Reader Case Study – Quitting to work for myself

[leighb]

Life Situation: I'm married with one dependent. I'm planning to quit my job in 5 months to work for myself. DH is graduating grad school and should be working next academic year. He is in full support of me and this idea. Some of the numbers are rounded since I don't have access to his data. In the “setup phase” of my plan I expect my living expenses to be greater than my income. If this works I should be working half as much and making the same amount of money in about a year.

Gross Salary/Wages: $48,000 *what I'm giving up

Taxes and Deductions: Federal 5550, State 3200, SS 3000, Medicare 700, Retirement 3100, Medical 3200

Dividends: $3000

Rental Income and Actual Expenses: In 2016 gross $60,600, expenses $42,500. I'm projecting 2017 to gross 63,000 and have expenses of $32,000.

Adjusted Gross Income: 50,350

Current Expenses: $37,350
Home: 16,300 ( P&I: 13,700 else: 2,600)
Food: 7000
Bills: 7,000
Pets: 3,300 *emergency vet visit
Education: 1,500
Travel: 750
Health: 3000
Shopping: 400
Auto: 400
Other: 4000

Assets:
House: 300,000-400,000 Zillow says 400,000 but I don't believe it
Rentals: 300,000 based on Zillow's estimate of 600,000
Stock Accounts: 200,000
State Retirement Account: 30,000
Emergency Funds: 40-50,000
Capital Losses: -700,000 good to offset any capital gains forever

Liabilities: 
Mortgage: -12,000 *so expenses should go down to 21,050

Specific Question(s):
1) Should we be cutting expenses?
2) I think I'm in a fine place to quit and do this. I will slowly ramp back up to my current income or I will fail. I would like to give myself a year to try this out. Do you agree with my assessment? (that I'm in a financially good place to lose W2 income)

[bugbaby]

You seem to be in great shape, with net rental income jumping from 18k to 31k and spouse starting work.

Also, are both house and rentals just about to be paid off? (no liabilities listed, except -12k in mortgage or is that the payment?). If so what are the rentals expenses on?



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[seattlecyclone]

Sounds like you have plenty of assets to see you through the startup phase of your business, even if your husband fails at finding work after he graduates. Reducing your expenses would certainly make your money last longer and make it so that you can get cashflow positive again. Up to you whether you think that's worthwhile.

Not really relevant, but I'd love to hear the story of how you managed to rack up $700k in capital losses.

[leighb]

Thanks for the feedback. I think I'm in pretty good shape for this risk.

Here's the short story on the losses:  My father looooovvvved penny stocks. My father died and I inherited said penny stock. Penny stocks turned out to be a poor investment. On the bright side I will never have to worry about capital gains.

- There's no debt on the rentals. Expenses are:

• 4000 utilities and garbage
• 4800 management
• 8400 Supplies/repairs
• 500 lawn
• 900 office/law
• 6800 property taxes
• 500 insurance
• 4200 capital improvements
• 11800 labor