Greetings & Critique My Plan

[landlubber]

Hi everyone!

I've been a lurker for about a year now and wanted to get some advice from you guys. I'm 29 and work in a high-income job ($225K last year) in the legal/finance field. But I hate it and don't want to waste any more of my life there. My current plan is to quit in six months when my lease is up and get a mobile app business off the ground. I've spent the past two months learning about the programming language, etc. so I will be prepared by the time I leave. (I also have some experience in software from college.) I expect to have less than $1,500 in start-up expenses, most of which have already been spent.

In terms of assets, I've saved over $200K in cash over the past three years and have about $100K in retirement accounts. I will have to move out of my apartment and I think I can get my expenses down to $25K a year. So even if I don't make any money at first, my cash should last for 8 years.

What do you guys think about this plan?

Also, all my cash is in ... well, cash. Do you have any suggestions on how I should invest? I will be sensitive to downswings, but would also like some upside. Are equities too risky? I was also thinking about a TIPS ETF.

Thanks in advance for your help!

[samclem]

Welcome to the board!

There are not many places where a 29 year old, even a talented and hard working one, can earn over $200K per year. You are obviously doing something that is worth a lot for somebody. If the business you are contemplating is not in a very closely related area, you are rolling the dice again and hoping to come up a winner--again.

Is there any chance that you could hate your present job, or something like it, somewhat less by modifying your work environment, changing employers, etc?

[Coach]

Hi landlubber. Glad you've spoken up.

I like your plan. Things like that get harder to do with every year you get older. Now seems like the right time for you to give it a try.

I assume you could probably get a decent job in your current field again if things don't work out. In my case, at least, a few years trying to make it on my own gave me new appreciation for certain aspects of a salaried position.

I'd consider putting half your cash into an equities index fund. The other $100K will carry you three years or more and if you're not making expenses in that time you'll need to change direction anyway.

Best of luck, whatever you decide to do!

Coach

[LARS]

Clearly, you have sufficient funds and are at a young enough age to take a "flyer". Only you can judge whether your personality can handle the uncertainty/challenge of a start up.

As to allocations, I would make a decision how long you will reasonably be willing to pursue this new opportunity: then double that time frame (as it will take longer than you think to be successful plus it will cover re-transitioning expenses (finding a new job) if you fail).

With that time in mind, figure your expenses (and put that money in very liquid investments). The remainder, invest for the long term consistant with your past investment approach.

Good luck. Exciting and scary...

[Rustic23]

Ok, here are some wet blanket thoughts.

What about health care? At $25,000 a year, that can't cover health care. I know you are young and may be willing to take the risk, but if something does happen, will you be able to get your old job back? How will the new health care bill effect you?

If you get sick, how long can the new business sustain it's self with out your attention?

Just a couple of thoughts. Good luck on your new endeavor.

[TromboneAl]

Being in business for yourself is a gamble. It worked out for me, but if I were living my life again, I'm not sure I would go it alone.

You make $225,000/year at a job you don't like. This is a big fat juicy bird in the hand. Perhaps you could find one that you like for say, $150,000 per year.

Quote:

I've spent the past two months learning about the programming language, etc. so I will be prepared by the time I leave. (I also have some experience in software from college.)

You will be competing with techno-nerds who have lived and breathed programming since they were 12.

[uofmbish]

Hi Landlubber,

I've been lurking on the board for a few years as well. Your post really reminds me of myself. I'm 27. My wife and I combine to make a little less than you, about 170k. This has allowed us to build up savings of about 250k at a relatively young age. I too am considering quitting work to start my own business after padding our nest egg over the next few years.

Here are a few of the questions we have been contemplating to decide if the benefits outweigh the risks of such a change.

-This is an ER forum after all, so does the change actually help achieve ER (or semi-ER) earlier? Using some back of the envelope calcs, if you started living off of 25k/yr now, you could probably be completely retired in 3 years if you kept working. How does that compare to your expectations of your business?

-Can a less drastic change alter your opinion of your current career? For me, changing employers two years ago substantially reduced my desire to quit working in the near term (the desire is still there, it’s just reduced). I swapped lower long term wage growth for a short term raise and reduced work week. I don’t plan on working long term, so I didn’t really give up anything. It’s been great!

-Can you start the new business part time while keeping your current job? This would give you an idea of how successful your business might be, and perhaps more importantly, let you find out whether or not you actually like it more than your current job.

-Is your business viable long term, and what is your contingency plan if not? Mobile apps are a relatively recent invention. What happens if your successful business is rendered obsolete by new technology in 5-10 years?

No matter what you decide, good luck! I'll be interested to hear about your results.

[plex]

Ugh, I've had the same thoughts, I am 25, and I am in the tech legal field now. The hours are brutal, even when the work is interesting.

The hours are of course still brutal when you are starting your own tech business, but at least you are in control, you are constantly learning, and you know everything you do, is going to help you later.

At the same time though, it is a gamble. It takes many months of unpaid and hard work, and even then it can fail, or fail to produce the results you were hoping for. Of course, you can learn from it, and try again, and quite possibly eventually succeed, but your retirement date could very well be pushed back as well.

If early retirement is a major goal for you, you may want to try to find a less toxic working environment, for somewhat lower pay, as it seems you only will need to work until your mid-late 30s with your current expenses (not very long). Also, if you just hate the environment of your work, you could consider opening your own practice (if that is feasible). This takes some preparation, such as having some work lined up before the move, and then drumming up work afterward though. It is very possible I may do this in my early 30s.

I have also read many successful self-starters developed their business while working, and once it started to take off, they then quit, however, this is ridiculously tough, and may be impossible if you already have brutal hours (it certainly was for me).

Just some possible alternatives to consider. Though you will know best whether you need to take the plunge based on your goals and situation. You are in a safe enough position to at least attempt it if you wan to.

As for investments, yea, you will want to use your Roth each year while you are not working (6k), since you won't have a high income that disqualifies you. As other have mentioned, you can invest 100k in long term investments (stocks, like total stock market), and keep 100k for three years of living expenses, leaving 25k for potential business costs. Potentially could invest 25-50k in a 1 year CD for the cash portion, but the rest needs to be purely liquid, in a High-interest savings account/money market.

[landlubber]

Thanks guys for your feedback. This is my second firm in seven years and other who have left my current firm have not found a substantial increase in happiness.

I will try my best to see if I can make any revenue before quitting. I agree that would be for the best. I feel like a caged bird right now and really want to fly free. Having a bit of cushion makes it a little easier to take the plunge.

As for health care, that is a legitimate concern. I plan on applying for a high deductible plan such as the Kaiser 30/1500 plan. It costs $170/mo and I'll have a $1,500 deductible with $30 doctor visits. It seems like a good balance as I am in good health. Does anyone have any experience with these types of plans?

Thanks again for the feedback!

[plex]

Until 31+, you can use young adult plans, these usually are in the $50-100/month range for high deductible plans. Mine is $50/month through young adult blue for a 5k deductible plan. It is simply there to cover something catastrophic, since I am also very healthy, it has a $5M cap. After 31+ the high deductible plans start in the $130-180 range I believe.

I have seen a horror story where one law student at my school had the school insurance. This "insurance" only had a 100k cap, and cost $140 a month. The person went into a hospital for a routine operation, and ended up being one of the 100k or so people each year who catch a hospital borne disease, in this case, it was in her leg, and it was extremely virulent, so the leg had to be removed. Racked up about $400k or so in hospital bills.

[Milton]

I have no idea what a "mobile app business" is, but applaud you for having the courage to leave the high-paying job that you hate. There are many lawyers in that position, but most get trapped by the 'golden handcuffs'.

Quote:

Originally Posted by landlubber I've spent the past two months learning about the programming language, etc. so I will be prepared by the time I leave. (I also have some experience in software from college.)

If possible, try to find a job - even an unpaid internship -working in a similar business for a couple of months or so. The free education / inside information that you acquire will be very helpful in later setting up your own shop.

Quote:

Originally Posted by TromboneAl You make $225,000/year at a job you don't like. This is a big fat juicy bird in the hand. Perhaps you could find one that you like for say, $150,000 per year.

Perhaps. But I strongly suspect that the great majority of the undesirable aspects are inherent and that the o/p will be in pretty much the same position s/he is in now, just earning less money.

Quote:

Originally Posted by Coach Things like that get harder to do with every year you get older. Now seems like the right time for you to give it a try.

Absolutely right.

Quote:

Originally Posted by Coach I'd consider putting half your cash into an equities index fund. The other $100K will carry you three years or more and if you're not making expenses in that time you'll need to change direction anyway.

Seems reasonable.