How Starting A Business Will Impact Our Finances

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How Starting A Business Will Impact Our Finances

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On February 1st, I launched my new planning firm, FI-nancial Planner.

I want to talk about the inner workings of quitting a full-time job and creating a new company. In contrast to the popular wisdom of starting a side-hustle and making the leap when the new business can support you, my industry does not allow that. Therefore, I will have to start from scratch.

How Will We Meet Our Expenses?

There are numerous studies, notably those from the XY Planning Network (an organization that helps planning firms launch) that show the projected income for new planning firms. According to these studies, the average income in the first three years is the ballpark of $5,000, then $30,000 then $70,000.

Further, those who coordinate the studies state it could take three years or more to get back to the earnings level of the job you left.

Given this projected income stream and the fact that I will need to make $20,000-25,000 to make our household finances meet, the first year or two may be the toughest. 

What are the implications for our finances and how did I plan to make this change? Because I expect to have to pull $25,000 or more from our savings, we have moved that amount into cash in a high yield savings account. Also, I have changed our investment allocation to provide for an additional year or two worth of needs to be in less risky investments–bonds.

It’s important to have safe, accessible cash for two reasons.

One, it will provide me the confidence and help me avoid the feeling of desperation as well as make sure we don’t have the risk of losing any principal right before we need it.

Two, having a few years worth of cash reserves will also allow me to give this opportunity the full chance it deserves. I’ve heard from multiple sources that the first two years are by far the hardest.  What good would it be only to allow myself 18 months to get this company up and running?

Related: What To Expect When Working With A Financial Planner

Pulling Extra from Savings To Fund Retirement

While we have reduced income and our living from our taxable savings, we have also reduced our retirement savings.

We have lowered the contributions to the minimum to get the match. Getting a 100% match on retirement contributions is too good to pass up. Even if it means we pull a little more from our savings to make it happen. 

We are also still contributing the maximum to our HSA. The oft talked about the benefits of the HSA are valuable enough to continue to plow money in there. 

Finally, we are still contributing to our dependent care FSA accounts. The Dependent Care FSA is a tax-advantaged account for an expense we incur anyway, so there is no downside to continuing to fund that vehicle fully.

Essentially, we will be pulling extra money from our taxable accounts to fund these accounts.

Value Proposition Of FI-nancial Planner

What pushed me over the top to launch my own firm was that in working with my own planner and separately with a client who was in the FI community, I realized that the vast majority of planners don’t know or understand the principles of FIRE. Integrating the principals of the movement with my own life as well as helping others achieve their goals would be a fantastic way to live out a lifestyle change.

While I understand that the FI community is primarily made up of DIYers, given the magnitude of the options and unique situations out there, there is an opportunity to get value out of working with an advisor. Both from investing and tax optimization standpoints.

I suspect I will provide a lot of second opinions for folks who want to confirm their calculations before deciding to pull the plug on their careers. I also expect to walk through the details and reassure many spouses that the calculations do actually work. Hopefully, I'll be able to talk through people's dreams and help them fully chase them if they've already achieved FI, or to undergo a lifestyle change and pursue a more balanced life.

If this resonates with you, I would be more than happy to discuss your situation and see how I could help you. Please reach out via my website or comment below. I am happy to get any feedback as I try to make this business provide value to the community as well as my family.

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How Starting A Business Will Impact Our Finances

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