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Follow your dreams.
If you love what you do, you will never work a day in your life.
We have all heard the above advice, but how does one actually go about doing it?
We may find ourselves stuck in the corporate world and only daydreaming of what it would be like to be your own boss as an entrepreneur.
I am incredibly fortunate that as this site continues to grow, I get more pitches from those who wish to have a guest post published on Xrayvsn.
There is a fair amount of submissions that I unfortunately have to turn down but, every now and then, I come across a real gem that meets the cut and I am happy to share with my readers.
One of my viewers, Logan, a CPA who is behind the blog, Money Done Right, wanted to share with us the lessons he learned when he broke the bonds of the corporate world to pursue his dream of entrepreneurship.
About a year and a half ago, I quit my job to pursue entrepreneurship full-time.
I said my goodbyes, went down the elevator, proceeded through the automatic glass doors, walked to the parking lot, and drove home.
No, mine wasn’t a passionate exit; to the end, it was “corporate.”
I did not scream, “I quit!” to my boss.
In fact, I gave a four-week notice!
This was only fair; my job had been good to me over the years.
I received raises and promotions and developed skills that will serve me the rest of my career.
So rather than a spur of the moment decision, my departure from my until-then corporate reality was a carefully thought-through decision that was over a year in the making.
And because I had so much time to prepare for my departure from corporate employment, I was able to take financial steps beforehand to maximize my financial position, both now and down the line in retirement.
3 Financial Steps I Took Before Quitting My Job.
Leaving steady employment to start your own business should not be taken lightly, and there are many things to consider.
Yes, you should have an emergency fund.
And yes, you will need to figure out health insurance and maybe even life insurance if you previously had these protections through your employer.
But there are a few things that many people don’t think about because they’re not as urgent as, say, being properly insured, and these are three of the things that I’ve focused on here.
1. I figured out what to do with my pension plan.
It’s rare these days to find a company that still has a good old-fashioned defined benefit pension plan.
I was lucky enough to work for one such company.
And while I was working there, I frankly didn’t pay too much attention to my pension plan.
Unlike my 401(k) plan, I had absolutely no control over my pension (other than, of course, deciding when I would leave the company).
So as I was planning my departure from my company, I also had to think through what I would do with my pension plan.
Here’s what I did.
I made sure I was vested.
First, I called my company’s human resources department to make sure that I was fully vested in my pension plan.
They told me that because I had completed at least five years of service with the company, I was indeed fully vested.
So now I knew that by leaving the company when I was planning to, I wouldn’t lose my pension.
Now, this is as far as many people will go when researching their pension before quitting their job.
But I took it a step further.
I figured out if I should keep my pension as a pension or roll it into an IRA.
My next strategy was to determine if I should keep my pension as a pension — that is, something that paid me a certain amount of money every month for life after I turned age 65 — or if I should roll it into an IRA.
How could I roll it into an IRA?
Well, my pension gave me the option of receiving a lump sum cash payment after leaving the company (and yes, I had to get this amount from my human resources department as well).
Now, I couldn’t make the pension vs. IRA decision simply by flipping a coin; it required some math.
The gist of it is that I calculated how long I would have to live in order for my pension distributions to provide me with more economic benefit than the lump sum amount invested in an IRA account at a certain rate of return.
After crunching the numbers, I found that I would have to live a good number of years past 100 in order for the pension route to make more sense than the IRA with a seven percent average annual return.
Now, I’m a big fan of modern medicine, and I think that we will see more and more centenarians in the years to come, but I’m not sure if I’ll make it past 100.
So, based on the math, I opted to roll my lump sum pension payment into an IRA account and invest it in low-cost index funds.
2. I figured out what to do with my 401(k) plan.
In addition to the pension plan, my employer also offered a 401(k) plan.
Now, similar to my pension plan, I had to decide what to do with my 401(k) plan: should I roll it into an IRA, or should I keep it as a 401(k)?
This decision came down to two things: investment options (and their attendant fees) and administrative fees.
Like most if not all corporate 401(k) plans, my investment options in the plan were limited to a handful of funds.
So you might think that I rolled my 401(k) account into an IRA account where I would have my pick of thousands of securities to invest in.
But I didn’t do this.
See, my 401(k) plan offered funds that aligned with my investment goals and had very low fund fees.
In fact, some of these low-fee funds were able to keep their fees so low precisely because they were part of a large corporate plan; I would not even have access to these particular funds if I were to roll my 401(k) into an IRA.
This being the case, I saw no need, at least from an investment perspective, to roll my 401(k) plan into an IRA.
Now, just because the investment options in my 401(k) plan had low fees in and of themselves doesn’t mean that I was out of the woods yet when it came to retirement plan fees.
See, 401(k) plans themselves — independent of the investments held within them — come with their own administrative fee or fees.
Now, 401(k) plans can vary widely in their fee structures.
Knowing this, I consulted my human resources department (are you seeing a pattern here?) to determine exactly how much the fees added up to annually for my 401(k) plan.
I was thrilled to learn that my plan only charged a $25 annual administrative fee, no matter the balance.
This amount was negligible, especially considering the low fees I was paying on the investments themselves, so I decided to keep my existing 401(k) plan rather than rolling it into an IRA.
3. I figured out what to do in case my business failed.
The thought of quitting my job to pursue what was then my side hustle full-time was exciting, especially as my quitting day drew near.
But while optimism is essential when making a big transition in life, it’s also important to have a plan in place in case things don’t go as well as hoped.
With that in mind, I took steps to make sure that my family and I would still be okay financially in case my business crashed and burned.
Here’s what I did.
I Didn’t Burn Bridges at My Job.
In the weeks leading up to my last day at work, it was extremely tempting for me to sit back and coast.
Although that would certainly have made life easier, it wouldn’t have been smart.
I wanted to make sure that if things didn’t go so great with my business, I would have a good shot at being re-employed by my old employer.
So rather than slacking off, I did everything I could to ensure a smooth transition as I left the company.
And on my last day, I made it a point to personally say goodbye to everyone in my department and to shake their hand.
I also made sure to keep in touch with others at the company after I left, if only through email or social media.
I Shifted My Portfolio Allocation.
I simply didn’t see holding onto a large amount of cash as an option, especially with the sub-1% interest rate environment at the time.
I knew, however, that the smart thing to do when walking away from a tidy biweekly paycheck is to have a large amount of cash reserves to cover costs in case business revenue tanks.
So, painful as it was, I took some gains in my investment accounts and began sitting on cash to hold me over for a few months if things took a turn for the worse.
How It All Turned Out.
I’m happy to say that I have been running my own business full-time for the past year and a half, and things have been going better than I had ever expected.
Business Is Up!
Revenue and profits have consistently increased quarter-over-quarter, meaning that I haven’t had to tap into any emergency savings.
Because of this, I’ve been able to gradually reinvest back into the market most of that cash I had taken out of the market previously.
So I’m back to the more aggressive portfolio allocation that I feel is more appropriate for my age and risk tolerance.
On a personal note ,my wife has also been able to quit her job to care for our first child who was just born in May.
I also have far more time than I did when I was working a stressful corporate job with long hours — and I’m able to run my business from home, which gives me more family time.
But Am I Betting Too Much On It? Or Not Enough?
My particular business model has rather low operating expenses — I could cut 90% of business expenses next month and revenue would likely not suffer by any material amount.
This is to say that the vast majority of business expenses I have relate to future growth, which is to say that they are more like “investments” in my business rather than operating expenses.
So, touching back on portfolio allocation, I’m left with a hard decision to make: how much of my business revenues should I reinvest back into the business, and how much should I take out of the business to not only fund our lifestyle but also invest in traditional investments such as stocks and real estate?
I’m not saying I have all the answers, but right now I am taking out roughly half of my business revenue to fund our lifestyle and invest in the market while reinvesting the other half to fund future growth.
So while I believe in my business and that it could become a seven- or even eight-figure company someday, I understand that any business could fail, which is why I invest a significant portion of my business revenues into “safer” investments.
Logan is a CPA, personal finance expert, and founder of the finance blog Money Done Right, which he launched in July 2017.
After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money.
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