Case Study - how soon can I FIRE? -UPDATE

[Lady Stash]

Case Study -
 
Life Situation: Single, 44 with no dependents.  I've worked in tech for many years.  I love hands on tech work and managing teams but I want to quit working for someone else and try to start my own company.  I'd rather create a product than do consulting so I won't have an immediate (or perhaps ever) income. 


Here are my numbers:

Total net worth: 1,260,000 (650K house, 610K investments)
Current salary: 160K
Pre-tax deductions:  401K - 18,500.  HSA 3,000
Bi-weekly paycheck after taxes, health insurance, deductions etc:  $3,150.

Monthly Expenses: 
Property Tax:  $290
Home Insurance:  $80 
Gas/Electricity- 80
Water/Sewer- 100
Internet - 40
Phone - 70
House Projects - 100
Car Insurance - 160 *
Gas - 200 *
Car Maintenance - 50
Health Insurance - 200 **
Medical - 100
Dog- 40
Food- 600 *
Clothes - 100
Hobbies - 50
Travel - 50
Gifts - 50
=2360/month,
2360*12=28,320 yearly.
 
*I expect these three to drop by about $350 when I stop commuting 40 miles each day and have more time to cook.  That brings monthly expenses to around 2K, which I could cover with a 4% withdrawal rate.
**This assumes a lower income and ACA health coverage.  Without that, this increases to $700/month
 
 
Assets:
House (HCOL):  650K with new roof on it.

Non-retirement:     53K
Roth IRA:               86K
IRA:                      460K
401K:                    6K
HSA:                     7K
Total.                   612K

Paid for car with 13K miles on it.     
 
Liabilities:
None.   
 
 
More details
 
My home has 4 bedrooms and I only use 2 of them (for a bedroom and study).  In the past I've rented the other rooms out.  I just moved back in and listed them on Craigslist but haven't found anyone I'd enjoy living with yet.  It appears I'd get about $1800/month for both rooms or $1100 for just the larger.   I can't count on this consistently since I'm pretty picky about who I live with but it could be a nice cushion.   Or I could downsize the house a bit to free up more cash.
 
My budget is tight, especially when I eventually need a new car/roof in 15 years or if ACA goes away.   I've lived on less for a couple years but long term I will need income from somewhere to give me breathing room.  If my business makes an income that would be great.  A couple roommates would help.  I may eventually inherit a few hundred thousand dollars, though again I can't count on that. 

I have a tight budget and a few *maybe* ways to give me more breathing room.  It would be safer to stay at my current job a few more years but emotionally I am done.  I'd rather live on a very tight budget than continue to work this job and that's not like me.   I usually enjoy my work.   It's a decent company so I don't think finding another job is the right answer.

The hardest part of this decision is that once I leave this job it's a one way door.  I likely won't be able to come back. 

I can't imagine not finding some kind of profitable enterprise which I enjoy in the next few years but the unknown of it is a bit scary.

What would you do?

[ysette9]

We have been talking a lot about being dissatisfied with our current situation and wanting to make a change, while also having good jobs for good companies. We are a little further away from our FI number than you. We discuss all sorts of ideas like sabbatical, moving to another place, but the easiest thing now is to just cut back on the hours in an attempt to find some balance. Can you go part-time and use your new free time to think harder about what you really want out of life? Do some traveling to check out lower COL areas and mentally try on the idea of moving? Spend more time with hobbies or friends or family?

[Laura33]

So, basically, what I see:

1.  You have the ability to live on a tight budget, and you have sufficient money to sustain that tight budget (and then some) for many years.  Congratulations -- you clearly have fuck-you money.  That means this is not really a financial decision. 

2.  You (reasonably) don't want to live on a tight budget for the rest of your life.  That makes this a lifestyle/priorities decision.  So the real question is how do you shift those future dreams into some sort of reality that can provide you the extra income you want to fund your preferred lifestyle?

IOW, you need a plan.  You'd like to start your own company.  Great!  Do you have a product, a prototype, a business plan, possible financing down the road, etc.?  You can rent rooms, but you are picky -- so how much time should you anticipate between roommates, and how much money can you actually count on coming in per year? 

If I were you, I would spend the next few months converting your good ideas into an actual business in your free time.  Most people don't quit to start a business -- they run their business in their free time, and then quit when it is generating enough income to support them.  You do not need the business to fully support you, so you don't need to wait that long -- but you should at least have an actual business before you jump.  So tie your decision to bail to reaching specific milestones -- e.g., I can give notice when I have two stable roommates who are covering my expenses; I can give notice when my product sales cover my manufacturing costs; etc. 

In addition, spend some time looking at your cash flow.  You have a significant chunk of money, but much of it is tied up in retirement accounts that you cannot access until @59.  So look at how much of your Roth is contributions that you can access; consider a Roth ladder for your IRA; look at what 72(t) distributions might generate; etc.  Figure out a plan that will provide access to a sufficient amount of money each year to cover your basic needs, because you don't want to have to wind up paying penalties for early withdrawals and such just because you didn't plan or got impatient.

[Lady Stash]

Yesette9, I like your ideas.

I took a job in another city a couple years ago and it was eye opening how much a change of routine mixes things up.  I totally recommend it!

Originally, I thought I wanted to be able to spend a year driving across the US but after that job I took a couple months off to travel the US.  It was amazing for about 5 weeks but then I was anxious to be home and back with friends and family.   

What I learned is that right now, I want to be a bit more settled and also I want to be within driving distance of friends and family.   

I visited several cities on that road trip I might consider living in for the future but right now, my heart wants to be closer to the people I love.  So I can downsize my house a bit, but moving somewhere with a super low cost of living probably won't happen for the next few years.
 
My last job was about 70hrs/week and this job I'm down to about 40 hours a  week, so tons more free time.   But my new commute is sucking up some of that time.  I've picked up a tiny bit of basketball.  Just bought a guitar.  I'm seeing family & friends much more often. 

[Lady Stash]

Laura,

I agree with you that this is more of a lifestyle/priorities decision.

I hear you on needing a more concrete plan.  I have a couple business ideas I like but not sure either will generate much income.  I'm making progress on a prototype for one of them.  I have a meeting set up with a CPA to go over some of the tax questions. 

I saw a bunch of Lego sets for sale at Costco today for $30.  They are selling on Amazon for $50 (full price is $60) so I could make about $5-$10 each after fees.  Legos tend to appreciate too.  Its not worth fooling with while I have a full time job but it might be interesting if I wasn't employed.

The open enrollment for ACA closes soon and I'm not sure it's possible to enroll midyear so I need to figure that out too.

[Lady Stash]

UPDATE -
It's been almost a year since my last post.  I'm still working.  I cut back to 80% time earlier this year and last month I went part time to 3 days a week.  I am super excited that my company agreed to let me work part time.  They are still covering my health insurance.  My 'stash has grown nicely since last December, including a surprise windfall.
 
Total invested assets:  800K (split 110K Cash, 160K Roth, 530K IRA).

I found my old W-2s and bank statements going back to 2011.  I determined my actual spending over time vs the bare bones budget above.  For each year from 2011-2016, I looked at how much I made, how much I paid in taxes and how much I saved.  From those numbers I determined what I actually lived on.  This includes money I gave away,  the 2K I spent on LEGOs one year etc.   My yearly spend was remarkably consistent at 36K/year excluding large purchases and an average of 45K/year including large purchases (a car, multiple trips to Europe, multiple bathroom remodels etc) .

I *can* live  on 28K/year but in the long run I'll be happier with a target of 45K/year plus another 5K for health insurance.  So 50K total, after tax.
 
Right now, my stash could theoretically generate 32K a year at a 4% SWR.   I have one roommate who chips in 13,700/year.   So I'm at 45K passive income now. 
I've been working on renting a 2nd bedroom for 2 months.  I get tons of interest but I'm super picky.  Plus it's a pretty small room so it's harder to rent than the one I'm keeping as my office.  If I found someone I liked it would bring in another 10K/year.   

Working 3 days a week, I'm making almost 100K/year.  Almost all of that goes to taxes and a back door Roth.   

I feel like I *should* work 3 more years or so but I'm still feeling very ready to do something else.  As soon as I find a 2nd roommate, I am tempted to quit and just find a way to make the numbers work.  If I want to go to Europe, or the market tanks, I'll need a couple roommates or a side hustle or I'll need to cut back my spending.

My tentative plan is take about 6 months to a year off to build a product and try to launch a company.  If I haven't gotten traction in 6 months to a year, then I'll start job searching.   The main thing holding me back is fear that I won't be able to find a job in a year if I want/need one.   At 30 I took time off and had no problem getting back in.  At 45 it feels riskier.  Going back to my current job won't be an option once I've been gone several months.  On the other hand, if I don't put my all into building and launching something I think I'll regret it. 

Now that I'm only working 3 days a week, I am hoping I can make some progress starting something on the side.   The past few weekends have been taken up being a maid of honor for my sister  + a small surgery.  The next few weekends I'm going to tech conferences.  By late November I hope to have some time to buckle down on a prototype.  I have a product idea and a huge passion to build it but I haven't come up with a good business model.    I've done some research and it will be hard to get funding in this space right now.  So I may need to pivot to a different idea.

It feels really nice to have options.  The trick is figuring out which path will leave me with the least regrets.  What would you do?

[deborah]

See whether you actually start your business over the next three to six months. If it doesn’t start, when you’re working three days a week, it’s not going to happen if you take 6 months or a year off. You should be able to use the time you currently have to create a product, even if you can’t move into selling it. I’ve known several people who took time off to start a business, and ended up doing nothing. Because you currently have three days of work commitments, you are actually more likely to make a concerted start.

Having room mates may not be something you can sustain forever. Will it matter if it stops working in ten years?

[mistymoney]

You're in a good position financially to try your hand at developing your product in a no-risk situation.

Are you at any risk of your company claiming ownership?

[Lady Stash]

See whether you actually start your business over the next three to six months... I’ve known several people who took time off to start a business, and ended up doing nothing.

Thanks Deborah, this feels like good advice though not what I wanted to hear.  ;-)

Are you at any risk of your company claiming ownership?

No chance at all.  It's a completely different space/customer set than my day job.  We are allowed to do side hustles.  When it's a bit more advanced I'll have to report it but there's no conflict with my day job.

[Sunflower]

I don't have much advice, just wanted to say hi and that I'm in a similar spot (and have a recent case study going). You're much closer to FI than I am, but I'm hoping to quit my current in 2020 and do something different. I'm working on figuring out what that is right now and how to cover expenses while I'm figuring it out.

Since you're so much closer to FI, I definitely think you should go for it! You say that you can't go back to this job, but surely there is another job that you could do in a similar area? If you haven't made any progress on your company after 8 weeks, then you start looking and there's not much of a gap on your resume.

Once you figure out your product and business plan, let me know if you need a co-founder to help get the company off the ground. I may be at a point that I have enough free time to do something cool like help start a business ;-)

[MrThatsDifferent]

I think you’re fine now and could easily pull the trigger since your $50k target is really a big buffer. Here’s though what I’d do if I were you, if you wanted to be safe. Make 2020 your year to quit but after you’ve saved $50k in cash. As soon as you hit $50k in cash, then quit. Then, use your $50k in cash and what you get from renters to live 2-3 years without drawing from any investments, just let them grow. By the time you start accessing them you’ll most like cover the $5k gap. Use those 2-3 “down” years to work on your business idea. That takes some pressure off you to make it work right away.

[mozar]

Try Zillow hotpads

[Manchester]

Have you considered renting the spare room on AirBnb?  Might be a way to generate more income without having to live with people you dislike long-term.  You strike me as someone who's quite happy to meet new people.  You never know, you might come across new ideas/opportunities that inspire your business.

At the very least, it provides income from that extra space whilst you search for another renter?

[Linea_Norway]

I think you should calculate the true cost of your home, including property taxes, maintenance, major home improvements. And then check if your renters really cover the cost. Because you are picky, your rooms are standing empty for quite some time and that is costing you money. I think you should consider downsizing to a smaller home that fits your needs. You will get less maintenance, lower property taxes and less hassle with room mates.

For the time being, could you switch your office to the smaller room?

I do agree with a previous poster that working 3 days a week should give you enough space for the moment to develop your product. Have you already found someone who wants to pay for your product when it is finished?

As you probably have that inheritance waiting for you down the line, you have this extra padding in case your budget is a bit tight. With that, you could take a chance. That is what we doing, FIREing on our own number, but with the knowledge that we one day will get an extra cushion which will be nice to have. And there is also the option of owning your own home, which can be changed to a cheap rental.

[Lady Stash]

UPDATE - I quit my job and have a 2nd roommate.

Like Laura33 pointed out, it comes down to a lifestyle decision.  I've been unhappy at work for a year, which is just not like me.  I don't feel like I'm doing a good job, either.  So I quit.  It was hard and scary.  I really hope I don't regret it later.  It was also incredibly freeing and exhilarating.  So much feels possible now.  I love being engaged and busy at work.  I was bored.  I would rather have 2 roommates indefinitely than continue to work at a job that makes me so deeply unhappy.  Even at 3 days a week it bleeds into the rest of my life.  I like having people in the house for the occasional social interaction.

I'm still working through what's next.  I don't *need* a job but I may want one for emotional, social and extra-cash reasons.  I'm making (slow) progress on a prototype, attending tech conferences and focusing on being more active.  I have a verbal job offer from another company but I don't think I'm going to take it.  I want some time to re-set.

My 2nd roommate is moving in tomorrow.  I turned down about 20 people - the rental market here is hot.  If this roommate works out the way I expect, I will have $2040/month or $24,480/year coming in.  I am keeping the last room as an office, though I may rent it in the future once I see how much I use it and how it feels with these 2 roommates. 

I think you should calculate the true cost of your home, including property taxes, maintenance, major home improvements. And then check if your renters really cover the cost. Because you are picky, your rooms are standing empty for quite some time and that is costing you money. I think you should consider downsizing to a smaller home that fits your needs. You will get less maintenance, lower property taxes and less hassle with room mates.

I've though about this a lot but it doesn't really make sense for me to downsize unless I leave this city and live somewhere cheaper.   Property taxes are grandfathered in, so I pay about $3200/year in property taxes. Buying a similar home now would run me around 7K in yearly property tax.  Even if I downsized I would still probably owe more in property tax.  I have 4 bedrooms but the house isn't actually very big, compared to the ones around me. I guess I could give up the yard and move into a condo but I really like having a yard with stuff growing and birds.
Maybe someday if I decide I don't want renters, I will need to revisit this.  Another option is to rent the entire house (for about 3K/month) and live somewhere else for a while.


Finances_With_Purpose - thanks for the resources.  I will look forward to checking those out.

Manchester - I have considered AirBnB.  Might be a fun option in the future.

MrThatsDifferent - I do have about 75K cash right now.  My tentative plan is to live on the low end of my budget for now so it would be maybe 4 years before I need to touch investments.  If I live on 40K/year thats 24K rents + 16K cash (with some extra cash to cover lost rents when I need to replace roommates).

Sunflower - thanks for the encouragement!!

[ysette9]

Exciting! Congrats on taking the plunge. I hope your decompression is successful and that you find a better rhythm that makes you happier than your old job.

[Linea_Norway]

Good to hear you have made a decision and prioritized your own mental health.
Interesting to hear you like having renters in your own house.

Good luck.

[mistymoney]

Exciting update! Good luck!!

[Sunflower]

Congrats! I'm so excited for you! I'm hoping to have a similar update within the next 3-4 months :-)

Please check back in and let us know how it's going.

[MrThatsDifferent]

Great work! All the best!

[lotus]

Congratulations!!

[Lady Stash]

2 YEAR UPDATE.

My stash has grown to 970K.  I'm feeling pretty comfortably FI.   

I've been spending most of my time working on various software projects or attending the many free online tech conferences.  I'm seriously considering going back to work, if I can find a job that's more interesting than the one I left.  I'd rather spend time building software than painting my house or installing sprinklers or cooking meals from scratch.  This makes me feel like I should be able to find a job that I'd love.

I have enough to live on, but more $$ may make me happier.  I'd have more flexibility to give gifts and be generous, I can let my lifestyle inflate if I want.  With so much free time, I'm realizing I probably would enjoy more $$ to travel & fund hobbies etc.  I'd also love to be able to be generous - A few of my close friends and family are scraping by and routinely stressed by money.  I'm also concerned about the ACA - it would be nice to have more of a cushion just in case.

All things considered, it looks like I may be returning to work.  The past several months have been great but my sense is that I am FI… but not ready to RE.
 

[lhamo]

Great update!  Even if things didn't turn out exactly as you thought they might, you did the thing and learned a lot about yourself.  Now you can move on to being a SWAMI (Satisfied Working Already Mustachian Individual). Good luck with finding a job that is a better fit for what you want/need at this stage in life!

[mistymoney]

2 YEAR UPDATE.

My stash has grown to 970K.  I'm feeling pretty comfortably FI.   

I've been spending most of my time working on various software projects or attending the many free online tech conferences.  I'm seriously considering going back to work, if I can find a job that's more interesting than the one I left.  I'd rather spend time building software than painting my house or installing sprinklers or cooking meals from scratch.  This makes me feel like I should be able to find a job that I'd love.

I have enough to live on, but more $$ may make me happier.  I'd have more flexibility to give gifts and be generous, I can let my lifestyle inflate if I want.  With so much free time, I'm realizing I probably would enjoy more $$ to travel & fund hobbies etc.  I'd also love to be able to be generous - A few of my close friends and family are scraping by and routinely stressed by money.  I'm also concerned about the ACA - it would be nice to have more of a cushion just in case.

All things considered, it looks like I may be returning to work.  The past several months have been great but my sense is that I am FI… but not ready to RE.

Wow  -  unexpected update!

I'm dreaming of pulling the plug, but I do sometimes fear I will miss the job. Sometimes, it is good!

Did you ever try to launch your product? Other biz ideas?

[Linea_Norway]

2 YEAR UPDATE.

My stash has grown to 970K.  I'm feeling pretty comfortably FI.   

I've been spending most of my time working on various software projects or attending the many free online tech conferences.  I'm seriously considering going back to work, if I can find a job that's more interesting than the one I left.  I'd rather spend time building software than painting my house or installing sprinklers or cooking meals from scratch.  This makes me feel like I should be able to find a job that I'd love.

I have enough to live on, but more $$ may make me happier.  I'd have more flexibility to give gifts and be generous, I can let my lifestyle inflate if I want.  With so much free time, I'm realizing I probably would enjoy more $$ to travel & fund hobbies etc.  I'd also love to be able to be generous - A few of my close friends and family are scraping by and routinely stressed by money.  I'm also concerned about the ACA - it would be nice to have more of a cushion just in case.

All things considered, it looks like I may be returning to work.  The past several months have been great but my sense is that I am FI… but not ready to RE.

If you dislike cooking from scratch, you might want to switch to binchcooking whenever you do cook. Just make several small portions and freeze them. If you do this a couple of times, you only need to cook one week a month or so. There are even cookbooks, like Once a month cookbook" that let you spend only one day a month.
I am saying this, because I find it so hard to understand that someone doesn't want to eat homemade food. My impression is that prefab food and restaurant food is not equally health.