Author Topic: Freelance Part-time to FIRE in 5 years doable?  (Read 3557 times)

blingwrx

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Freelance Part-time to FIRE in 5 years doable?
« on: October 13, 2018, 10:38:02 PM »
Hey folks, this is my first post but I've been following for a few months now and discovering FIRE really got me rethinking a lot of things. I was pretty good at saving and budgeting even before discovering MMM, though i know I made mistakes along the way with the investment order, but moving forward i'll be looking to correct this.

My FIRE number is $1.2mil and I'm probably 2/3's of the way there if you include my home equity but I also have put some thought into Semi-FIRE now and scaling back to part time freelance work as my expenses seem to be low enough for me to still be net positive even if i only work part time, do it's more of a question if i should cruise to FIRE over a longer period of time or run there asap.

I was recently laid off from mega corp, so thus I'm forced to make some decisions now. I'm torn between going back to a full time mega corp gig or freelancing part time at half the pay and no benefits. I've been in the same industry for 11 years, 7 yrs at the last job and I've been feeling stressed out and not a fan of the corporate politics. However working for myself I would still be in the same industry and the stress doesn't totally go away but i think being my own boss and having the flexibility to cut down on my hours helps.

Some background:
We live in a HCOL area(NYC). I'm 35 yrs old, Wife is 32 yrs old.

I have a 1.5 yr old and expecting another in a few months. The wife is a SAHM and has no plans to work until at least the kids are in school.

My previous Megacorp salary was 110k, no 401k matching, full health benefits, 4 weeks paid vacations, 10 paid holidays.
Any other full time job i find in the future would likely be around 90-110k and starting at 3 weeks vacation. I also need to factor in 2 hour round trip commute by subway and the added cost of commuting and other expense like buying lunch or coffee.

My remaining current income:
Part time Freelance income 40k/yr(will increase to about 60k-72k if I decide to make this my main source of income)
Rental income 20k/yr

My freelance income is stable. I have a steady client base where i generate about 40k annual from working 14 hrs a week, i've been doing it the past 2 years. I could definitely take on more clients and increase my income but I was hesitant in taking on more work in the past as i was already working a full time job and managing these clients during nights and weekends.

Since freelancing doesn't come with health coverage, I have to rely on ACA. I found the sweat spot for this would be working Freelance part time 20-25hrs a week making 60-72k which would allow me to qualify for up to $750 a month ACA subsidy if game my MAGI right with the correct deductions and maxing out a individual 401k. Working anymore than this would cost me up to 9k in subsidies and defeats the purpose of shifting to part time.

Assets:
325k Post-tax investment(Mixed Stocks)
75k in 401k(all in VTSMX)
35k cash

I own a duplex. 450k equity. 350k mortgage(4.3% - 22yrs left)  I collect $1700/month rent from one unit and i live in the other. We have no plans to sell the house in the next decade, living here is actually cheaper than renting by a lot, it's also a good school district and family close by.

1 Car 2017 Honda CRV - paid in cash, current approx. value 25k(I will probably drive it at least 10 more years)

Expenses:
Housing costs-mortgage/property taxes/insurance:  $2400
Electric Utilities  $92
Gas Utilities  $103
Water Utilities  $72
Gym    $13.00
Gas   $35.00
Food/toiletries/paper products ect  $450
Eating out  $150
Internet  $50.00
Cell Phones x2 $70
Car insurance  $117
Amazon prime $10
Car Maintenance  $30.00(it's low because i just bought a new car last year, i'm also very mechanically inclined)
House Maintenance    $50.00(It's pretty low because I recently gut renovated the whole place, so there shouldn't be any big surprises for a long time. I also do a lot of the work myself so only have to pay for materials)
Vacation/Travel  $200
Gifts/weddings/kids bdays $100
Expenses for 2 kids(Diapers, formula, clothes ect) $400
ACA plan premium $300(estimated premium based on estimated MAGI)
Health deductibles/copays/rx $100
Misc   $200.00
Money set aside for taxes since none of my income is withheld during the year: $818
Rental Vacancies fund: $142
Total Expenses: $5900 a month

Projected average income for self employment:
$5000 a month + $1700 from rent
Total: $6700

Surplus of $800 would be added to an individual 401k

I'd need to make a minimum of 4.2k a month freelancing to break even on expenses or i can make up to 6k a month and still qualify for a big ACA subsidy as i can dump up to 24k of my income into my individual 401k($18.5k + 25% for profit sharing) keeping my Magi in check.

In the worst case I priced out insurance to be $1400 a month for silver tier family plan if we don't qualify for any subsidies or ACA gets repealed.

Other FIRE considerations,
- Mortgage will be done in 22 years saving me about 1.5k a month, At the same time i'd probably be able to shed kids expenses too as they should be done with college around then.
- SS estimates at least 2k at 62 assuming i continue part time for another 10 years.
- 65 medicare kicks in saving money on premiums.
So all in all our expenses will drop significantly in 22-30 years. My home value would also be well over 2 mil by then assuming average appreciation. I could certainly sell and downsize by the time the kids are in college which can also use some of the money to help pay their way if needed. So I don't think i'd have any problems after 57, i just have to fill the gap between now then. if i continue working another 10 years part time the gap really falls to 12 years of mostly relying on my investments.

While i know i don't have all my ducks in a row and circumstances and expenses may rise in the future as we do have two kids. I also figure I could always return to full time work whenever i need to as my skills are still highly sought after and by working freelance I'll still keep my skills relevant and it wont be as  bad as a big gap in employment history. I also have a good amount of cash and post tax assets i can draw on in an emergency.

If you were in my situation would you cut back to part time self employment and delay FIRE, but have SEMI-FIRE now or go find another full time gig at megacorp and push the petal to the metal and save as quickly as possible to achieve FIRE in as little as 5 yrs(or does that even sound possible i'd be able to sock away around 50-60k annual with a full time job). Semi-FIRE now I'd make just about enough to cover my expenses and maybe a bit more depending on how hard i work(might be able to sock away 0k-24k annually). Worst case I'd have to leave my investments on auto pilot for the next 10 years then i think maybe I'd be close to FIRE depending on the market.

Also do my numbers look decent for an eventual FIRE in the next 5-10 yrs in either case?

Thanks
« Last Edit: May 02, 2019, 12:46:13 PM by blingwrx »

sojanyajones

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #1 on: October 15, 2018, 12:12:00 PM »
I'm torn between going back to a full time mega corp gig or freelancing part time at half the pay and no benefits. I've been in the same industry for 11 years, 7 yrs at the last job and I've been feeling stressed out and not a fan of the corporate politics. However working for myself I would still be in the same industry and the stress doesn't totally go away but i think being my own boss and having the flexibility to cut down on my hours helps.

I'm somewhat new to the community as well so take my advice with a grain of salt. I think you should freelance. If you do have the clients already set up and the potential to expand and rent coming in, it seems stable enough to at least give it a shot. I'm usually hesitant about people claiming they can just go back and get a job again, but in this case you would still have relevant experience and your skills would be kept up so you could go back to mega corp if you needed to.

I think for your sanity and the sake of your family it's worth it to go to part time and extend the FIRE date. If you try out freelancing and it's not what you imagined you can get a Mega Corp job and then work on fast tracking it to FIRE. Good luck and I hope you get some other advice as well!

civil4life

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #2 on: October 15, 2018, 12:44:56 PM »
It sounds like you have a very solid side income and it would be easy to increase.  If you double the amount of time you are still under 30 hours a week and at $80k.  It sounds like you are in a good place to give it a try.  Especially if you have another new one around the corner.  I am sure it would be great to be home with your kids at this age.    I would definitely look into what additional tax deductions you can get for your own business.  Do you have an LLC or other incorporation set up?  I know I have heard things like paying your spouse so you both could contribute to individual retirement accounts.

If it doesn't work out you can always go back. 

FIRE is more than just about retirement.  It is becoming FI so that the choices you make in your life do not have to depend on an income source. 

Overall, you are asking a lifestyle choice question.  Yes you have a budget and income that will keep you cash flow positive.  It is more of a matter of how you want to use your time.

Plus there are still some areas of fat you could remove from your budget.  Working from home will change some of your expenses too.  Start tracking your expenses so you can really see where you are spending money.

blingwrx

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #3 on: October 15, 2018, 01:42:39 PM »
It sounds like you have a very solid side income and it would be easy to increase.  If you double the amount of time you are still under 30 hours a week and at $80k.  It sounds like you are in a good place to give it a try.  Especially if you have another new one around the corner.  I am sure it would be great to be home with your kids at this age.   I would definitely look into what additional tax deductions you can get for your own business.  Do you have an LLC or other incorporation set up?  I know I have heard things like paying your spouse so you both could contribute to individual retirement accounts.

It's currently just a sole-proprietorship but that can certainly change if I find it to be more beneficial tax wise, my accountant has been good at finding a lot of deductions for me in recent years as i've been doing this part time on a smaller scale already on top of a full time job. We'll see this coming year how the tax reform will change things i'm excited about the 20% pass-through deduction. Thanks for the reminder on the the spouse contributions, it's definitely nice to have more ways to keep my MAGI in line to ensure I get the maximum ACA subsidy. It's tricky to estimate income when it fluctuates from month to month.

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #4 on: October 18, 2018, 08:22:59 PM »
My vote is also for freelancing, since you're already established with clients.  Though I'd suggest that you might try increasing your income, even past the ACA subsidy, if it makes sense, in order to have greater flexibility, esp. once kid #2 arrives. Or alternatively, your spouse can explore a part-time side gig, since you'll be at home. I just hesitate to stay too lean with little ones who, you know, sometime create surprise costs. (Not to jinx your family or anything - just my experience.)

blingwrx

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #5 on: October 18, 2018, 10:09:30 PM »
My vote is also for freelancing, since you're already established with clients. Though I'd suggest that you might try increasing your income, even past the ACA subsidy, if it makes sense, in order to have greater flexibility, esp. once kid #2 arrives. Or alternatively, your spouse can explore a part-time side gig, since you'll be at home. I just hesitate to stay too lean with little ones who, you know, sometime create surprise costs. (Not to jinx your family or anything - just my experience.)

It was a thought that crossed my mind to work harder and make my freelance business even more profitable than full time, but at the same time that may require a lot more work than a full time job to start and one of the goals was to make this a part time gig so I'd have more free time with the family and less stress. I'm hoping in the future I'll be able to increase my hourly rates after I've secured a few more stable clients and also increase my efficiency and turn around the work twice as fast while still charging the same amount of hours. The only bad part about making more is losing the 9k ACA subsidy so I'd need to make significantly more to overcome that.

I do understand the cost of 2 kids can rise as they get older and there could be unforeseen expenses. I think my budget is still fairly flexibile as $200 misc, $200 vacations, $100 gifts are quite optional and gives me another $500 in wiggle room each month if I fall short on my income projects. Also as I mentioned i only need to make $4200 a month from freelancing at minimum to break even on expenses. I anticipate to average at least 5k a month and can make up to 6k a month and still qualify for subsidies. So it looks like i'll still have a decent surplus and if expenses do rise I have a lot of room to cover. The biggest negative of increased expenses or shortfall of income would be delaying FIRE as my savings rate reduced or even negative in the worst case. It's certainly not the end of the world if FIRE is delayed. I guess if I only had to work 10-15 hours a week I might even be ok with doing this for 20 more yrs.


civil4life

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Re: Should I Semi-retire and Freelance Part-time?
« Reply #6 on: October 19, 2018, 12:26:01 PM »
The biggest negative of increased expenses or shortfall of income would be delaying FIRE as my savings rate reduced or even negative in the worst case. It's certainly not the end of the world if FIRE is delayed. I guess if I only had to work 10-15 hours a week I might even be ok with doing this for 20 more yrs.

The larger part of FIRE that most people forget is the ability to do things on their own terms and not have to have decisions driven by money.  In that sense you are already there.  You are choosing to live life on your own terms.  Congrats!

blingwrx

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Re: Freelance Part-time to FIRE in 5 years doable?
« Reply #7 on: May 02, 2019, 12:55:13 PM »
Just an update:
I've been doing the self-employed freelancing thing now as my main source of income for the past 8 months. So far it's been good, I work less than 20 hours a week with plenty of flexibility on when I do the projects, so I can wake up late and go out with the kids wherever but I'd still be on call so I just need to be near a computer sometime during the day if something comes up. I have 2 clients who utilize me like a full time employee but are too cheap to pay for one, so the work is consistent and steady and flexible. I still have lots of room to find more clients and work but I think working less is ideal right now with 2 young kids. The negatives are the lack of benefits specifically the wildcard cost of health insurance and of course no paid vacations or holidays.

For this year i'm good since I qualified for medicaid for the family after I was laid off and had low income for a few months, but now that my freelancing business has ramping up, I'd be kicked off at the end of the year and I estimate having to pay $600 a month for a silver plan and Child health plus plans to cover my family after ACA subsidies are factored in. I should have a MAGI of about 67k after deducting business expenses and 401k contributions.

I project about 75k Gross wages for freelancing/self-employment
20k rental income
Wife is expected to make 15k working PT
3k dividends
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113k Gross

Estimated 11k taxes after many deductions and credits. There are benefits to being self employed and having kids after-all.

I plan to put: Max 6k into my wife's Traditional IRA and 19k into my Individual 401k.

77k or $6417 a month cashflow available after retirement contributions and taxes


Updated expenses:
Housing costs-mortgage/property taxes/insurance:  $2400
Electric Utilities  $92
Gas Utilities  $98
Water Utilities  $72
Gas   $35.00
Groceries/toiletries/paper products ect: $450
Eating out  $250(I know this is a bit high, definitely challenging with 2 kids, sometimes you just want to order out.)
Internet  $50.00
Cell Phones x2 $70
Car insurance  $102(Shopped around and this is actually the lowest in my area for full coverage)
Amazon prime $11
Expenses for 2 kids(Diapers, snacks, toys, clothes ect) $270
ACA plan premium $600(estimated premium based on estimated MAGI)
Misc   $250.00
Vacation/Travel  $200
Gifts/weddings/kids bdays $100
Clothing $85
Health deductibles/copays/rx $100
Rental Vacancies fund: $142(Usually no vacancies in my area, apartments rent out quick, but this is a just in case fund)
Car Maintenance  $30.00(it's low because i just bought a new car last year, i'm also very mechanically inclined)
House Maintenance  $50.00(It's pretty low because I recently gut renovated the whole place, so there shouldn't be any big surprises for a long time. I also do a lot of the work myself so only have to pay for materials)
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Total Expenses: $5457 a month

$6417 cashflow
-5457 expenses
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$960 surplus or $11,520 available to put into taxable accounts.

Current investments total:
117k Pre-tax accounts
335k taxable account
20k cash
= 472k investments + cash.

House equity is 460k.
Liabilities 340k mortgage.

I'd essentially be able to add 36.5k a yr to my investments

At this point I'm aiming for full FI and may or may not continue doing a little freelancing on the side if needed but I'd like to have the choice to not have to work ever again.

In FIRE i'd expect to pay even less for ACA coverage and almost no taxes on capital gains/dividends income and credits. So I estimate around 60k in expenses after factoring in lower taxes and insurance premiums and i'd still have 20k passive rental income, so it looks like I only need about 40k a yr. Also my budget isn't super lean right now and there's room for improvement. so I think i can get down to 32k a yr in expenses if i really tried, so at the minimum I'd need about 800k in investments to FIRE at a 4% SWR. Aiming for 1 mil would be ideal though. According to my calculations my investments should grow to 820k in 4 years if i continue to add 31k a yr and 9% stock returns. 6 yrs to hit 1.05 million. Of course I know 9% returns may or may not be likely so I may need to work a little longer to get to FIRE if that's the case.

Also as mentioned a few other factors to consider, I'd mostly need my investments to last me from 25 yrs. Then after that i have SS, Medicare and a huge house assets i can sell if needed:
- Mortgage will be done in 22 years saving me about 1.5k a month, At the same time i'd probably be able to shed kids expenses too as they should be done with college around then.
- SS estimates at least $1200 at 62 and spouse benefit of $600 if we both stop working now. But i also understand we may expect a bit less here as SS may not have enough to pay full amounts by the time we're eligible for benefits.
- 65 medicare kicks in saving money on premiums.
So all in all our expenses will drop significantly in 22-30 years. My home value should be well over 2 mil by then assuming average appreciation. I could certainly sell and downsize by the time the kids are in college which can also use some of the money to help pay their way if needed, but I'm hoping they just go to a state school and take loans like I did, but if i do have extra money I'm happy to help out as much as I can.

How am I doing? Any holes in my plans or things I can do better that I haven't addressed already? I know ACA may or may not get repealed and a recession in the next 5 yrs can wreck my FIRE date, but i'm still young so i think if any crazy increases in expenses come up i'd just have to continue working part time a little longer which isn't half bad.
« Last Edit: May 02, 2019, 01:10:49 PM by blingwrx »