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One thing I noticed about successful entrepreneurs when they first start their business is that they know their personal monthly expenses, to the last dollar. They find ways to minimize their monthly expenses as much as possible and invest what they can in their business. Their goal is to have their business build up enough profit to sustain their life burn rate.

Life Burn Rate

Just like how a business has a monthly cashflow statement, with expenses going to things like web hosting cost, salaries, marketing, etc. you have a monthly cashflow statement. Those expenses include rent, food, clothing and whatever else.

Many entrepreneurs that I know did this exercise when first deciding to either go full time on their ventures or start a business while maintaining their job. When I did this, I started cutting out everything that was not essential. I cut the cost of going out, the cost of buying new clothes, reduced the cost of my health insurance, etc.

I can walk around everything knowing exactly how much my business need to make in order that I can stay being an entrepreneur.

Calculating The Rate

It’s nothing more than just how much you pay monthly for everything. That includes rent, food, clothing, entertainment, insurance, etc. After coming up with that number, it’s time to start trimming. Ask yourself these questions:

• Can I change my living situation to lower the cost of rent? (Move in with roommates or moving back with parents)
• Do I really need to go grab Starbucks coffee every day? (Or every week?)
• Do I really need this car? (Can you downgrade?)
• Can I do more cooking at home to save more?

The simple act of doing this exercise implies two things about the entrepreneur: cost conscious and willing to do whatever it takes to build a successful business.

Here is a snapshot of the expenses someone would pay each month:

Church
Rent
Food
Roth IRA
Student Loans
Utilities
Internet
Cell Phone
Gas
Insurance
Fun (yes that's in there)
Insurance
Personal Care
Gym
Car Maintenance

Have you calculated your life burn rate yet?

[Image credit: Tim Riley]