"Should I..." Series: Start My Dream Business, But Leave My Secure Job

Should I start my dream business while the economy is good?  I have enough money to get my business started, but I would be leaving a secure job.  What advice can you give me based on what you have seen from your clients?

If you are even considering being an entrepreneur, then chances are you already have the work ethic and drive to be successful. If you are thinking of becoming a business owner, then surely a strong and growing economy can only help your cause. 

In addition to having enough money to start the business itself, you need to have money saved to replace the paycheck you are giving up. What if you can’t afford to pay yourself for 6 or 12 months? How will you pay your mortgage, car insurance, children’s daycare, or the multitude of other expenses that you have? Where will your health insurance come from? 

You also need to have a source of additional capital for your business. This may be additional savings you have, a loan from a family member, or a line of credit with a bank. One thing is almost certain, once you open the doors you will need more money at some point or another. 

Starting a business has infinite challenges and obstacles that must be overcome…there are entire books written on this very subject. The risks you take will hopefully lead to a great reward down the line. Make sure you are financially prepared before taking the plunge.

"Should I..." Series: Interest-Free Credit Cards

Should I take advantage of a 0% interest credit card?  What are good rules to follow regarding these offers?

Full disclosure -- I have fallen for this before. When I was just out of college, I was making a big purchase and was offered to open a store credit card to give me 5% cash back and 0% interest for a period of time. I accepted, with the plan of immediately paying off the purchase with cash I had. In my mind, that was a free 5% discount. 

The unfortunate reality for most people is that store cards will end up costing them more in the long run. Even if they start with good intentions, many people do not fully pay the purchase off before the deadline.  If you can’t pay it off quickly before the interest charges kick in, it will cost you more over time. 

Many store credit cards carry interest rates of 20% or higher. A good question to ask is, would I be willing to pay 120% of the retail price for that item? Stick to cash or debit cards, or credit cards you already have if you are capable of paying them off each month. 

One last thing:  never open a new credit card if you are in the process of getting approved for a loan, or think you may in the next 3-6 months.

"Should I..." Series: Buy a House Now or Wait

Welcome to my “Should I…” series!  In this series, I will answer questions that I hear frequently from my clients.  I would love to answer your questions too.  So leave any questions you may have in the comments below and I will answer them in a future “Should I…” post.

Should I buy a house now?  I have a down payment saved up but I know home prices are high right now.  Should I wait and hope they fall?

You know what they say about trying to time the market, right? Well, the same can be true for real estate. As a buyer, you are obviously looking for the best house your money can buy you, and right now, houses are expensive. But don’t let that deter you from purchasing a home…if you are ready. Instead of focusing as much on the perceived “hotness” of the housing market right now and what you think it may or may not do in the future, turn your attention to the other factors that matter just as much. 

First, get pre-approved for a loan before you even start to look. Even better, after you’ve been pre-approved, look at your budget to determine what you can actually afford, not just what the bank will lend you. Where do you fall within the Housing Expense Ratio and Debt-to-Income Ratio? In addition to a down payment, will you need additional capital up front to update anything before you move in? There are ALWAYS unexpected expenses that come with owning a new home.

Second, find a reputable realtor that will help you with your buying process. Most often, the seller pays real estate commissions for both sides of the transaction, so there is no cost to you in having a good realtor. It could, however, be costly if you don’t. 

Third, determine where you want to be. You may envision yourself in a specific neighborhood or part of town because it fits your life right now. But have you considered the schools in that area (even if you don’t have kids)? Have you checked out the property taxes there?  How about traffic and your commute, growth of the city and surrounding areas, parks and community resources, or other variables? These may not necessarily matter to you now, but they may in the future and can also affect re-sale down the road. 

Buying a home should not be done solely based on the purchase price. It is one of the biggest purchases one will make in their lifetime. Be pro-active, and when the time is right for you, you will find a great place to call home.

"Should I..." Series: Sell My House to Realize the Equity

Welcome to my “Should I…” series!  In this series, I will answer questions that I hear frequently from my clients.  I would love to answer your questions too.  So leave any questions you may have in the comments below and I will answer them in a future “Should I…” post.

Should I sell my house now to take advantage of the equity while prices are still high?

You can certainly cash in the equity you have to move into a house that is bigger, in a better neighborhood or school district, or just better meets your family’s needs. 

But keep in mind that chances are the new house you’re looking at has also increased in value and thus your equity may not get you as far as you think (or hoped) it would. Crunch the numbers to be sure you will be able to afford the new monthly expenses associated with a larger, more expensive house and that the equity you take out of your home will cover the down payment for a new one. And will you have to use any of that equity for moving expenses, new furnishings, or remodeling?

Conversely, we get the question all the time of whether it makes sense to sell your current house to downsize to something smaller, and keep that equity. In all likelihood, downsizing to a smaller house in the same area may still require all of the equity you get out of your current house, after paying off any mortgage.

Some people consider selling their home, investing the equity and renting until housing prices come back down. But can you truthfully say you know when that will be? Not to mention, you give up a fixed monthly mortgage payment for the risk of paying increasing rents which are beyond your control.  

"Should I..." Series: Sell My Business

Welcome to my “Should I…” series!  In this series, I will answer questions that I hear frequently from my clients.  I would love to answer your questions too.  So leave any questions you may have in the comments below and I will answer them in a future “Should I…” post.

Should I sell my business while the economy is up?  I had planned to sell in about two years, but I am wondering if I should do it now while the economy is good, since we don’t know what the future will bring.

One thing I can say unequivocally is that it takes longer to sell a company than most business owners envision it will. There are so many factors that go into a successful sale or transition of ownership. In fact, research from the Exit Planning Institute has found that 70% of businesses that are put on the market do not end up selling. So what can you do if you plan to sell in two years or 10 years? Start planning now! 

Ask yourself important questions like:

·     When do I want to exit?

·     How much after-tax income in today’s dollars do I need?

·     What would an ideal transition look like to me?

·     Do I have a transition plan in place?

·     Could my business operate effectively if I wasn’t here?

The truth is, this simple question requires such a complex analysis and answer that you should speak with an advisor who can help you through this process. To get you started, I have written a book called One Shot that can be a great resource for you. You can click here to read it.  hen you’re ready, let’s discuss an action plan to maximize the wealth you generate from the sale of your business.

"Should I..." Series: Sole Proprietor

Welcome to my “Should I…” series!  In this series, I will answer questions that I hear frequently from my clients.  I would love to answer your questions too.  So leave any questions you may have in the comments below and I will answer them in a future “Should I…” post.

As a sole proprietor, should I open a SOLO 401k plan?  Or is an IRA or a Roth IRA a better idea?  I am just starting my consulting business and expect to gross roughly 200k this year with a 140k income.

I recommend you open both a SOLO 401k and a Roth IRA.  With a Roth IRA, you invest after-tax dollars and get the benefit of taking out the money free and clear (with no taxes) when you retire.  You are also able to withdraw the money from your Roth IRA should you need it pre-retirement with no penalties. If your adjusted gross income exceeds $120k (assuming you are single), you cannot fully contribute to a Roth IRA, so talk to a financial advisor about a backdoor Roth IRA, which is a great option.  If you want to save more than the Roth IRA max ($5500 if you are under 50; $6500 if you are over 50), opening a SOLO 401k is a good way to do it.  It will allow you to contribute up to  $18,500 if you are under 50, and $24,500 if you are over 50.  Plus, you can contribute 25% of your salary up to a maximum $55,000 (or $61,000 if you are over 50).  There are lots of factors and regulations to consider, so please let me know If I can help!

"Should I..." Series: Close to Retirement

Welcome to my “Should I…” series!  In this series, I will answer questions that I hear frequently from my clients.  I would love to answer your questions too.  So leave any questions you may have in the comments below and I will answer them in a future “Should I…” post.

Should I come out of the stock market when it fluctuates if I am 5 years from retirement?

At five years out from retirement, your portfolio should be diversified to provide both safety and growth.  You will be withdrawing money from your retirement fund a little at a time over as many as 20 – 30 years.  So, some of your funds should be in safe investments and readily available and some should remain in growth stocks so the money you won’t need to access for 20 years or more will still be working for you and taking advantage of market upswings.  If your portfolio is well-structured and diversified, there is no need to panic when the market fluctuates – even if you are five years from retirement.

Not sure if you are invested correctly? Click here to find out.

"Should I..." Series: 401k

Welcome to my “Should I…” series!  In this series, I will answer questions that I hear frequently from my clients.  I would love to answer your questions too.  So leave any questions you may have in the comments below and I will answer them in a future “Should I…” post.

Should I invest in my 401k beyond the employer match?

Yes!  I know that sometimes a financial advisor will suggest that you should just invest in your 401k to the point of the employer match, and use any remaining money you have earmarked for savings in an investment account, Roth IRA or traditional IRA. Unless you are a seriously disciplined investor who will, consistently and without question, invest additional money monthly into an investment account, I say put it in your 401k.  It’s simple, it’s done automatically, you don’t have to think about it and you won’t be tempted to skip a month or two to spend that money on a vacation.  Being a disciplined investor is the only way to set yourself up for a comfortable and worry-free retirement.