before leaving your job. Prioritize investing in yourself and your skills over cutting personal expenses, as time and well-being enable income generation.
Entrepreneurial challenges, like getting a mortgage
Lenders scrutinize entrepreneurs' debt-to-income ratios more closely. DeBaun advises demonstrating financial stability through assets, savings, side hustles, and consulting a mortgage broker upfront to navigate the complex process.
Maintaining multiple income streams and separating personal/business finances
Per DeBaun, ensure diverse income sources like consulting, speaking fees, and investing personal assets. Maintain dedicated accounts and filings for personal vs. business finances to ensure clear records.
1-Page Summary
Additional Materials
Counterarguments
- Transitioning slowly from a full-time job to entrepreneurship might delay the full potential of the business due to divided focus and limited time investment.
- Relying on consulting or side jobs can be risky if these opportunities are not stable or distract from the core business objectives.
- Separating personal and business finances is important, but for some small businesses, the initial overlap might be necessary due to limited resources.
- Building a 3-6 month safety net is ideal, but not always feasible for everyone, especially those with limited income or high expenses.
- Investing in oneself is crucial, but entrepreneurs must also be cautious not to overlook the importance of managing and cutting personal expenses to extend their financial runway.
- While lenders do scrutinize debt-to-income ratios, some entrepreneurs may find alternative lending solutions that are more accommodating to non-traditional income streams.
- Demonstrating financial stability is important, but not all entrepreneurs will have significant assets or savings when starting out, which can make traditional mortgage approval challenging.
- Diversifying income sources is wise, but spreading oneself too thin across multiple ventures can lead to burnout and reduce the effectiveness in the primary business.
- Maintaining dedicated accounts and filings is good practice, but for very small businesses or sole proprietorships, the added complexity and costs of separate filings might not be immediately necessary.
Actionables
- You can create a visual roadmap to track your transition from employment to entrepreneurship, including milestones for income, savings, and skill development. Start by drawing a timeline and mark the points where you aim to achieve specific financial goals, such as having a certain amount in savings, reaching a target income from side hustles, or completing a course to enhance your skills. This visual aid will help you see your progress and stay motivated.
- Develop a habit of weekly financial check-ins where you review and categorize your income and expenses into personal and business. Use a simple spreadsheet or budgeting app to record every transaction and assign it to the appropriate category. This practice will not only prepare you for the discipline required in managing business finances but also give you a clear picture of your financial health, which is crucial for making informed decisions.
- Engage in skill-swapping with other aspiring entrepreneurs to mutually enhance your capabilities without significant investment. Find online communities or local groups where you can offer your skills in exchange for someone else's. For example, if you're good at web design but need help with marketing, look for someone with marketing expertise who needs a website. This exchange can help you save money while investing in your skillset and expanding your network.
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Transitioning from a full-time job to entrepreneurship
Morgan DeBaun provides insights based on her personal experience on how to smoothly transition from being employed to becoming an entrepreneur.
Carefully plan the transition process
Start a side business while still employed to build momentum and financial security
DeBaun advises those who are looking to turn their side gigs into their main sources of income not to quit their day jobs too soon. Instead, she suggests maintaining a full-time job while starting the side business. This approach helps in building both momentum for the new venture and financial security. When DeBaun was working on her business, Blavity, she did so during nights, weekends, and early mornings, without leaving her role at Intuit.
Maintain multiple income streams during the early entrepreneurial phase
Supplement business income with consulting work or other side gigs
Morgan DeBaun recommends supplementing business income with consulting work or other side jobs to avoid relying fully on the new business for personal income until it is stable. DeBaun herself did not quit her job at Intuit immediately after starting Blavity; instead, she took on a consulting gig to keep paying her bills.
Avoid fully relying on the new business for personal income until it is well-established
Even after leaving her full-time job, DeBaun continued consulting to ensure that every penny Blavity earned could be reinvested back into the company rather than being used for her personal cost of living. She emphasized the importance of not using personal savings for business expenses if possible, to maintain a financial buffer for bo ...
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Transitioning from a full-time job to entrepreneurship
Additional Materials
Counterarguments
- Starting a side business while still employed can lead to burnout due to the high demands of managing both responsibilities simultaneously.
- Maintaining multiple income streams might dilute focus and energy, potentially slowing the growth of the main entrepreneurial venture.
- Supplementing business income with consulting or side gigs could signal a lack of confidence in the business's potential to investors or stakeholders.
- Avoiding the use of personal savings for business expenses might not be feasible for all entrepreneurs, especially those without access to alternative funding sources.
- Being overly cautious and waiting for the "right" financial readines ...
Actionables
- You can diversify your skill set by learning about passive income opportunities online, such as creating digital products or investing in dividend-yielding stocks. By doing so, you're not just relying on active work for income, but also building assets that can generate money with little ongoing effort. For instance, you might write an eBook related to your field of expertise and sell it on platforms like Amazon or create an online course on Udemy.
- Develop a habit of setting aside a portion of your current income into a 'business launch fund'. This fund acts as a financial cushion, allowing you to invest in your business without the pressure of immediate returns. You could automate your savings with an app that rounds up your purchases to the nearest dollar and saves the difference, or you could set up a dedicated savings account with a high-interest rate to grow this fund.
- Engage in short-term freelance projects o ...
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Financial planning and management for entrepreneurs
Entrepreneurship requires meticulous financial management. Morgan DeBaun's experience highlights the importance of disciplined spending, strategic investment, and skill enhancement for business success.
Separate personal and business finances for clarity and tax benefits
Morgan DeBaun shares that not separating personal and business finances early on in her venture led to messy taxes and lost tax benefits. She underscores the necessity of opening dedicated business bank accounts and investment accounts immediately to track income and expenses accurately. This separation maintains accountability and ensures clarity in financial performance for both personal and business entities. Learning from her initial oversight, DeBaun now advocates for a strict delineation between personal and corporate finances.
Develop a conservative financial runway before leaving a full-time job
DeBaun recommends building up at least three to six months of personal living expenses as a safety net before transitioning from steady employment to full-time entrepreneurship. She highlights the need for frugality and a tangible budgeting plan to mitigate fears of financial instability during the shift. Additionally, DeBaun's own strategy included setting a cap on her investment in her company, Blavity, and determining a point at which she would stop if necessary. Her savings and stock market investments provided a financial cushion, allowing her the option to liquidate if needed, though she managed to bootstrap without needing to tap into these reserves.
Conservatism and preparedness for financial challenges
By keeping a side job and waiting to pay herself a salary until Blavity's third or fourth year, DeBaun exemplified financial prudence and reinvestment for growth. She chose not to rely solely on her business's income, reflecting mindfulness of the potential impact of business finances on her personal situation.
Prioritize investing in yourself and your skills over cutting personal expenses
DeBaun places high value on investing in personal skillsets and capabilities to ensure the ability to generate income. She utilized her ...
Here’s what you’ll find in our full summary
Financial planning and management for entrepreneurs
Additional Materials
Counterarguments
- While separating personal and business finances is generally advisable, some entrepreneurs may successfully manage combined finances with meticulous record-keeping and clear internal rules.
- A conservative financial runway is prudent, but some entrepreneurs may succeed with a shorter runway if they have reliable alternative funding sources or a faster path to profitability.
- Frugality is important, but excessive cost-cutting can sometimes hinder business growth or lead to burnout; strategic spending may sometimes be necessary.
- Setting a cap on investment and a point to stop can be wise, but it may also limit potential growth opportunities that require additional investment and risk-taking.
- Keeping a side job can provide financial security, but it might also distract from focusing fully on the entrepreneurial venture, potentially slowing its growth.
- Prioritizing investment in personal skills is important, but entrepreneurs must also balance this with investments in other areas of the business that are critical for its success.
- Opting for higher short-term costs for personal well-being can be beneficial, but it may not always be the most financially prudent choice, especially for businesses with tight budgets.
- The advice to not depen ...
Actionables
- You can automate your savings to build a financial cushion by setting up a direct deposit from your main account to a separate emergency fund account. Choose a percentage of your income that goes directly into this fund every time you get paid. This way, you're consistently saving without having to think about it, and you're less tempted to spend what you've earmarked for emergencies or your financial runway.
- Develop a skill-swap network with peers to invest in personal skills without financial outlay. Find friends or colleagues who are willing to exchange their expertise with you. For example, if you're good at web design and a friend is an excellent marketer, offer to build their website in exchange for marketing lessons. This barter system allows you to enhance your skills and network without upfront costs.
- Create a "business decisions diary" to track and reflect on your ch ...
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Entrepreneurial challenges, like getting a mortgage
Entrepreneur Morgan DeBaun sheds light on the roadblocks faced by business owners when attempting to secure mortgages, emphasizing the need for strategic financial presentation and expert advice for a smoother process.
Navigate the unique financial requirements for entrepreneurs
Entrepreneurs like DeBaun must contend with meticulous scrutiny from lenders who take a magnifying glass to business-related debt-to-income ratios.
Lenders may scrutinize business debt-to-income ratios more closely
DeBaun shares her personal experience of buying a house, detailing a period of stress as lenders assessed her financial status unfavorably due to the debt and loans of her business, Blavity. Although she had significant income from side hustles, her company's debt made her appear less financially stable.
Demonstrate financial stability through assets, savings, and alternative income sources
DeBaun underscores the importance for entrepreneurs to demonstrate financial stability through comprehensive income sources, including side hustles and accumulated assets. She reveals how the interconnectedness of personal and business finances becomes particularly important for sole business owners when approaching lenders.
Seek expert web guidance to overcome obstacles
Securing a mortgage is tricky for entrepreneurs, but expert guidance can help navigate these complex financial landscapes.
Consult with a mortgage broker who understands the entrepreneur's financial profile
Reflecting on her journey, DeBaun wishes she had engaged a mortgage broker earlier. Her later experiences working with a broker and an advisor who explained her financial situation to regional banks highlight the advantage of having an advocate during the mortgage process.
Be prepared to provide additional documentation an ...
Here’s what you’ll find in our full summary
Entrepreneurial challenges, like getting a mortgage
Additional Materials
Counterarguments
- While entrepreneurs may face challenges when securing mortgages, traditional employees can also encounter difficulties due to job instability or lack of long-term contracts.
- Some lenders specialize in working with entrepreneurs and may not scrutinize business debt-to-income ratios as closely as traditional banks.
- Demonstrating financial stability is important, but entrepreneurs may also need to show potential for future earnings, which can be more significant than current assets or savings.
- Expert guidance is helpful, but not all entrepreneurs may have the resources to hire advisors or may prefer to use online resources and self-education to navigate financial landscapes.
- Consulting with a mortgage broker is beneficial, but it can also add additional costs to the mortgage process, which might not be feasible for all entrepreneurs.
- Providing additional documentation and explanations to lenders is standard, but this can sometimes lead to privacy concer ...
Actionables
- You can create a financial stability portfolio to showcase your economic resilience to lenders. Start by compiling a comprehensive document that includes a summary of your assets, a list of savings accounts with their respective balances, and any alternative income streams you have. This could be anything from rental income to dividends from investments. Make sure to update this portfolio regularly and have it ready to present when discussing mortgage options with lenders.
- Develop a personalized financial narrative that explains your entrepreneurial journey and its impact on your financial status. Write a clear and compelling story that includes the challenges you've faced, the growth of your business, and how this translates into financial reliability. This narrative can be included in your mortgage application to give lenders a better understanding of your unique situation.
- Engage in a 'mortgage simulation' exercise to better understa ...
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Maintaining multiple income streams and separating personal/business finances
Entrepreneur Morgan DeBaun emphasizes the importance of diversifying income and maintaining distinct boundaries between personal and business finances to achieve financial stability and long-term wealth.
Develop a diversified income strategy as an entrepreneur
DeBaun’s entrepreneurial journey showcases the relevance of having a diversified income strategy.
Pursue consulting, speaking engagements, and other side hustles alongside the main business
Morgan DeBaun supplemented her income from her main business, Blavity Inc., with various side hustles and income streams. She pursued consulting, speaking engagements, brand deals, book deals, and fortune 100 companies advisory roles while also providing one-on-one consultancy to entrepreneurs. Additionally, DeBaun involves herself with her personal business, The Bond & Co., which houses her various speaking engagements and diversifies her sources of income.
Nicole Lapin also shares a strategy to generate additional revenue through Airbnb hosting, capitalizing on assets already owned to fund travels.
Invest personal assets to build long-term wealth outside of the business
Significantly, DeBaun also discusses having personal investments, such as stocks, outside of her business activities, which she could liquidate if necessary, emphasizing the importance of personal asset investments in building wealth.
Maintain clear boundaries between personal and business finances
DeBaun illustrates the necessity of keeping personal and business finances separate to maintain clear financial records and accountability.
Dedicate separate bank accounts, accounting systems, and tax filing for each entity
She speaks to the critical practice of not commingling funds, even when the business isn't generating a positive revenue. DeBaun demonstrates this by maintaining a separate bank account for her company and other financial activities including side hustles. Additionally, when her company faced cash flow issues, she loaned the business money separately and ensured that both the initial investment and the loan were accounted for distinctly.
Avoid commingling funds to ensure accurate financial tracking and reporting
The importance of rigorous financial practices is further highlighted when DeBaun mentions her clear delineation of business activities between Blavity Inc. and The Bond & Co. She also discusses the significance of ...
Here’s what you’ll find in our full summary
Maintaining multiple income streams and separating personal/business finances
Additional Materials
Counterarguments
- Diversifying income streams can lead to overextension and burnout if not managed properly.
- Pursuing too many side hustles might dilute focus and energy from the main business, potentially hindering its success.
- Not all entrepreneurs have the capacity or opportunity to engage in consulting or speaking engagements, which often require established credibility and networks.
- Investing personal assets outside of the business carries its own risks, and not all investments are guaranteed to build long-term wealth.
- Maintaining separate bank accounts and accounting systems increases administrative overhead and complexity, which might not be feasible for solo entrepreneurs or very small businesses.
- In some cases, especially for small or family-owned businesses, completely separating personal and business finances may not be practical or necessary.
- Prioritizing time and productivity over cost-cutting assumes that the entrepreneur has th ...
Actionables
- You can create a visual income stream map to identify potential new revenue sources. Draw a diagram with your main business at the center and branches leading out to different income possibilities that align with your skills or interests, such as online courses, freelance writing, or e-commerce. This visual approach can help you spot opportunities you might not have considered and encourage you to take the first step in exploring them.
- Develop a habit of weekly financial check-ins for your personal and business accounts. Set aside a specific time each week to review transactions, categorize expenses, and track progress towards financial goals. This routine promotes financial discipline and ensures you're consistently aware of where your money is going, which can prevent the mixing of personal and business funds.
- Automate yo ...
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