Financial Independence Start-up Life Final Update |
- Start-up Life Final Update
- What is the most valuable thing you can buy?
- Daily FI discussion thread - November 21, 2018
- When determining your FI number, how do you factor in your significant other?
- Weekly Self-Promotion Thread - November 21, 2018
- What part does life insurance serve in your financial heath?
- PersonalCap FIRE calculator sucks...or does it?
- Parents near FI, but variable life policy issue?
- Those of you who took a mini-retirement, did you buy health insurance or risk it?
- A Quick Tax Lesson & Reasoning for Roth vs Traditional
- As a firefighter, what are ways to make six figures?
- Struggling to make a decision on housing with FI goals
- From Fidelity to Vanguard
- If stages of life move from education, work and retirement to be more integrated does FIRE become less attractive?
- How to Withdraw w/ Real Estate Heavy Portfolio
| Posted: 21 Nov 2018 01:40 PM PST I used to be a regular on Fatwallet Finance (now defunct). I now spend my time on subs like /r/churning, /r/personalfinance and of course this sub. I never got a chance to update my thread before Fatwallet shut down. I thought I'd post this as a final update here since there've been a lot of posts about start-ups, windfalls, etc. Hopefully this will be an interesting look inside the world of start-ups and venture capital (VC). This isn't a typical path for FIRE and I'd highly suggest a more normal corporate route for the vast majority of folks. Let me preface all of this by saying my outcome was incredibly lucky. Working hard and being smart is a prerequisite for success, but nothing helps more than being born on third base. TL;DR: Our startup went on to raise a few million dollars in venture capital and was eventually acquired by a large tech company where I now work. I'm now at a crossroads of staying at the company or doing something else. You can read a couple of my earlier threads on the Internet Archive:
Here's the summation of the above two threads:
After we completed the accelerator, we raised a small seed round which we were able to hire a few more employees and continue to iterate on our product. At this stage, VCs are looking for a solid team and product vision. There's usually not much due diligence here except for a meeting with the founders and a walk through the pitch deck. A large VC will have something like $500m to invest so for them to invest $250k is like them putting a bookmark on your company. If it fails, no biggie. However, if it starts to prove out, they are first in line for your Series A. This is also the stage where angel investors will come in at about $25-50k each. The key to successful fundraising is to have a solid team, product vision and lead investor (e.g. willing to invest $250k out of your total $500k fundraising round) that other smaller investors will rally around and fill the rest of the fundraising round. We weren't generating much in revenue so we (the founders) didn't pay ourselves any meaningful salary for the lifetime of the company. Looking back at my W2s, I got paid <$5k in 2012, <$15k in 2013 and <$30k in 2014. Curiously, my net worth didn't take a dip during those years since 1) the market was rising and 2) I kept my expenses low. I don't think my expenses topped $25k/year during my time at the start-up. A lot of people might think living in the Bay Area would be prohibitively expensive but you can get away with surprisingly little if you moderate your expectations. Here are my top tips for living in the Bay Area cheaply:
A couple years after our seed round, we continued to scale out and prove out our product and gain traction. At this stage, we were still not profitable. However, we were showing enough promise for investors to want to do a Series A (usually $3m-10m). There's more due diligence done at this stage and the company often has a meaningful amount of revenue/growth. Today, that'd be about $1m ARR (annual recurring revenue). Funnily enough, I found raising a Series A easier than our seed round. This is due to the fact that we had already made connections with VCs in the past couple years and were a bit more proven. After raising our Series A, we continued to expand the team and iterate on the product. I can't say we ever hit a huge growth curve but there was clearly some value in the technology that we were building. We had gotten to the point where we had to decide whether we could go out and raise a Series B (usually $10-30m) or look for exit opportunities. In 2015, we were lucky enough that some of the larger tech companies were starting to become interested in our niche so we were able to garner acquisition interest. There's no way that we would've known this area would become hot years ago when we started the company. We entertained M&A conversations with a few interested parties and ended up getting more serious with one of them. This ended up being a several month process as you typically sign a LOI (letter of intent) and then go through due diligence. I cannot stress enough how important it is to keep good records. The acquiring company will want to look at the books, any contracts your company signed, interview all of your employees and audit your technology. Both sides will lawyer up to make sure all the details line-up. It helps to have good counsel (your general outside counsel will typically bring in specialty M&A counsel to shephard you through the process). During the due diligence process, you'll iron out details like payout structure (e.g. stock vs. cash, earn-outs, preferred vs. common shareholders), indemnification (e.g. who pays for unforeseen liabilities) and which employees they'd like to bring over. You'll typically get a payout for the equity in the company and then get offers to become an employee at the acquiring company. My total equity payout was $2.5m-3m spread across a few years. Having a $1m+ wire transfer hit your account when you've been making <$30k a year is unreal. Since the acquisition, I've stayed at the acquiring company on the engineering management side. When discussing tech worker compensation, it's usually divided into three buckets: salary, stock and bonus. For individuals from acquired companies, you usually get subsequent payouts when you hit certain milestones (e.g. length of tenure at the new company or growing a certain metric). My total gross compensation in the intervening years was as follows:
I don't have any more start-up payouts coming in 2019, but my regular W2 employment will gross ~$500k/year. It's grown quite a bit due to promotions and stock appreciation. I don't think there'll be any significant compensation growth moving forward as promotions are hard to come by at my level. Here's a snapshot of my finances today:
Outside of work, I've purchased a house and gotten married with a baby on the way. My spouse also works in tech and grosses ~$200k/year, with a net worth of ~$600-700k. So we've got a combined net worth of $3.5m. When you cross this threshold of net worth a lot of options open up. You'll be making connections with lots of folks that offer non-traditional investments. For example, you can become a limited partner in a venture fund or be introduced to startups at low valuations before VCs have a chance to jack up the valuation. Regarding angel investments, I don't recommend this as a way to make money since it's so unpredictable. I do this more to pay it forward to the start-up ecosystem and will be very glad if I just tread water on my investments. You can also negotiate very favorable terms with banks. For example, you never have to pay any fees, you've got a banker on call anytime you run into an issue and they give you free stuff (e.g. free Amex Platinum and tickets to games). The best banking-related perk is having a pledged asset line (PAL) open, which allows you to borrow money against your investments at very low rates (think 3-month LIBOR +1.5%, so ~4% total). Having that type of liquidity helps you move money around exceptionally fast without having to liquidate any positions and take a tax hit. Since the acquisition, I've been maxing out every tax advantaged vehicle (e.g. Backdoor Roth, Mega Backdoor Roth w/ after-tax 401k and 401k). Our spending has increased quite dramatically in the past couple years. I'm guessing we spend $100-150k per year now due to lifestyle inflation. We eat out a lot more now, and pay for Ubers since we don't want to wait for transit. When we travel, hostels are no longer an option so I'll usually pick a nicer AirBnb. I also upgraded my car ($60k), which was 15 years old and had 250k miles on it, and remodeled the house ($100k). I think the remodel will recoup a decent amount of costs when we sell since it was in such poor condition when we bought it (e.g. cabinet drawers falling out, disgusting carpet, very dated look). Excluding my primary residence, we've got ~$3.1m in investments. So this gives us a 3% SWR of ~$90-100k. We could definitely RE with that amount after cutting down a bit on our spending. It's great that we have the option to RE, but I don't think either my spouse nor I would like to RE. However, I've been considering leaving the corporate gig and either starting another company or taking some time off. I feel a bit burned out after sprinting for the past seven years. The hours aren't bad at the corporate job, but it's a bit soul sucking and everything moves at an excruciatingly slow pace. Here are the options I'm considering:
Tech has been unbelievably cushy these past few years and I cannot see the gravy train continuing forever. Option #1 seems like the best route from a FIRE standpoint. I am curious what others would do in my position. I hope this post has been informative for folks that are interested in hearing more about a non-traditional and exceptionally lucky path to FIRE. I'd like to reiterate from a expected value perspective, I would not suggest this route. 99 times out of 100, you'll be more financially successful staying at a corporate gig. However, looking back at my directionless 23-year old self, I don't regret this decision one bit. The amount of personal, financial and career growth I've experienced in the past several years has been unparalleled and it'd be hard to replicate in a normal corporate setting. [link] [comments]  |
| What is the most valuable thing you can buy? Posted: 20 Nov 2018 10:29 PM PST I teach high school and I talk about money with my students. I wanted to check my confirmation bias with the FI community, which I lurk too often. I had not seen the question in the search. Thank you in advance for your responses. [link] [comments]  |
| Daily FI discussion thread - November 21, 2018 Posted: 21 Nov 2018 03:08 AM PST Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  |
| When determining your FI number, how do you factor in your significant other? Posted: 21 Nov 2018 11:41 AM PST In most conversations we see a lot of time determining how much money one needs to accumulate to live off the 4% rule. One thing I never see mentioned is if this is number is solely for yourself or if that includes your significant other / kids / etc. If both of you are looking to pursue FI then do you have a combined FI number? If your significant other does not have the same interest then do you pick a number just for yourself? [link] [comments]  |
| Weekly Self-Promotion Thread - November 21, 2018 Posted: 21 Nov 2018 03:08 AM PST Self-promotion (ie posting about projects/businesses that you operate and can profit from) is typically a practice that is discouraged in /r/financialindependence, and these posts are removed through moderation. This is a thread where those rules do not apply. However, please do not post referral links in this thread. Use this thread to talk about your blog, talk about your business, ask for feedback, etc. If the self-promotion starts to leak outside of this thread, we will once again return to a time where 100% of self-promotion posts are banned. Please use this space wisely. Link-only posts will be removed. Put some effort into it. [link] [comments]  |
| What part does life insurance serve in your financial heath? Posted: 21 Nov 2018 04:35 PM PST Like all of us I realize I'm not going to live forever. I realize whole life is basically worthless but does term serve a purpose? I'm relatively young in my late 20's so I would imagine right now would the time to start planing and figure it out. Just not sure if it's worth looking at and if it is where to even start looking. [link] [comments]  |
| PersonalCap FIRE calculator sucks...or does it? Posted: 21 Nov 2018 04:01 PM PST So, I have about 5M savings (leaving aside other assets like house, car etc.). I keyed into PC's retirement planner assumptions of retiring next year (just shy of age 40), with $150k in annual spend. With 3% SWR, that should be pretty safe. However I get the message "66% - roughly on track for retirement but plans need flexibility". What am I missing here? Is this retirement calculator different than the other FIRE calculators? Btw (mods) - the "Networthify" link in sidebar appears to have gone bad. [link] [comments]  |
| Parents near FI, but variable life policy issue? Posted: 21 Nov 2018 02:51 PM PST My parents immigrated to America in their late 40's - over the course of 20 years they, now US citizens, have managed to get to their desired FI amount while working minimum wage jobs (a low 7 figure amount, lower than what most on this sub might aim for) through sheer frugality, savings, and basic investing. They continue to work simply because they want to and they still live a frugal life because it is simply all they know. My dad is now 71 and thought we should go over all their assets and liabilities now that I'm visiting for the holidays. One item has raised concern: their variable life policy which my dad bought when he was 53 and my siblings and I were still in middle school. Since 2000, they have paid a total of $53,000 into a $170k policy but the cash value today is $19,000. In addition to a one time $10k payment in 2000, they have been paying $200/month into the policy but the insurance company has been withdrawing $305/month. I spoke with a rep on the phone today and he said that the actual cost was $200 for insurance and the rest was fees. My parents were unaware that they were not paying enough into the policy and that the company had likely been withdrawing money from the cash value over years. My questions: Are they being duped? What it the best course of action moving forward (I have reason to believe they were sold a bad policy)? My mom says to withdraw the cash value now that my siblings and I are no longer dependent on their income. My dad says to continue paying until he passes since a $170k payout will likely be more than any additional amount he'll pay until passing. Thoughts/advice appreciated! [link] [comments]  |
| Those of you who took a mini-retirement, did you buy health insurance or risk it? Posted: 21 Nov 2018 06:32 AM PST Basically I hate my job and am looking to take some time. Wondering if any of your mini retirees went risked it and went without health insurance. Would love to hear both sides. If you did get health insurance, can you recommend a good/cheap(er) one. I am based in MN but am open to anyone from anywhere. [link] [comments]  |
| A Quick Tax Lesson & Reasoning for Roth vs Traditional Posted: 21 Nov 2018 10:15 AM PST I have responded to a lot of questions in this sub about this so lets do the math for 90% of us (those of us not making bay area and CEO salaries). 2018 (single) Key Tax Numbers $12,000 - Standard Deduction $0-$9,525 - This portion of your income is taxed at 10% totaling $952.50 in taxes if above this bracket. $9,526-$38,700 - This portion of your income is taxed at 12% totaling $4,453.50 in taxes if above this bracket. $38,701-$82,500 - This portion of your income is taxed at 22% totaling $14,089.50 in taxes if above this bracket. $82,501-$157,500 - This portion of your income is taxed at 24% totaling $32,089.50 in taxes if above this bracket. There are more brackets up to 37% but we will stop here since things can get funky after this. The formula for figuring out what you pay in taxes this year is as follows: Salary - Standard Deduction - Above the line deductions (see below) = Taxable income. Above the line deductions include Traditional type retirement contributions, Health insurance, HSA/FSA, Student loan interest, Tuition, and more- you will have to figure out what yours are but those are the most common. Lets do a scenario relevant to this sub: Bob wants to know if he should do a Roth IRA or traditional. Bob makes $60k Salary with a $10k bonus, his income is $70,000. Bob takes the standard deduction because he rents an apartment and is in a low income tax state. Bob contributed $18,500 to his 401k this year (Go bob!) and $1,500 in student loan interest. His insurance was another $2,000. So plugging into the formula: $70,000-$12,000-($18,500+$1,500+$2,000)= $36,000 in taxable income This puts Bob in the 12% bracket so he will owe ($36,000-$9,525)*12% + $952.50 = $4,129.50 in federal tax. Note: This is taken out of your paycheck already by payroll by default. If you paid in more than this, you get a refund at tax time and should look at claiming an extra exemption. Now bob has some extra money and needs to decide if he is willing to pay taxes now for Roth IRA contributions or to defer taxes until later. In my opinion: yes he should, he may even be better off contributing $2700 as Roth in his 401k if possible. - He is in the 12% bracket so money is only being taxed at that rate and (Personal Opinion) taxes are likely to go up - He is contributing a significant amount to his 401k so he will have taxable "income" in retirement. And maybe bob does something else for fun that brings in money during that time. - Roth is going to give him more flexibility on withdrawing large sums in 1 year. What if bob wants to buy a house, has a major emergency, or buy a fishing boat in retirement (I am totally not living vicariously through bob) - The real value of $5,500 Roth dollars is worth x% more than $5,500 in traditional dollars if you have the money to put in savings either way where x% is your marginal tax rate in retirement. I know this sub likes to take an idealistic view on this stuff but x% is probably not 0% all the time. Note 1: If your taxable income is above $38,700, traditional is almost certainly the better choice. Note 2: You should also take into consideration state income/401k taxes if you plan on moving in retirement. (Personal Opinion) I have read the marginal vs effective argument in the blogs and I believe that is not the correct stance to take. The last earned dollar is always going to be taxed at the marginal rate and if you have the opportunity to pretty much guarantee low taxes on income you should do it. Worst case scenario you are out 12% on a small portion of your retirement money, best case the returns are much more. [link] [comments]  |
| As a firefighter, what are ways to make six figures? Posted: 21 Nov 2018 04:08 PM PST |
| Struggling to make a decision on housing with FI goals Posted: 21 Nov 2018 10:41 AM PST Income status: Joint Income Age(s): 37 yrs Base joint income: 196k Variable joint income (commissions + bonuses): 25k-100k Savings: ~550k; 350k in 401k/ROTH, 50k Market Funds, 150k cash Savings Plan: Max 401k + ROTH IRA (although this has to be phased out) + goal of $1k-2k savings per month in post tax. Will likely contribute this to something like VTSAX or the like. Current Home: 250k owed; market value: ~425k -- Small/old (1910) home in a highly desirable area, 1000 sqft., 2 bdrm-1bath Family status: 2.5 year old + a "bun in the oven" Debt: zero debt other than the 250k mortgage I hope that the above is enough information to go on, but here is our dilemma. My wife and I are at a bit of a turning point. We originally bought the home we live in due to the location, and value of the property itself. This strategy has paid off, but we are now in a position where we really would like to have some more space. In terms of commute, location, schools, etc. the home that we live in is perfect. We are just bursting at the seams, and it is only going to extrapolate when we introduce our newest family member. My wife and I have agreed that an ideal financial independence goal is around 2-2.5MM, but we are OK with having to work a bit longer than the normal FIRE group as we have noticed that during our money making years, the jobs are more intriguing and (honestly) easier in nature (IE - no more suckling at the power teat, etc.). We understand that we aren't crushing it, but we feel that we have enough financial security to raise our standard of living. We have toyed with the idea of moving out to a LCOL area, but then we are significantly sacrificing school districts, security of realty investment, and commute times. On the other hand, if we renovate our existing home, we are posed with some challenges surrounding a "historic committee" that can impede design and construction decisions, and overall drive up the investment costs to update. Although there is more likely for the investment to break even considering it is going to likely survive as a highly desirable area (if history serves the future). Any advice is appreciated. I'm turning to this subreddit as I am continually bouncing between "plans" and I am starting to feel stuck in the decision process. EDIT: Added in current savings plan/schedule. [link] [comments]  |
| Posted: 21 Nov 2018 03:45 PM PST After a few hours invested in Mr. Money Mustache and JL Collins' blog and book, I rolled my 401(k) over to Vanguard and invested everything in VTSAX. [link] [comments]  |
| Posted: 21 Nov 2018 01:06 AM PST I recently heard an interview where the interviewee claimed that due to changes in technology and life expectancy, the stages of life have shifted. It used to be that you got an education, worked and then retired. But now that technology is changing so quickly and l8fe expectancy ismuch longer, the stages of life are shifting - you need to be learning, working and taking mini retirements rather than adhering to the learn, work, retire pattern. This resonated with me because a lot of my attraction to FIRE is to avoid the "9 to 5" grind for years on end. What do others think about this? If you could intersperse life with learning, working and rest would it be more fulfilling? Would FIRE be as attractive if the cultural norm did not dictate grinding it out for years? [link] [comments]  |
| How to Withdraw w/ Real Estate Heavy Portfolio Posted: 20 Nov 2018 04:15 PM PST Throwaway account! So my situation. Networth is about $1.5mm, but about $1.2mm is in RE. How do you equate your SWR on that? Do you use the rental income as part of the withdrawal? Most of the RE have not been fully-paid. The cash flow is mostly used to payoff mortgage and re-invested. Anyone is FIREd and had similar situation? Any tax tips? Did you have to sell one or more to finance FIRE? I don't need the whole 4% SWR. Current budget is at 2.66% SWR of $1.5mm. [link] [comments]  |
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