30yr Old Small Business Owner ~ Hoping to Retire @ 40

[DROPOUT]

Hey Guys!

I'm DROPOUT! I'm married with 2 DS under 3 years of age. I'm a small business owner/entrepreneur and have been since the age of 24.

As the name implies ~ I dropped out of high school. Long story short ~ I got bored and entered the work force immediately. I was a "millionaire" by the age of 25 and unlike others in their twenties, tried to always save atleast half my income.

Being both a market noob and scared (due to parents investments woes) ~ I stayed all cash up until about 2013 when I started to lightly dabble. I set up traditional IRA's that we then backdoored in to Roths and I started researching Index funds religiously. I'm a boglehead @ heart (or I at least like to think I am) so I feel I have a relatively good head on my shoulders.

Our Current Financials:
- 910k in investable assets, invested 10/90 index funds/cash (mix of 3 broad based funds)
- 850k in Property (1 rental, 1 parcel of land, & current home)
- 187k mortgage on rental (15yr note @ 3.5% with 12 years remaining)
- No other debt
- Wife is a SAHM and I bring home approx $500k a year. I own (or am a partner) in 3 different businesses.
- We currently spend well below our means but still too much. We currently spend roughly $100k a year. Hoping to cut that in half this year as we start trying to live frugally.

Currently DCAing in to my Vanguard Funds. Slowly breaking my tepid attitude towards the markets. As you can tell, we are still incredibly heavy cash.

2015 Plans:
1) Cut spending
2) Cut spending
3) Move a majority of cash in to taxable accounts.
4) Cut spending
5) Try to get the wife from 75% on board, to 100% on board.
6) Start another business.
7) Spend more time @ home with the family.
8) Figure out exactly what we need to retire in 2025

Hoping to retire at the age of 40 however, I feel like I still have quite a bit of learning, reading, and hardships to overcome before I'm ready.

Thanks for providing such a great place for like minded people to come, meet, learn, and dream!

 

[Helen]

Wow, you are very impressive! Congratulations on your accomplishments. I have a feeling you will reach your goal to retire at 40.

What do you want to do in retirement?

 

[DROPOUT]

Wow, you are very impressive! Congratulations on your accomplishments. I have a feeling you will reach your goal to retire at 40.

What do you want to do in retirement?

Thanks Helen Not as impressive as it should be.

Anyways ~ Ideally, retirement would involve helping my wife raise our children (she plans to homeschool). So helping out there, coaching my boys through the years, traveling for a month or two out of the year, and a few misc hobbies.

I really enjoy working ... That's my current issue. I actually enjoy waking up Monday morning after taking a weekend off. I'm not the norm ... Over the next 10 years, I plan to try and take a more "advisory" type role and slowly take myself out of the day to day. Whether I sell them in 10 years, or simply take a full, absentee owner role, the goal is to be 100% work free by 40

 

[donheff]

You sound like my niece's husband. He too dropped out of school and formed multiple businesses. He (and she) have been retired in Florida since their late 40s having the time of their lives. Good luck and welcome to ERdotOrg.

 

[Golden sunsets]

Hi Dropout; I think you should write a book!!! You have made us all envious. Pray tell what type of businesses have you started which have had such success?

 

[DROPOUT]

You sound like my niece's husband. He too dropped out of school and formed multiple businesses. He (and she) have been retired in Florida since their late 40s having the time of their lives. Good luck and welcome to ERdotOrg.

Thanks donheff! Really appreciate the warm welcome and congrats to your niece and her husband!

Hi Dropout; I think you should write a book!!! You have made us all envious. Pray tell what type of businesses have you started which have had such success?

The book would certainly be interesting, that's for sure I won't go in to detail about exactly what sort of businesses I own but suffice to say that two of them are highly focused area's of business and one is a more broad service based business.

 

[Bored Beyond Belief]

Hi Dropout,

Some questions to consider (not necessarily answer).

What kind of equity do you have in your businesses? How easy is it to get the equity out if you do RE? I'm assuming those equities are not part of what you have listed.

Does the value of the businesses depend greatly on your expertise and involvement? What would happen if you become an absentee owner?

Do you carry debt in the businesses that is guaranteed against personal assets?

What is a safe level of cash to keep on hand in case of a business downturn?

As an owner of several small businesses myself, my main advice would be to 'protect the downside' and protect your personal assets from liabilities arising from the business. This may not be too much of a concern but not knowing the type of businesses you are involved in it's hard to judge the risk. A $500,000 a year income has to have some risk involved as a small business or everyone would be doing it .

You may already have all this under control but thought it would be worth throwing out there as food for thought. It is no fun rebuilding personal wealth after a major business downturn or negative event.

 

[someguy]

I second what BBB said. Along those lines, make sure you're insured properly (umbrella, etc.). If you aren't 100% sure, swallow hard and pay a good attorney to review your companies, structure, operating agreements, etc. and make sure you've got as much protection as you reasonably can.

Also, with your large cash pile, high income and relatively low expenses, I would focus your attention on investing free cash and free cash flow more than reducing expenses. With that much cash, if inflation is 2%/year, you are literally pissing away $16K/year. If your effective tax rate is 25%/year, just getting this cash pile to a break even would be the equivalent of cutting $22K/year in expenses!

I would look into tax-advantaged plans for business owners and start diverting as much income to those as you can. The idea is to put off paying high income taxes now while your income is high and instead pay lower taxes when you withdraw at a lower "income" after retirement.