Before you can calculate how much your business needs to survive, you must understand how much you need to survive. This is known as your "Personal Survival Budget." This budget includes only your personal average monthly income minus costs and expenses . It is a stripped-down version of your lifestyle that focuses on the "needs" rather than the "wants."

Needs vs. Wants: Defining the Essentials

To build an accurate survival budget, you must be ruthless in distinguishing between expenditures that are essential for you to live and work and those that simply make life more comfortable .

1. Financial Needs

These are recurring expenses that are likely to eat up a large chunk of your paycheck . They are non-negotiable if you want to maintain your health, your home, and your ability to operate your business.

Housing: Mortgage or rent payments .
Utilities: Gas, electricity, and water .
Transportation: Car insurance, gas, or public transit costs to get to work .
Insurance: Health, life, and disability insurance .
Food: Basic groceries (not dining out) .

2. Financial Wants

Wants are things you buy for fun or leisure. You could live without them, but you enjoy life more when you have them . When you are in the "startup" phase of a business, these are the first items to be trimmed to extend your runway.

Travel and Vacations: Non-essential trips .
Entertainment: Movie tickets, concerts, and streaming subscriptions like Netflix .
Dining Out: Daily lunches or expensive dinners .
Luxury Items: Designer clothing or the latest tech gadgets .
Gym Memberships: While health is important, a high-end gym membership is often a want if a cheaper alternative exists .

Budgeting Frameworks for Entrepreneurs

There are several popular methods to organize your survival budget. Choosing one helps you stay disciplined during the lean early months of your business.

The 50/30/20 Rule

Introduced by Senator Elizabeth Warren, this rule suggests dividing your after-tax, take-home pay into three buckets :

50% for Needs: This covers your absolute essentials.
30% for Wants: This covers your discretionary spending.
20% for Savings and Debt Repayment: This is where you build your emergency fund and pay down high-interest debt .

For an entrepreneur, you might choose to "tilt" this budget. During the launch phase, you might aim for a 70/20/10 or even an 80/10/10 split, where you maximize the amount going toward your business or your emergency fund by drastically reducing the "wants" category.

Dave Ramsey’s Percentage Guidelines

Financial expert Dave Ramsey offers a more granular breakdown of how to allocate your take-home pay :

Housing: 25% to 35%
Utilities: 5% to 10%
Food: 10% to 15%
Transportation: 10% to 15%
Insurance: 10% to 25%
Savings: 10% to 15%

Step-by-Step: Calculating Your Survival Number

To find your "survival number"—the absolute minimum you need to earn or draw from savings each month—follow these steps:

List Every Expense: Use personal bank statements from the last three to six months to identify every single outgoing dollar .
Categorize: Group these into "Needs" and "Wants" .
Identify Fixed vs. Variable Costs: Fixed costs (like rent) stay the same, while variable costs (like electricity or groceries) fluctuate . Use an average for variable costs.
Trim the Fat: Look at your "Wants" and "Variable Needs." Can you switch to a cheaper phone plan? Can you cancel unused subscriptions? Even $5 to $10 a month adds up .
Tally the "Needs": The total of your essential categories is your monthly survival number.

Example: The Solo Consultant’s Survival Budget

Imagine Alex, a new freelance graphic designer. Alex’s total monthly spending used to be $4,000. After reviewing bank statements, Alex identifies the following:

Rent: $1,500 (Need)
Groceries: $400 (Need)
Car Payment/Insurance: $500 (Need)
Utilities/Phone: $200 (Need)
Dining Out: $600 (Want)
Streaming/Hobby: $200 (Want)
Miscellaneous Shopping: $600 (Want)

Alex’s Survival Number is $2,600 ($1,500 + $400 + $500 + $200). By cutting the $1,400 in "wants," Alex has significantly lowered the amount of revenue the new business needs to generate to keep the lights on.

Frequently Asked Questions: Personal Budgeting

Q: Should I include my business expenses in my personal survival budget?
A: No. Keep them separate. Your personal survival budget is what you need to pay yourself from the business (or savings) to stay alive. Business expenses are part of your "Business Burn Rate" .

Q: How often should I update my survival budget?
A: At least once a quarter. As your business grows, you may be able to move some "wants" back into your life, but during the first 18-24 months, staying lean is key .

Q: What if my survival number is higher than my current business income?
A: This is where your "runway" comes in. You will need to use savings (your emergency fund) to bridge the gap until your business revenue increases .

The Importance of Paying Yourself First

"Paying yourself first" is a reverse budgeting strategy where you prioritize a savings goal—like your emergency fund—before you divvy up the rest of your expenses . For an entrepreneur, this might mean setting aside a small, fixed amount for your personal survival before reinvesting every single penny back into the business. While it is tempting to work for free to help the business grow, consistently underpaying yourself is not sustainable and can lead to burnout .