Author Topic: To “Start Up”, stay with “the man”, and/or “Jump ship” completely?  (Read 1402 times)

ThrowAway1

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Summary:  I am a 5 year veteran at a large tech company.  I make excellent money with all the perks you hear about like free food, excellent 401K, massages, amazing affordable health care, etc. Unfortunately, I just can’t.seem.to.give.a.shit.about.the.work.  I am not motivated by it at all, can’t WILL myself anymore to caring about the mundane shit we constantly have meetings to discuss and really have fundamental issues with how our business is monetized.  To help cure the “dread”, I negotiated a 3 day work schedule at the big tech company and I joined a start up in a consultory role in a field that interest me about 2 years ago. I currently work there 1 day a week and generally put in 15 or so hours through some at home work.  I also put more time into building my rental property portfolio with my recaptured time.   That adjusted schedule worked for a couple of yes but fast forward to today and I am trying to decide what to do next, quit big tech and work at the start up (they have offered me a significant equity stake and the ability to work a 3 day shcedule), continue with my 3 days a week at big tech and just ride is out and keep adding to the stache or just downright pull the plug and “retire”.

Life Situation: DINK couple, 33, live in large US metro that is still affordable (all things considered).  No plans for kids

**All Figures are annualized

Gross Salary/Wages: 2017
Self: $155K (very steady - inc salary, equity vest, bonus) - Of this salary, $17K is from the start up since I am hourly and my hours vary annually.
SO: $0-$250K+ (variable but typically in the $100K range - trading) - Self employed, trader

Rental Income: Annual Net CashFlow $60K

Current expenses: Tracking for 3+ years, our expenses hover around $60K including everything EXCEPT healthcare.  1 year ago we moved into a “househack” and have eliminated our cost of living (mortgage/tax/insurance).  We actually make money living in our house now so this brings our net effective annual expenses down to $40K.    Plenty of room to cut expenses if we want/ but this is living a life we really love with plenty of travel, eating at nice restaurants and generally doing or buying anything we want (we just don't really care about shopping or buying lots of things or living in a huge house). 

Expected ER expenses: $60K

Assets:
IRA - Roth               $ 110K
IRA - Roth                 $ 59K
IRA - Traditional        $ 11K
401K - Pretax          $ 247K
401K - Pretax            $ 56K
HSA                          $ 50K
Brokerage - After Tax   $ 3K
Brokerage - After Tax $ 57K
Stock Grants              $ 61K
Cash/Cash Equivalent
$300K
Total:              $956K

Real Estate:
$1.7M conservative FMV
$960K in mortgages (30 year conventionals at good rates)
$700K in equity across 6 properties (1 is the home we live in)
No other consumer debt, car loans, student loans, etc.

Net Worth: $1.7M


Specific Question(s):
(1) In considering the start up offer, I am a natural saver/”squirreler” and I won’t be able to save nearly as much annually.  The salary will more than take care of our expenses so we won’t be dipping into any savings (it will just keep compounding) and the real estate cash flow we can continue to use to buy additional properties but I am struggling with not having the ability to add; no 401K, less disposable, etc.  Do I need to just put on my big girl panties and get over this?
(2) Health care:  We don’t have any specific health concerns but needing to purchase health care on the exchange paying ~$800/month with an annual out of pocket around $40K scares me a bit.  We have the HSA to cover 1 year but this is something I have not really had to consider before since I have had excellent healthcare through my employer.  Is this a big deal or can I just go with the ACA and be ok?

My thinking:  Going full time to the start up has increased financial risk but there is certainly more upside than my big tech job.  With big tech, I know my career trajectory and my earning potential with little ability to really change it.  I am leaning toward taking the risk and going with the start up offer.  Worst case, if things don’t work out, I go back to big corporate in a couple of years or simply FIRE and live on our real estate cash flow.  I am struggling with leaving the security of big tech and the very steady and high income even though I really don’t like the work.  Some may wonder if I could change jobs at big tech.  I’ve had 5 different roles in different parts of the business and none of them has been what I want to do.  I don’t think there is a role that exists so I would really just be staying for the security and the high income to save toward FIRE. 

What am I not considering?  Am I a fool for leaving the security of big tech (parents and those that are not mustachians who think they need to work until 65 all seem to think I am crazy)?

maizeman

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(1) In considering the start up offer, I am a natural saver/”squirreler” and I won’t be able to save nearly as much annually.  The salary will more than take care of our expenses so we won’t be dipping into any savings (it will just keep compounding) and the real estate cash flow we can continue to use to buy additional properties but I am struggling with not having the ability to add; no 401K, less disposable, etc.  Do I need to just put on my big girl panties and get over this?
Money in fungible. If you diverted about $12k (depending on your tax rate) of the money from your rental properties from acquiring new houses to covering some of your living expenses to helping paying your living expenses it should allow you to keep maxing out a pretax 401k.

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(2) Health care:  We don’t have any specific health concerns but needing to purchase health care on the exchange paying ~$800/month with an annual out of pocket around $40K scares me a bit.  We have the HSA to cover 1 year but this is something I have not really had to consider before since I have had excellent healthcare through my employer.  Is this a big deal or can I just go with the ACA and be ok?
The monthly cost seems high but inside the range of plausible. $40k/year out of pocket seems strikingly high for two people even for an ACA plan. Could you go into a bit more detail about how you calculated this number?

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My thinking:  Going full time to the start up has increased financial risk but there is certainly more upside than my big tech job.

That's certainly true. But how much upside do you actually need at this point in your life? Right now the cash flow from your real estate equals your expected annual expenses minus healthcare. You have about a million dollars in stock assets, which would let you hit the annual maximum possible spend of $40k/year in healthcare costs that you mention above. If you are actually interested in FIRE, you have either won the game or are within a year or so of winning it.

It can also be a lot harder to walk away from a job in a startup than a job at generic-giant-company co. Often you will be the only person doing whatever it is you are specifically doing, which means both that if you leave the friends and coworkers you've spent lots of long days and long nights with are going to be left in a bad situation and the higher the valuation of the company gets and the more your equity is hypothetically worth, the more you'll feel like you cannot afford to walk away and risk all of that hypothetical money if the startup cannot figure out how to function without you.

So my advice is don't join the startup for financial reasons, and don't join a startup if your plan is to FIRE in the next couple years. If you're joining the startup because you get a lot of joy from the work and are okay doing that kind of work for at least another five years, go for it! You are already essentially FI so you don't need to lean in your job to provide you with financial security. You've already done that for yourself.

MrSpendy

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You are financially independent. Your rental cash flow pays your expenses and you have a serious liquid nut for repairs/growth/surprises, etc. and you have another income in the house. I have nothing to add beyond that, but have one question.

Can you elaborate on what precisely a "self employed trader" is?

Does this mean a contractor for a prop trading firm or a floor trader or something like that? Does this mean a day trader with personal balance sheet? Another way to get to the heart of my question is "can your spouse's income ever be negative?" If so, that would seem to me to be the only potential source of fragility to the household finances. Otherwise, I'd say you have the capacity to take some career risk and leave big tech.


ThrowAway1

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Thanks for the feedback...Navigating the Healthcare piece has been the biggest form of confusion for me. But after looking a bit more, I think I was adding both the individual deductible and the out of pocket max together vs just using the out of pocket max as the upper bound for annual expenses.  It looks for the most basic plan, $7,350 is the out of pocket max per individual so right around $15K which makes me feel a bit better given my HSA "kitty" I've managed to accumulate.

As for the question about trading...yes, it is absolutely possible for a year to go negative, it never has (there has been a big ole goose-egg year but never negative) but of course it can.  Where you see the cash position, that is why we have a portion of our assets in cash since its his working bankroll.   He worked at a firm for several years, but took his money and ran when he saw things going sideways with the firm he was at. He now trades his own money.   

MrSpendy

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As for the question about trading...yes, it is absolutely possible for a year to go negative, it never has (there has been a big ole goose-egg year but never negative) but of course it can.  Where you see the cash position, that is why we have a portion of our assets in cash since its his working bankroll.   He worked at a firm for several years, but took his money and ran when he saw things going sideways with the firm he was at. He now trades his own money.   

This is interesting. $300K bankroll, $0-$250K / annual profits, never a down year. Sounds like something involving a fair bit of futures/options/leverage or high turnover or a combination in what's been a pretty calm one-way market...

If this is off base, then I apologize, but do you have a firm understanding of what he's doing with respect to his overall strategy and leverage/volatility/downside tail risk?  This is not to say he isn't a capable manager of risk or good at what he does (he probably is and I know nothing about him), it's just to say that he's not risking his money, he's risking your money and financial future if you make a career change.

If there is a leverage component to the strategy, are you all able to ringfence his risk in any way? To mitigate the risk of a wipeout that affects your other assets.

I'm not looking to get into a boglehead debate here (I invest in a concentrated active form myself), just to make sure that there's a high degree of transparency between you and your spouse with respect to the upside/downside. I suspect there is, but just want to make sure. I don't know what instruments he's trading so I can't really ask any more relevant questions.
« Last Edit: January 06, 2018, 09:14:42 AM by mrspendy »

ThrowAway1

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@mrspendy - While I appreciate the concern, I am not really here to debate how my spouse makes money.  I don't really want to disclose everything (it's not just stock trading) but suffice it to say, I am comfortable with what he is doing, the calculated risks he is taking and his ability (his professional and educational background are suited to this).  There is a high degree of transparency between us and technically, he is risking his money (money he has earned himself, nothing through a joint effort).  He's not risking anything he isn't willing to lose.   The assets, when broken down by individually are almost squarely 50/50 and we've jointly purchased our rental properties together.

I kinda think it about it this way...he is the "short term guy" and I am the "long term girl".  He can/does support our lifestyle short term (higher risk/higher reward while we can absorb a big "hit" because I am working and we have rental income) and I support our lifestyle long term/retirement because I invest heavily into my retirement accounts, all in low-cost index funds.  Going to the start up, I lose some of that ability to continue to be the "long term girl".  Our assets and investments will just continue to compound without being touched but without the ability to really add aggressively to it.  Perhaps this is just some mental gymnastics I need to come to grips with...


MrSpendy

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@mrspendy - While I appreciate the concern, I am not really here to debate how my spouse makes money.  I don't really want to disclose everything (it's not just stock trading) but suffice it to say, I am comfortable with what he is doing, the calculated risks he is taking and his ability (his professional and educational background are suited to this).  There is a high degree of transparency between us and technically, he is risking his money (money he has earned himself, nothing through a joint effort).  He's not risking anything he isn't willing to lose.   The assets, when broken down by individually are almost squarely 50/50 and we've jointly purchased our rental properties together.

I kinda think it about it this way...he is the "short term guy" and I am the "long term girl".  He can/does support our lifestyle short term (higher risk/higher reward while we can absorb a big "hit" because I am working and we have rental income) and I support our lifestyle long term/retirement because I invest heavily into my retirement accounts, all in low-cost index funds.  Going to the start up, I lose some of that ability to continue to be the "long term girl".  Our assets and investments will just continue to compound without being touched but without the ability to really add aggressively to it.  Perhaps this is just some mental gymnastics I need to come to grips with...

Not looking to debate it either (after all, I too trade/invest in a non-index-y way).

We seem to be on the same page.  I am trying to point out what you already know (articulated in your 2nd paragraph). Your household risk profile is different than if he was a w-2 employee (you "lose some ability to continue to be the long term girl").

The exact nature of what he does is important in determining to what degree this is the case. You are the best judge of that, absent any other information. To me "not just stock trading" means "probably not unlevered or delta 1" which means "tail risk". But like I said, I'm just some dude on the internet.

I'm not telling you that he should stop what he's doing. I'm saying you should a) factor that in to assessing the household risk/profile (which you are) and b) perhaps take some asset/creditor protection steps to ensure you've done everything you can to mitigate the tail risks (which you probably have done too).
« Last Edit: January 06, 2018, 10:12:29 AM by mrspendy »

TheExplorer

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I dont want to push this further off topic, but just quickly I think the essence of what mrspendy is saying is that it appears that given the returns your SO is making with the stated capital invested your SO is likely to be investing in futures/options/leverage, which, as I am sure you know, means that the amount that could be lost could be significantly larger than the amount of capital invested. Depending on the laws applicable to you, there may be a risk that in a downturn/if your SO's investment strategy suffers losses you/your assets may also be at risk (not just your SO's assets).

Given we have been experiencing probably one of the longest/least volitile periods of stock growth in history, I wouldn't put too much weight on past positive experience with your SO's investment strategy. Everyone has been winning.

Anyway, this is probably stuff you are already aware of, and, if so, apologies for that...

ThrowAway1

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Yes, I'd appreciate if we can move past this part of the discussion since it really is only tangentially related to my decisions.  He isn't trading futures/option nor did I say all of his investing is in the stock market (nor is it crypto which I am sure people are thinking) nor did I say he is risking $300K...I was only explaining that we have a portion of our assets in cash for this reason since most mustachians would consider it silly if there was no use for it than parking it in an account early 0% interest.   

50% of our cash assets are mine and 50% are his. He will never be able to ruin what I have saved.  Given that, does it help frame this possible downside risk any better?

MrSpendy

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Yes, I'd appreciate if we can move past this part of the discussion since it really is only tangentially related to my decisions.  He isn't trading futures/option nor did I say all of his investing is in the stock market (nor is it crypto which I am sure people are thinking) nor did I say he is risking $300K...I was only explaining that we have a portion of our assets in cash for this reason since most mustachians would consider it silly if there was no use for it than parking it in an account early 0% interest.   

50% of our cash assets are mine and 50% are his. He will never be able to ruin what I have saved.  Given that, does it help frame this possible downside risk any better?

You have ~$656K of investment assets:    ~$26K of spending at 4% Rule
you have rentals throwing off $60K     :    ~$60K of spending

you have 5 years of expenses (and 17% of your properties' value) in cash so i fell no need to haircut your rental cash flow to account for repairs or something and you seem like you'd be a perfectly capable real estate investor and probably already are doing so.

With NEITHER of you working, you all are more or less financially independent (maybe not quite w/ healthcare but probably pretty damn close).

If your hubby made $40K from a boring w-2 job (20-40% of what he makes), you'd be very financially independent even if you make $0 working for the start-up. If he can sustainable make ~$100K, you all are extremely financially independent.

Absent any disasters with your real estate holdings or your husband's trading operation you are totally fine to retire or take career risk (which you acknowledge isn't really career risk since you're super awesome at your job and could always go back).

So to me, the thing to do is to be overly prudent with mitigating your legal risk from being a landlord (and evaluate your concentration in whatever market you're in and risks to said market), to be sure you've done a bang up job in accounting for all contingencies wrt the real estate, and to make sure your husband doesn't blow up in doing whatever he's doing to make a consistent very high ROE on his bankroll.

You're going to be amazingly fine in 90-99% of scenarios. So guarding against the 1-10% is all you've got to do. Whether that's from a tenant landlord lawsuit going awry or an October 1987/2008 volatility event (or the equivalent in whatever he's trading), or your city's rents/property values declining,  that's all you have to worry about. 

to me, you're asking whether you can leave the security of "big tech". The answer is a resounding yes because you have the security of a) cash flowing real estate portfolio b) investment nut c) hubby's trading acumen.

So as long as a, b, and c are good (really as long as 2 of them don't go bad at the same time), you can leave the security of big tech very easily. So I'd be most focused on things like
"do i live in a recourse state"
"have i personally guaranteed all these mortgages"
" have a set up a separate management company that does all the property management"*
"is my market dependent on any one company/industry/whatever or are expenses likely to spike in some material way (for example property taxes if you live in chicago or connecticut which some say are the next puerto rico)...
"can I set up some kind of LLC for hubby's trading operation to shield other assets in the 0.1%, 0.5% 1% probability scenario"
"will losing the security of my income at all effect the way hubby trades"

In short, you're totally fine to do whatever you want as long as your assumptions are correct.

*note: I'm not sure if this actually does anything and would defer to people more experienced in legal liability risk mitigation / asset protection / whatever you call it
« Last Edit: January 07, 2018, 04:26:37 PM by mrspendy »