Laid Off; Small side business; Pregnant Wife - Give it a Go?

[JGB]

For the past few years, I've enjoyed a job as a programmer for a company in the Oil & Gas sector. This grew to a $95k salary working from home. I've maintained a 60+% savings rate during that run. Then last fall, oil prices fell. Layoffs began in January, and finally reached me last Thursday.

I think I'm going to try at make a go at ER/semi-retirement. I know I'm going to go for it for 3-6 months, and that may be enough to convince me one way or another about how to proceed past that point. Below are the current plans and numbers, as they sit. I welcome thoughts and criticisms. Note that I do not have an itemized/categoried budget, as I've never felt that was necessary for exceeding a 60% savings rate. But I do know overall expense numbers from Feb 2013 onward.

So, the income side:
I'll be getting another $4k by the time everything is said and done.

On top of that, I have a side business focused on low stakes poker training through www.Grinderschool.com
It's a small site, with relatively low costs, but also a small audience that I haven't been able to grow significantly over the years. I have some plans for things to try to remedy that, but for now, let's assume that the pattern from the last several years continues unchanged. The site nets me around $1k a month.

On top of that, I have some outstanding business loan investments that provide a pretty sweet return: ~18k invested providing a reliable $500 per month with no impact on the principal. Eventually this will be paid back in chunks that reduce the balance, but we're 6-months to a year out from the first reduction.

The rest of my stash is in various stocks and index funds, totaling about $600k. That looks roughly like:
TSP: $350k (2 accounts)
401k: $50k (3 accounts)
Roth IRA: $67k (3 accounts)
Taxable: $110k
Cash: $17k

On the expense side of things:
We have a $250k mortgage, with $180k left, and payments of $1200 (including principal, interest, tax and insurance). One paid off car (2008 Altima w/ 70k miles). Our non-mortgage expenses over the past years have averaged $1700, prior to this year. That included fewer than normal home-repair / auto-care expenses, but an absurd amount of eating out, and a 120-mile 1x per week round-trip commute.

This year has included a lot of one-time expenses, due to my wife being pregnant with our first child. At this point, we've satisfied all deductibles for her insurance, so we'll be using COBRA to continue coverage through the birth of our child in the next month. Then we'll switch to something cheaper. I don't yet know the cost for COBRA coverage, but I expect it to be pricey as the plan we had was a pretty nice one. In the past, we had non-employer coverage for the both of us for just under $400 / month, though that will clearly go up once it's covering a third family member.

We also don't really know how much our monthly expenses will increase with the addition of a child. We have strong frugality muscles, so I expect it to be on the low end of the spectrum, but that's all I can say for sure.

Am I crazy to try to make this work?

[Argyle]

I think your wife will welcome you being home for the infancy of the baby, when even two people are hardly enough to take care of a child.  Eventually I suspect you'll feel the money pinch.  But for the short term it looks doable — you'll have to draw down some of your stash, but I assume you're factoring that in.  Your high mortgage payments concern me — that's the one non-negotiable part of the plan.  From here on in I'd keep track of every cent, so you know exactly where you stand and how much of your stash you're using up how fast.  You might want to set a boundary now — "when our stash goes below $XXXXXX, it's time to get more money coming in."  Be sure there's some leeway there, as finding a job may not be immediate.

[john c]

The ACA limits your ability to switch plans outside of the normal enrollment period.  You have to have a qualifying event, which in your case is the job loss.  Your plan is sound, have the baby on COBRA and if everything is wrapped up within the 60 day window, then switch to something cheaper.  If things don't go as planned, you could be stuck on COBRA until next January.

[JGB]

The ACA limits your ability to switch plans outside of the normal enrollment period.  You have to have a qualifying event, which in your case is the job loss.  Your plan is sound, have the baby on COBRA and if everything is wrapped up within the 60 day window, then switch to something cheaper.  If things don't go as planned, you could be stuck on COBRA until next January.

She's due in 3 weeks, so there's pretty much no chance that we won't have the baby by then.

Thanks for the note about being stuck on COBRA though. I hadn't considered that as even being a possibility. That makes a stronger argument for only doing COBRA coverage for her and finding something else for me.

Doesn't the birth of a child also qualify you for switching plans? Or is that qualification only for adding coverage for the child?

[Calvawt]

yes, a birth qualifies as an event.

https://www.healthcare.gov/how-do-i-report-life-changes-to-the-marketplace/

[Sibley]

You'll probably be better off just going with ACA, cost wise.

[JGB]

So far, it looks like the insurance we had is continuing to be active through the end of May. That means we'll have the birth covered and will indeed go straight to ACA afterwards.

The whole situation is progressing interestingly... The first two weeks were nice, but filled to the brim with work for the side-business. Just when that was starting to wind down, this afternoon the regional director from the company that laid me off called to request that I return to work my project as a contractor at 167% of my previous rate (142% after adjusting for social tax differences). My supervisor convinced them that I was more indispensable than they'd thought. I confirmed that I can work whatever hours I want, 100% from home.

So I guess I'm not out of the game yet after all.

[JGB]

Checking back in, 7 months later...

Things are going well enough so far, as finances are concerned. Even with the downturn in the market, the income from my side-business a few gigs here and there have kept our stash at the same level it was at when everything hit the fan.

That's a good thing, too, because my daughter has been much more demanding than expected. She's what is known as a high needs baby (way different than a special needs baby), which has meant that she's required around 1.7 full-time stay-at-home parents. I've averaged around 10 hours of work per week (and the bulk of that happening between 9pm and midnight), first for the company that laid me, then (and now) in a similar situation for a company that I used to be partnered with back in 2011.

I'm less confident about the long-term feasibility of just living off the stash though, so I'm riding this out and hoping we can bank enough extra to build things up to where we will need them. Our expenses have grown from the ~$2900 I posted to around $3300. Healthcare has been a much larger cost than I ever anticipated, and having a high-paying job for the first few months of the year totally jacked with our ability to qualify for any subsidies. Next year should go better in that regard, but the uncertainty of my income means that we'll be waiting to take any subsidies as tax refunds rather than as discounts along the way.

I'll be back with another update in another 6 months or so. Cheers!

P.S. To any mods reading this: If it's appropriate to move this thread to the POST-FIRE section of the site, I'm cool with that.

[john c]

I appreciated the update.  I read this thread when you first posted it.  I'm sorry to hear that your first baby has been tough.  You'll get through it.

[Cranberries]

JGB: my income varies dramatically through the year, but I sucessfully qualified for ACA subsidies in real time by explaining the situation and sending documentation of what I was making, what I expected to make through the year, and why. It's been a bit of a hassle, but it they did accept it.

[JGB]

john c: Thanks for the support. The challenges Charlotte gives us are finally being met with as many good things as bad. She's crazy smart (at six months, she's crossing off milestones that range from 10-months [standing and walking on her own while holding on to a table] to 18-months [object permanence to the point of remembering where she left a toy several minutes after putting it down and moving on]. And when she's happy, she's really happy [just as when she's upset, she's REALLY upset]. I just look forward to her sleeping for more than 2-4 hours in a nighttime session with a regularity exceeding once every 2 months.

Botanist: The ~$40k I made in the first 4 months of the year was enough that any realistic amounts for the rest of the year put us firmly in the "not going to qualify for anything meaningful" range. I'll be happy if my accountant proves me wrong on this though, and won't turn down any related tax refunds. For next year I'm in the same boat as you describe, but I'm planning on paying full price anyway and then getting any assistance they send as a refund, mostly to avoid the complications that would come from being wrong about my estimations for how much I'm going to make.

[Sibley]

I don't have kids myself, but every conversation I've heard from parents on the topic suggests that the first year is just hard. It starts to get easier after that. Hang in there! There is no shame in asking for help either.

[lostamonkey]

On top of that, I have some outstanding business loan investments that provide a pretty sweet return: ~18k invested providing a reliable $500 per month with no impact on the principal. Eventually this will be paid back in chunks that reduce the balance, but we're 6-months to a year out from the first reduction.

Isn't this illegal? I'm not sure what state you live in but the interest rate on that loan would probably be considered usury.

[JGB]

On top of that, I have some outstanding business loan investments that provide a pretty sweet return: ~18k invested providing a reliable $500 per month with no impact on the principal. Eventually this will be paid back in chunks that reduce the balance, but we're 6-months to a year out from the first reduction.

Isn't this illegal? I'm not sure what state you live in but the interest rate on that loan would probably be considered usury.

It's a bit more complicated of an arrangement than my summary laid out. The lion's share is split between two investments in small businesses. Both have profited enormously as a result of the timely cash infusions; I can assure you everyone involved is thrilled with it and finds the terms more than fair. In fact, in all cases the recipients proposed the terms to me.

Additionally, I believe that usury laws are typically only applicable to personal or consumer loans. Glancing over a few states that I've lived in, I'm seeing loans to businesses explicitly stated as not applying w/r/t usury in some cases, and rates limited to 45% APR in another.