Author Topic: Pivoting to self employment after 15 years and freaking out over expenses!  (Read 821 times)

WiscoBadger2003

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First time caller, long time listener here looking for advice/feedback/comments as my wife and I work together raising our 3 kids on this life journey toward FI.  If I am in the wrong forum, please point me in the right direction and I will move to the right spot.  There is so much info in these forums it is a bit overwhelming to start.

Not sure how much private info we want to share, but we have sooo many questions to ask and no hard goals set right now besides optimizing everthing from budget, to quality of work/life balance.

Background:  Wife & I started working full time post college in 2003, this continued until kid #2 was born in 2013.  Today she is full time SAHM with our 3 kids, which is definitely more work than her full time job in the past!  I transitioned to part time at my main job in 2017 to transition to a seasonal self employment business from home and out of the office/cubicle 60hours per week.  Very exciting time for us, as we will both be home more while our kids are young, but also a bit nerve racking as we are now paid once by our core clients for annual service and we need to navigate monthly expenses and health care!  Additionally we have 3 rentals that maintain themselves financially and very slowly build up cash as debt service levels are low on them.  Our only personal debt today is our mortgage.

Past system was our paychecks were direct deposited into our 'Family Savings Account' and a monthly auto transfer went to out to our main 'House Checking' where all regular bills paid, budgeted saving items had a auto transfer to each savings account, leftover cash not allotted was 'Spend' money for groceries/gas/toiletries/house repairs and transferred to the 'Family Checking Account'.  Typically House Checking was near zero balance to start/finish the month.  Evolving this system to have close to 12 months of savings in 'Family Savings Account' at year end for the following year, than there is no rush to wait for annual income payments.  Currently concerned my new monthly draw is growing bigger than my anticipated income.  Only answer is to increase income and/or reduce expenses, both seem to be a bit difficult to happen fast.

2018 Goal Checklist:
 - Need to figure out how to use HSA Card account from previous employer or setup a new one
 - Figure out plan to grow Family Savings account to 12 months of expenses
 - Figure out how to start saving for Retirement again as well as Investments, feels like a slow sinking ship today with high insurance/monthly costs.
 - Take a family vacation of some sort, we haven't taken one beyond a couple day trips in over 2 years now and the kids are growing up fast.

2018 Gross Income (or net business income): varies a bit year to year, but ~$90k for 2018 (Year 2 of 4 year business acquisition deal)
 - This will increase in Year 5 as we currently pay % of gross to prior business owner as buyout
 - Paid once annually by most clients between April-July each year
 - Rental income stay in separate business rental account, not accounted for in personal budget
 - All investment income gets re-invested, no pull today

PAST 2016/2017 Prior rough estimates before buying business:
 $120k gross business
  -10k biz expenses annual
 $110k income after exp
  -25% buyout (2016/2017/2018/2019)
 $82,500 pre tax
  -35% taxes (Fed/State/Self Employment)
 $54k post tax
  divided by 12 months
 $4,500 per mo
  -900 Insurance est. 2017
 $3,600 budget income per mo

April 2018 Budget $3,600/mo
-$0 Retirement savings
-$0 Health/Dental/Vision/Disability insurance paid by part time employer & paycheck deduction (ENDS 4/30/2018)
-$0 HSA (Health savings account) paycheck deduction by part time employer (ENDS 4/30/2018)
-$1,167 mortgage
-$951 Periodic Bills Saved Monthly
     -$343 Property Taxes
     -$69 Home Insurance
     -$255 Annual Gift Savings (save up for 2019 gifts)
     -$27 Umbrella Insurance
     -$50 Auto Insurance
     -$60 Term Life Insurance for each of us
     -$46 Water Bills (paid quarterly)
     -$17 License Plate Renewal
     -$72 YMCA Family Membership
     -$12 Identity theft Insurance
-$180 Gas/Electric bill
-$116 Cell phone bill w/ Sprint (unlimited SMS/talk/data)
-$75 Car Repair Savings
-$150 DH Free Spend Fun Money
-$150 DW Free Spend Fun Money
-$50 Slush Fund for periodic activities (kids sports/classes/etc)
FAMILY NET SPEND: $761
     - Groceries/Gas/Toiletries/Repairs/etc

April 2018 Reality:
 - Left long time employer in April (planned exit to focus on business, part time since 2017), they covered all health insurance in past
- 4/17 transferred $200 extra into SPEND since $16 left and needed essentials (diapers/milk/etc)
 - 4/24 transferred $100 extra into SPEND since $16 left and summer kids fees (Soccer and gymnastics)
 - 4/30 transferred $30 extra into SPEND since $10 left (no idea what this one was for)
- Finished 2017 Taxes, put $11,000 into ROTH IRA's from Cash Savings account to fill 2017
 - Not the first month we ran out by mid month, how do we identify the issue here?
    - Is the main issue not enough income?
    - Are we spending too much in Net Spend? (Already shop essentials at Aldi/Sam's Club, bulk discounts)
    - Is too much spent on Periodic bills? Cell plans?
    - We don't even have retirement savings or charity contributions here
    - This number will get much bigger once Health Insurance monthly spend need is figured out, yikes!
 - Future Budget Impacts:
    - $1,375/mo Health Insurance through HC.gov nearby plan ($14,600 family annual max)
    - $81/mo Dental Insur Prem through Metlife
    - $91/mo Disability Insur (thru 65) with Assurity (ESTIMATE)
    - Skipped Vision insurance, will pay as we go from HSA Card account
    - $6,850/year Health Savings Account (~$571/mo)
    - IMPACT: $2,118/mo Medical/Dental/Disability costs vs $900 Estimate YIKES!!
    - Will we need $3,600 + $2,118 + $330 = ~$6,048/mo to get by? That is $72,576/YEAR!

End of April 2018 Current NW (not counting Retirement Account/HSA):
    - Family Savings (income goes here and monthly draw out): $28k
    - Investment Accounts: $18k
    - House: $191k - $155k (mort 2.75% 15yr) = $41k
    - Rentals: $393k - $84k (mort 4.25%) = $309k
    - Self-Employed Business: $9k
    - Cash Savings Accounts: $42k (includes $27k of 2018 quarterly est tax payments)
    - 2013 Family Van: $7k (Trade-in)
    - 2007 Work Car: $500 (Trade-in)
    - SUBTOTAL: Just over $450k net


May 2018 Budget: $5,137 (or just over 5 months left in Family Savings $28k/$5.1k)
-$0 Retirement savings
-$1,167 mortgage
-$1,375 Health Insurance
-$162 Dental Insurance (bill 2x for first month pays retro active to 5/1 & June)
-$0 Disability Insurance (not activated today, still in signing up process)
-$0 Health Savings Account Contribution
-$951 Periodic Bills Saved Monthly
     -$343 Property Taxes
     -$69 Home Insurance
     -$255 Annual Gift Savings (save up for 2019 gifts)
     -$27 Umbrella Insurance
     -$50 Auto Insurance
     -$60 Term Life Insurance for each of us
     -$46 Water Bills (paid quarterly)
     -$17 License Plate Renewal
     -$72 YMCA Family Membership
     -$12 Identity theft Insurance
-$171 Gas/Electric bill
-$116 Cell phone bill w/ Sprint (unlimited SMS/talk/data)
-$75 Car Repair Savings
-$150 DH Free Spend Fun Money
-$150 DW Free Spend Fun Money
-$50 Slush Fund for periodic activities (kids sports/classes/etc)
FAMILY NET SPEND: $770
     - Groceries/Gas/Toiletries/Repairs/etc

Acastus

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On the healthcare side, if your reportable net income is 82.5k, you should easily qualify for subsidies with a family of 5. You still qualify for less help if it is 110k. Federal poverty level for 5 people is 28,780, and 4 x FPL is 115k. The income limit for subsidies is 4 x FPL. You can probably reduce your cost if you and spouse use the Marketplace plan, and you sign the kids up for CHIP. I will guess your monthly payment for a silver plan will be about $800/mo. You should be able to claim the credits at tax time, but you are probably stuck with the larger bill for the rest of 2018. It is worth asking the insurance company if they can recalculate your subsidy.

If you could fund an IRA or self 401k, that would further reduce your AGI and give you some breathing space. I realize that is something of a Catch 22 if don't have money to spare now.

Budget:  Ditch the Y, and pool your car and slush funds. That gives you $500/mo to play with. The hardship is just for 7 months until you get things settled in 2019.