The following is an excerpt from How to Engineer Your Layoff. If you're interested in quitting your job and profiting from it, this book is for you! Today's post gives reasons you should NOT quit your job. Tomorrow's post will tell why you should.
“If you fail to prepare, you're prepared to fail.” – Mark Spitz
Before getting too excited about jumping off the deep end, it’s always good to play devil’s advocate and study what’s in the water below. There might be a large boulder just underneath the water’s surface, ready to break your bones upon landing. Patience is a virtue under such circumstances as you wait for the tide to recede.
It took me two years (from 2010) to muster up the courage to jump off my cliff because of the following reasons:
Reasons Why You Shouldn’t Quit Your Job
There’s probably no harder thing to do than be a successful entrepreneur. Sure, anybody can say he is an entrepreneur, but real entrepreneurs are successful. If after three years you aren’t making at least the per capita income of your state, then you are not a real entrepreneur. You are just a hobbyist.
Being an entrepreneur means not only coming up with an idea, it means being the secretary, accountant, marketer, salesman, HR manager, and engineer. Nobody is good at everything, which means that you will surely have weaknesses in some or many parts of your business. If you don’t have the discipline to focus on your work for hours at a time, then you will not succeed. If you do not have the patience to see things through from start to finish, you will not succeed. If you are used to only working 40 hours a week at your day job and think that’s hard, then I suggest you keep on working at your day job.
There are too many fantasies floating around about the benefits of being your own boss. They are all true, but only for those who have made it! The good thing about being your own boss is you will care less about all the hours you work, because you are working solely for yourself. Just don’t kid yourself into thinking entrepreneurship is easy, because it is not. For three consecutive days, I worked from 7:30 am to 1 am nonstop without food or water because I had so much to do.
The lack of sustenance did not phase me until I tried to get up and couldn’t. I was exhausted and needed a break.
You Have No Savings
If you have no savings, you better have some financial backing from family and friends if you are planning to leave your day job. If you have neither, then you are shit out of luck and need to start saving like a mad person before taking the leap of faith.
I suggest savings of at least one year of annual operating expenses before you make your move. A year buffer should give you enough time to figure out whether your idea will be a success or a complete failure. You might point to the fabulous success stories of people like Bill Gates and Mark Zuckerberg who started Microsoft and Facebook respectively without any savings, but you’d be wrong. Mark Zuckerberg’s father was a dentist, and his mother was a psychiatrist. Bill Gates’ father, William H. Gates, Senior was a prominent lawyer, while Bill’s mother served on the board of First Interstate BancSystem. Yes, Mark and Bill both came from wealthy families who could support their sons for the rest of their lives!
Sure, there are many examples of people who somehow strike it rich without any safety net, but guess what? There are even more who fail and end up with nothing. You can say you don’t care about your safety net, but if you fail, you will have nothing. If rich people fail, they get to go home to filet mignon and caviar and try again!
You Have No Experience
One of the most perplexing things I see time and time again are inexperienced people telling others what to do. It’s as if every one of these quacks stayed at The Holiday Inn Express one evening and woke up the next day as gurus!
Can you imagine getting advice on how to buy property from someone who has been a renter all his life? Or getting financial advice on how to be a millionaire from someone who has a negative net worth? This kind of crap happens all the time online, and I implore you not to join the ranks of fakers.
There’s a growing saying that in order to become an expert you need 10,000 hours of practice. If you practice 40 hours a week, you can become an expert in five years. As such, try and put in at least several years of time in the workforce before going out on your own. During this time, you’ll build your savings, learn how to play nice with others, and most of all, mature as a person. Nobody is going to give you any respect as a 25-year-old CEO with no experience unless you are incredibly intelligent and have a deep Rolodex thanks to mommy and daddy.
Spending five years in the work force, ideally with the same employer, also makes you a prime candidate for engineering your own layoff.
The things you think you know, but don’t actually know are dangerous. If you jump too soon, you’ll end up leading a life of delusion, wondering why things don’t work the way they are supposed to. With five or more years of hands-on work experience, you’ll gain perspective and begin to see things differently. And you’ll also realize how little you really knew when you graduated from college.
You Think Getting Rich Is Easy
I know a woman who kept telling me, “I’m going to build a $100 million dollar company.” She was 24 years old and just started a business connecting virtual assistants with busy people who needed to get things done on the cheap. When I asked her how she planned to get to the $100 million valuation mark, she shrugged and said with great determination, “I will find a way.” As a financial guy, I cringed, but I enjoyed her company and didn’t want to spoil her mood.
In order to sell her company for $100 million dollars, she’d need at least $10 million a year in net profits and another company willing to pay a 10X multiple. During this time frame, she would also need to survive amongst well-funded competitors and vicious economic down cycles. Could she make it? Absolutely. But chances are, she will fall far short of her goal. Good looks alone aren’t enough to create an empire.
We’ve kept in touch for years and I’m proud to say that she has built her business into a profitable company. She told me recently she’s “no longer seeking to sell for $100 million.” Instead, she’s looking to create as much value as possible, presumably, because she’s run the numbers, and realized $100 million is not as easy as it once seemed.
It took me six years to amass my first million dollars. I worked 70-80 hour weeks and saved 50-75% of my after tax income while taking some big risks in stocks and the real estate market. I could have very easily lost several hundred thousand dollars if my timing was off. In fact, I did lose several hundred thousand dollars in the 2008-2010 downturn! But by this time, I had accumulated another million dollars in net worth to weather the onslaught.
Getting rich is not easy. It takes congruent thinking, discipline, and persistence. I believe everybody will become rich if they have the right personal finance fundamentals and are given enough time. It’s delusional people who think getting rich is easy who are most unlikely to ever get rich themselves.
You Still Live In Your Mom’s Basement
It’s become cliché to start a company in your garage or mom’s basement. Unfortunately, these Hewlett Packard success stories are few and far between. If you still live at home with mom and dad and are over the age of 21, you need to shape up and get the hell out!
Your parents didn’t raise you for 21 years to be a deadbeat. At 21, you’re old enough to drive, drink, smoke, copulate, and run for Congress. Give your parents a break and get out of their hair, unless they really, really want you to stay with them.
Sure, you can save money for a down payment by staying at home for a couple of years after college. However, just make sure the two years don’t become five years, or goodness forbid 10 years. If you can’t make it on your own, how on earth can you run a successful business on your own?
At some point, you’ve got to take a leap of faith and do your own laundry. Cooking your mom’s meatloaf isn’t that hard. Your meatloaf might taste like urine soaked rubber tires, but at least you’ve learned the recipe and are eating your own poison.
Besides, if you want a love life, you’re never going to get any if you have to tell the girl you are wooing that you’ve got to sneak her in through the window. If you are a girl who lives at home with her parents, your challenge is less daunting because guys don’t really care, unless you have an overprotective father who has you on 24 hour surveillance.
You Don’t Want To Die Alone
There’s nothing worse than being alone. It doesn’t matter how much money you have. If you don’t have someone to share your wealth with, you might as well be poor. In the financial services industry, I see many women who are at the top of their game. They are high-powered executives making hundreds of thousands, if not millions of dollars a year. Unfortunately, a good majority of them have nobody to go home to. I’m not sure whether it’s because they’ve dedicated so much time to their careers, or men are just wussies for not wanting to be with high powered women. Whichever the case may be, deep down, I suspect these women would give up everything if they had someone to share their lives with.
If you quit your job with no financial safety net and an untested model, you will likely end up alone. After all, if there’s a choice between a good looking, funny, rich guy and a good looking, funny, but poor guy, the rich guy will always win. It’s all about survival of the species!
It is likely that during your time of occupational transition, you will feel nervous and insecure. Being nervous and insecure is not conducive to finding a soulmate. With your back against the wall, you might lock yourself in a room and go into overdrive, working on your business or finding a new job. Again, your laserlike focus will also cut into your chances of meeting someone special.
To overcome this potential relationship downfall, you must plan and plan some more. Better yet, you might consider finding your mate and develop a strong relationship before you leave your job because you will need the moral support.
You Don’t Understand Taxes
If you go the entrepreneur route, you will start to see exactly how much you are paying in taxes thanks to the quarterly taxation payment system. Unlike paying taxes with your steady W2 job, an entrepreneur must cut four separate estimated tax checks to the government a year. Because each tax bill is for three months worth of estimated taxes, the bill is large. The act of sending such a large payment to Big Brother becomes excruciatingly painful.
You know the sickening feeling you get when you do your taxes once a year as a W2 employee? Just multiply that feeling by four times. Count on taxes taking up around 30% of your revenue. If you need $5,000 a month to survive, you must make around $7,150 in revenue! Whatever your monthly net income requirement is, multiply it by 1.5X to get your operating income hurdle.
Not all is bad when running a business. You get to deduct a long list of things that go into making your business work. These are your operating expenses, such as your computer, monthly phone bill, and so forth. Each operating expense lowers your operating income, which therefore lowers your tax bill. Just be careful not to go overboard and use your business as your personal party vehicle.
A list of small business taxes:
Take the time to learn basic accounting definitions and statements. The US SEC even has a beginner’s guide to financial statements. It’s important to compare your day job gross income to your own business’s operating income. Operating income is income after cost of goods sold, and operating expenses are everything that goes into running your business except for taxes. Do not make the mistake of comparing your day job’s gross income to your business’s revenue. Unless you have 100% net profit margins, you will be in for the financial shock of your life.
Recap Key Points
You shouldn’t give up your day job if:
“If you fail to prepare, you're prepared to fail.” – Mark Spitz
Before getting too excited about jumping off the deep end, it’s always good to play devil’s advocate and study what’s in the water below. There might be a large boulder just underneath the water’s surface, ready to break your bones upon landing. Patience is a virtue under such circumstances as you wait for the tide to recede.
It took me two years (from 2010) to muster up the courage to jump off my cliff because of the following reasons:
- Didn’t Hate My Job. What other job in the world allows you to talk to bright people everyday about what’s going on in the world? Not a day went by that something interesting didn’t happen. It might be a large IPO like Facebook, or a Greece recall election, or an earthquake in a manufacturing hub in China. Something always affects something else. I still enjoyed my job when I left. I just didn’t love my job like I once did when I first started and needed to take a break. Interests always fade after a while and I was fortunate enough to stay motivated for my 13 years.
- Not Enough Viable Income. Making several thousand a month in passive/side income is nice, but it was still way less than what I was making at my day job. I needed time to aggressively build my various income streams up to at least 30% of my day job income before I could feel comfortable leaving. I used 30% as a target because for the past three years I’ve been saving 70% of my after-tax income. Replicating 30% of my day job income would allow me to at least maintain my current living standards.
- Responsibility. I felt it was my duty to work for as long and as hard as possible to maximize my savings, because goodness knows not everybody gets the chance to make six figures. To quit so soon would be to take my opportunity for granted, which is something I never want to do.
- Tremendous Energy. When I first started my career in New York City, I regularly worked 14 hour days and 80 hour weeks. Even after taking on more responsibility, during my last four years of work, I “only” worked 50 hour weeks, with perhaps 10 of those hours spent entertaining clients, e.g., tennis, golf, meals, concerts, sporting events. As a result, spending an extra 4-5 hours a day after work writing blog posts was a piece of cake. There was no need to quit my job in order to dedicate more hours to my hobby. Only as time went on did I discover I was turning down things I would have preferred doing.
- Unforeseen Expenses. There will always be unforeseen expenses that arise when least expected. My car died the other week and cost $400 to repair due to a faulty alternator. My water heater exploded last year, taking a nice $1,200 bite out of my savings. And what if I have children? College tuition now costs $15,000-$40,000 a year depending on whether one attends a public or private institution. It’s scary to forecast what tuition will be in 20 years and it’s better to have more money saved than less.
Reasons Why You Shouldn’t Quit Your Job
- You think being an entrepreneur is easy.
- You have no savings.
- You have no experience.
- You think getting rich is easy.
- You still live in your mom’s basement.
- You don’t want to die alone.
- You don’t understand the significance of taxes.
There’s probably no harder thing to do than be a successful entrepreneur. Sure, anybody can say he is an entrepreneur, but real entrepreneurs are successful. If after three years you aren’t making at least the per capita income of your state, then you are not a real entrepreneur. You are just a hobbyist.
Being an entrepreneur means not only coming up with an idea, it means being the secretary, accountant, marketer, salesman, HR manager, and engineer. Nobody is good at everything, which means that you will surely have weaknesses in some or many parts of your business. If you don’t have the discipline to focus on your work for hours at a time, then you will not succeed. If you do not have the patience to see things through from start to finish, you will not succeed. If you are used to only working 40 hours a week at your day job and think that’s hard, then I suggest you keep on working at your day job.
There are too many fantasies floating around about the benefits of being your own boss. They are all true, but only for those who have made it! The good thing about being your own boss is you will care less about all the hours you work, because you are working solely for yourself. Just don’t kid yourself into thinking entrepreneurship is easy, because it is not. For three consecutive days, I worked from 7:30 am to 1 am nonstop without food or water because I had so much to do.
The lack of sustenance did not phase me until I tried to get up and couldn’t. I was exhausted and needed a break.
You Have No Savings
If you have no savings, you better have some financial backing from family and friends if you are planning to leave your day job. If you have neither, then you are shit out of luck and need to start saving like a mad person before taking the leap of faith.
I suggest savings of at least one year of annual operating expenses before you make your move. A year buffer should give you enough time to figure out whether your idea will be a success or a complete failure. You might point to the fabulous success stories of people like Bill Gates and Mark Zuckerberg who started Microsoft and Facebook respectively without any savings, but you’d be wrong. Mark Zuckerberg’s father was a dentist, and his mother was a psychiatrist. Bill Gates’ father, William H. Gates, Senior was a prominent lawyer, while Bill’s mother served on the board of First Interstate BancSystem. Yes, Mark and Bill both came from wealthy families who could support their sons for the rest of their lives!
Sure, there are many examples of people who somehow strike it rich without any safety net, but guess what? There are even more who fail and end up with nothing. You can say you don’t care about your safety net, but if you fail, you will have nothing. If rich people fail, they get to go home to filet mignon and caviar and try again!
You Have No Experience
One of the most perplexing things I see time and time again are inexperienced people telling others what to do. It’s as if every one of these quacks stayed at The Holiday Inn Express one evening and woke up the next day as gurus!
Can you imagine getting advice on how to buy property from someone who has been a renter all his life? Or getting financial advice on how to be a millionaire from someone who has a negative net worth? This kind of crap happens all the time online, and I implore you not to join the ranks of fakers.
There’s a growing saying that in order to become an expert you need 10,000 hours of practice. If you practice 40 hours a week, you can become an expert in five years. As such, try and put in at least several years of time in the workforce before going out on your own. During this time, you’ll build your savings, learn how to play nice with others, and most of all, mature as a person. Nobody is going to give you any respect as a 25-year-old CEO with no experience unless you are incredibly intelligent and have a deep Rolodex thanks to mommy and daddy.
Spending five years in the work force, ideally with the same employer, also makes you a prime candidate for engineering your own layoff.
The things you think you know, but don’t actually know are dangerous. If you jump too soon, you’ll end up leading a life of delusion, wondering why things don’t work the way they are supposed to. With five or more years of hands-on work experience, you’ll gain perspective and begin to see things differently. And you’ll also realize how little you really knew when you graduated from college.
You Think Getting Rich Is Easy
I know a woman who kept telling me, “I’m going to build a $100 million dollar company.” She was 24 years old and just started a business connecting virtual assistants with busy people who needed to get things done on the cheap. When I asked her how she planned to get to the $100 million valuation mark, she shrugged and said with great determination, “I will find a way.” As a financial guy, I cringed, but I enjoyed her company and didn’t want to spoil her mood.
In order to sell her company for $100 million dollars, she’d need at least $10 million a year in net profits and another company willing to pay a 10X multiple. During this time frame, she would also need to survive amongst well-funded competitors and vicious economic down cycles. Could she make it? Absolutely. But chances are, she will fall far short of her goal. Good looks alone aren’t enough to create an empire.
We’ve kept in touch for years and I’m proud to say that she has built her business into a profitable company. She told me recently she’s “no longer seeking to sell for $100 million.” Instead, she’s looking to create as much value as possible, presumably, because she’s run the numbers, and realized $100 million is not as easy as it once seemed.
It took me six years to amass my first million dollars. I worked 70-80 hour weeks and saved 50-75% of my after tax income while taking some big risks in stocks and the real estate market. I could have very easily lost several hundred thousand dollars if my timing was off. In fact, I did lose several hundred thousand dollars in the 2008-2010 downturn! But by this time, I had accumulated another million dollars in net worth to weather the onslaught.
Getting rich is not easy. It takes congruent thinking, discipline, and persistence. I believe everybody will become rich if they have the right personal finance fundamentals and are given enough time. It’s delusional people who think getting rich is easy who are most unlikely to ever get rich themselves.
You Still Live In Your Mom’s Basement
It’s become cliché to start a company in your garage or mom’s basement. Unfortunately, these Hewlett Packard success stories are few and far between. If you still live at home with mom and dad and are over the age of 21, you need to shape up and get the hell out!
Your parents didn’t raise you for 21 years to be a deadbeat. At 21, you’re old enough to drive, drink, smoke, copulate, and run for Congress. Give your parents a break and get out of their hair, unless they really, really want you to stay with them.
Sure, you can save money for a down payment by staying at home for a couple of years after college. However, just make sure the two years don’t become five years, or goodness forbid 10 years. If you can’t make it on your own, how on earth can you run a successful business on your own?
At some point, you’ve got to take a leap of faith and do your own laundry. Cooking your mom’s meatloaf isn’t that hard. Your meatloaf might taste like urine soaked rubber tires, but at least you’ve learned the recipe and are eating your own poison.
Besides, if you want a love life, you’re never going to get any if you have to tell the girl you are wooing that you’ve got to sneak her in through the window. If you are a girl who lives at home with her parents, your challenge is less daunting because guys don’t really care, unless you have an overprotective father who has you on 24 hour surveillance.
You Don’t Want To Die Alone
There’s nothing worse than being alone. It doesn’t matter how much money you have. If you don’t have someone to share your wealth with, you might as well be poor. In the financial services industry, I see many women who are at the top of their game. They are high-powered executives making hundreds of thousands, if not millions of dollars a year. Unfortunately, a good majority of them have nobody to go home to. I’m not sure whether it’s because they’ve dedicated so much time to their careers, or men are just wussies for not wanting to be with high powered women. Whichever the case may be, deep down, I suspect these women would give up everything if they had someone to share their lives with.
If you quit your job with no financial safety net and an untested model, you will likely end up alone. After all, if there’s a choice between a good looking, funny, rich guy and a good looking, funny, but poor guy, the rich guy will always win. It’s all about survival of the species!
It is likely that during your time of occupational transition, you will feel nervous and insecure. Being nervous and insecure is not conducive to finding a soulmate. With your back against the wall, you might lock yourself in a room and go into overdrive, working on your business or finding a new job. Again, your laserlike focus will also cut into your chances of meeting someone special.
To overcome this potential relationship downfall, you must plan and plan some more. Better yet, you might consider finding your mate and develop a strong relationship before you leave your job because you will need the moral support.
You Don’t Understand Taxes
If you go the entrepreneur route, you will start to see exactly how much you are paying in taxes thanks to the quarterly taxation payment system. Unlike paying taxes with your steady W2 job, an entrepreneur must cut four separate estimated tax checks to the government a year. Because each tax bill is for three months worth of estimated taxes, the bill is large. The act of sending such a large payment to Big Brother becomes excruciatingly painful.
You know the sickening feeling you get when you do your taxes once a year as a W2 employee? Just multiply that feeling by four times. Count on taxes taking up around 30% of your revenue. If you need $5,000 a month to survive, you must make around $7,150 in revenue! Whatever your monthly net income requirement is, multiply it by 1.5X to get your operating income hurdle.
Not all is bad when running a business. You get to deduct a long list of things that go into making your business work. These are your operating expenses, such as your computer, monthly phone bill, and so forth. Each operating expense lowers your operating income, which therefore lowers your tax bill. Just be careful not to go overboard and use your business as your personal party vehicle.
A list of small business taxes:
- Franchise Tax
- Self-Employment Tax
- Payroll Tax
- Property Tax
- Sales Tax
- Business Income Tax
- Excise Tax
- Gross Receipts Tax
Take the time to learn basic accounting definitions and statements. The US SEC even has a beginner’s guide to financial statements. It’s important to compare your day job gross income to your own business’s operating income. Operating income is income after cost of goods sold, and operating expenses are everything that goes into running your business except for taxes. Do not make the mistake of comparing your day job’s gross income to your business’s revenue. Unless you have 100% net profit margins, you will be in for the financial shock of your life.
Recap Key Points
You shouldn’t give up your day job if:
- You think being an entrepreneur is easy.
- You have no savings.
- You have no experience.
- You have no plans for what to do next.
- You think getting rich is easy.
- You live in your mom’s basement.
- You are still under a mountain of debt.
- You don’t want to die alone.
- You underestimate the cost of taxes and don’t understand accounting.
Great post!
So many people get caught up in the dream of living on easy street with "passive income". While it is possible, it is also a lot of hard work to get there and most of the time it isn't as passive as you would like it to be.
I am getting to a point now where I am generating about 10% of my normal wage as passive income, but I am far too reliant on Google for my liking and so I am branching out into other areas in order to become more diversified.
Posted by: Glen @ Monster Piggy Bank | January 07, 2013 at 04:57 AM
" Whichever the case may be, deep down, I suspect these women would give up everything if they had someone to share their lives with."
Besides ending a sentence with "with", where's the data to back up this claim for all those poor, pathetic, high-powered single people?
Posted by: Jessica | January 07, 2013 at 10:21 AM
as a big advocate and practitioner of passive income principles, i agree that nothing is truly 100% passive. it comes down to what type of work we want to do, how much of it and when - the option/flexibility. lifestyle is a big component as well.
most of what i do today is passive by many means. however i still spend some time daily/weekly/monthly tending to my endeavors - i.e. shuffling money from one bucket to another.
i am happy to see more discourses online on realistic scenarios. the hype is just ridiculous.
Posted by: Sunil - Extra Money Blog | January 07, 2013 at 11:19 AM
Great post! I quit my job about 8 months ago and these are all things I looked at. Truth be told, my wife had started the business 2 1/2 years ago and I left my job to help her manage it as she was getting too much business to be able to do it all. For those that think it's the way to easy street or that you can do whatever you want they're not thinking realistically. It is a ton of hard work and it's all up to you. The thing that makes it so worth while to me is that it's so rewarding. Not of it's really possible though without a solid foundation and structure in place.
Posted by: John S @ Frugal Rules | January 07, 2013 at 12:18 PM
If you quit your job you will die alone? Am I reading this correctly? Ridiculous.
Posted by: jim | January 07, 2013 at 12:34 PM
seems like some factual errors
Posted by: EDW | January 07, 2013 at 01:41 PM
Hi Jim,
There were links to my chapter that are no longer here in this post. If I may highlight this link here in the comments on Quit Your Job And Die Alone. It talks about how people underestimate how much it takes to make a sustainable amount of money. Entrepreneurship or early retirement is not easy.
http://untemplater.com/business/quit-your-job-and-self-destruct-like-an-idiot/
Enjoy!
Sam
Posted by: Financial Samurai | January 07, 2013 at 01:49 PM
Sunil - I'm with you. The hype to just quit your job and live a life of freedom with no planning, and no runway to build your income streams and savings leads failure.
The whole "lifestyle design" movement was born out of the 2008-2010 economic crisis where folks were getting fired left and right. Instead of just saying they were getting let go, they were making it seem like they left their jobs out of choice and for others to be like them and "follow their passion." Surely, there were some who left by choice, but most did not.
It's important to PLAN and plan some more. Give ourselves enough of a cushion to take the leap first.
Sam
Posted by: Financial Samurai | January 07, 2013 at 01:52 PM
Thank you, Jessica! I thought the same thing when I read this. Talk about stereotyping!
Posted by: Brooklyn Money | January 07, 2013 at 02:11 PM
Jessica / Brooklyn Money - Probably best not to stereotype people as "poor, pathetic, and single." There are plenty of single people who are doing well in their careers and are rich.
Posted by: Financial Samurai | January 07, 2013 at 02:19 PM
I retired from a 36 year career as an aerospace engineer in September 1992. The first thing I did was to consolidate all of our investments at Fidelity. The second thing I did was to subscribe to a proprietary mutual fund database system that also came with some comprehensive software for comparing and ranking mutual funds. I still use the system every day and for a while I used to go to their annual seminars in different cities and make a presentation on my techniques. This is their website: http://www.fasttrack.net/
September 1992 was a very propitious time for me to retire and to start managing our money. The first reason was that the Cold War had recently ended, my company wanted to downsize, and they offered all salaried workers a Golden Handshake to take early retirement. The second reason was that the government had agreed to allow the DARPA network used by the military to be the model for a network that you all know as the Internet. What few realized was the gigantic impact that the Internet would have on our lives in the years to come. The Internet spawned the DOT.COM bubble and produced one of the most explosive growth patterns in computer related areas and businesses of many types, particularly those that were listed in the Nasdaq and the Nasdaq 100 indexes.
I started managing our $320,000 investment portfolio on 12/28/1992 and on 2/8/1993 I started using the proprietary mutual fund database system that I still use to this day. The first time I heard about the system was from an advertisment in the Wall St. Journal that I started subscribing to after I retired.
By 3/6/2000, thanks to the Internet Bubble, our investment portfolio had grown to $3.3M. The rise had been so fast that I was waiting for the peak to occur and when it did I got out over 4 market days and decided to wait it out by investing in high-yield (i.e junk) bond funds. The next major milestone came in mid October 2007 when my market indicators were projecting a period of severe doom and gloom. By then our portfolio had grown to $5.8M and I made the decision that it was time to move into the slow lane and become a Passive Investor.
I then put our IRAs into 5% CDs and corporate bunds generating tax deferred income. I also put our Trust account 100% into individual municipal bonds generating federally tax free income. As of today our portfolio has grown to $7.2M and is almost all passive income. For 2012 I made 5.3% which equates to about $380,000 of passive income. I do own one mutual fund in our IRAs. It is called PIMIX, Pimco's Income fund, and for 2012 it made 22.4% and had extremely low volatility.
Passive doesn't mean there is NO work involved. I track our portfolio every day and reinvest income as it arrives very predictably, and if a bond or CD matures or is called then I reinvest the proceeds.
What I like about my technique is that I don't have to deal with people. I have always liked dealing with computers rather than with people and that's one reason why I chose not to invest in income property.
I have also never had a losing year with my investments.
Posted by: Old Limey | January 07, 2013 at 02:29 PM
@Financial Samurai
I think Jessica was being facetious.
@Jessica/Brooklyn
My understanding of the post, while it doesn't state it in a very nice way, is saying that people who have good full time jobs are more desirable than those who decide to quit the fast-paced, corporate lifestyle and live a frugal life supplemented by passive or side income.
I would agree with the statement because most (notice I said most) women/men would much rather pick the well-off and successful person vs someone who decides to live a more frugal lifestyle and be self-employed. I would think it would be harder to find a mate for guys vs girls because many women already want to stay at home and run a household.
Posted by: Noah | January 07, 2013 at 02:43 PM
Sam, an article with a few anecdotal examples of people who's business plans haven't panned out doesn't equate to "dying alone". One example you give is Adam Baker who is married. I guess I get your point that a failed business owner isn't a great prospective mate in the eyes of many but the anecdotal evidence isn't convincing and the "die alone" bit is pretty extreme and unsubstantiated conclusion. I'm not arguing with your general thesis here but the 'die alone' but is over the top and I don't even know if its true at all.
Posted by: jim | January 07, 2013 at 03:01 PM
We all hope that our wife/husband married or marries us for who we are and not just our finances. Sadly this isn't always the case. Either way, if he/she sticks with you during the worst of times, then they will likely be there during the best. If they can not withstand the worst and leave, then you are probably better off without them anyway.
It is one thing to take a calculated risk and it fail and times be tough, but as long as the family has the basics covered then where is the harm? If the spouse is unhappy that they cannot drive the newest car or live in the biggest house on the block because the risk did not pan out then that person did not understand the risk to begin with. There is much to be desired in dreamers and entrepreneurship, people who diligently try to make their lives better and by their own means, this is why even those people don't always "die alone".
Posted by: JayB | January 07, 2013 at 03:35 PM
@Jim
Sam's point was that there are a lot of people who see full-time bloggers "making a ton of money" with their websites, when in fact their finances are not ideal. The truth is that very few make money and probably work a lot more than 40 hours a week. Far too many bloggers have the opinion that those of us who have traditional jobs are foolish for "working for the man" and really hate our lives. I constantly read about bloggers who are beside themselves about their blog and seem to think they will eventually be able to quit their day job and become rich. They rave about how they are now generating passive income when in fact they spend more time on their blogs than I do at work, including my commute. They also "roll their eyes" when I state that I could not be happier at my corporate job as if I must be lying. I guess if blogging makes them happy, that's great. For the majority, I don't see how being self-employed is viable.
Posted by: Noah | January 07, 2013 at 04:05 PM
There are pros and cons about both corporate and entrepreneurial careers. I've seen a bit of both as I have my own side business and also work in the mainstream corporate world. Corporate benefits are one example of being an employee that are often underappreciated until they disappear or we lose them. Plus there is usually always someone available to cover for us if we are sick or want to take a vacation. As an entrepreneur one has to find and pay for benefits entirely on their own and if you want to take time off, sure you have flexibility but your work will all be waiting for you when you come back.
I think you cover a lot of great points Sam. There are a lot of things to consider before any career change and being an entrepreneur is fun but also incredibly hard! And yes there are so many more taxes! (Esp in California)
Posted by: Untemplater | January 07, 2013 at 04:31 PM
Noah, I get the idea that self employment is challenging. But the article Sam pointed to in response to me is actually titled "Quit Your Job and Die Alone". I am questioning the "die alone" part of it. I don't see how a failed blog means you'll die alone. Plus 3 of the bloggers Sam points to are married. Thats an even worse argument.
Posted by: jim | January 07, 2013 at 04:39 PM
@Jim
Good point! I didn't even read the title because the link read "quit-your-job-and-self-destruct-like-an-idiot". My mistake.
Posted by: Noah | January 07, 2013 at 04:52 PM
The issue I have with the "Die Alone" section is that it reads as if career-driven women are pathetic because they're clearly so single and lonely. But in the very next paragraph, in the same section, the writer seems to switch gears and say that leaving the workplace or transitioning will lead to loneliness and dying alone because a potential mate wants a confident, stable, monied partner.
I don't want to misread here, but I think the advice only makes sense if you read it as applying differently to men and women. Ladies, don't be career driven because you'll end up alone. Gentlemen, don't leave your jobs without money/a plan/whatever because women won't date guys without money.
Survival of the fittest means rich guys always get the girl? Really? What's the point of being anything but alone when you think so little of your potential mate?
If I've misread, please someone correct me.
Posted by: futchica | January 07, 2013 at 08:43 PM
Thanks for sharing this exert. I'm glad to see this book looks at both sides of the coin and gives a fair shake towards the reasons why this may not work out for everyone. Too often I read blog posts or books that make it seem like any idiot could be a millionaire or write a successful blog or rent out apartments or whatever. But that's just not in the cards for everyone, and I think we all need to take a serious look at ourselves before we make these kinds of life-altering decisions.
Posted by: My Money Design | January 08, 2013 at 12:24 PM
Hope everybody got to read the latest post on FMF arguing the other side.
http://www.freemoneyfinance.com/2013/01/reasons-why-you-should-engineer-your-layoff.html
Posted by: Financial Samurai | January 08, 2013 at 09:45 PM