Bad idea

Borrowing money to invest in the stock market is a terrible idea for a regular investor. If you’re a genius investor, maybe you can make some profit, but I know it’s not the right move for me. Unfortunately, there are many ways to go into debt to invest.

Peer to peer lending. A few days ago, I saw a loan on  Prosper. Prosper.com was asking for $15,000 to “invest in high quality stocks.” The interest rate on this loan is 12%. Here is their strategy – This loan will be used to invest in high quality US stocks like Apple and IBM. There is no way that I will lend to this investor. It’s not easy to beat 12% interest. What happens if the market continues to perform badly over the rest of this year? Can this investor pay back the loan if the market doesn’t improve quickly?

Margin Buying. If you have some equity in a brokerage account, you can apply for a margin account. Generally, you can borrow up to 50% of the value of your account to invest. In the 90′s, I signed up for a margin account because everyone I knew was making a bunch of money from tech stocks. It was great for a couple of years and paying interest wasn’t a big deal when the stocks were doing well. Once the dot com bubble popped though, the margin call came in. If the value of your account is not enough to cover your margin position, you have to add more money to your account or else your stock position would be sold. This locks in your loss and drives the market down further. So I learned my lesson and stayed away from the margin account ever since.

Credit card. I hope nobody seriously considers using their credit card to invest. The interest rate is so high and I don’t think it’s worth putting your credit at risk. I think the rates are higher than the 12% from Prosper, right? Has anyone done this?

Borrow from 401(k). You can borrow from your 401(k), but this would put your retirement investment at risk. If you lose your job, you would have to pay back the whole amount or else you’ll have to pay taxes and penalties. The only scenario I can think of that makes sense is if you borrow from the 401(k) and then reinvest it again in the 401(k) to get employer matching. Is this an easy way to get 100% gain? Some plans disallow new contributions if you have an outstanding 401(k) loan so the company is guarding against sneaky people this way. I’ll have to check and see what my company’s policy is. Anyway, I recommend against borrowing from your 401(k) to invest. Even if you get a 100% match, it’s better to add new money from your paycheck than to borrow.

There are many other bad ways to borrow money to invest. You can get a home equity loan, borrow from friends and family, and more. I think all these are bad plans. If you do any of these, you’re thinking only about the short term gain. The stock market is much more reliable to make money over a long period of time. When you have to pay back the debt in a set amount of time, you’ll be in a rush and take more risks. When you’re in a schizophrenic stock market, it can be very difficult to make enough profit to beat the interest rate. Personally, I avoid borrowing money to invest in the stock market at all costs. I know that my risk tolerance is not high enough to do that. What about you? Have you borrowed money to invest in the stock market? 

Don’t Borrow Money To Invest is a post from: Copyright © 2010-2011 Retire By 40 All Rights Reserved

Flickr - eddiecoyote

There are only two days left to enter our May Giveaway! It’s your last chance to win one of three great personal finance books so don’t forget to enter before you head off for the long weekend.

Memorial Day weekend is the traditional start of summer here in the US and the gas price is peaking as usual. This year we are not planning to drive too far so gas won’t be an issue. We’ll have good weather on Saturday so we may go to one of the nature preserves nearby if baby RB40 is feeling better. Yes, he has a fever again. Other than that, we’ll probably hang out around town and get together with some friends.

How about you? Do you have any big plan for the long weekend?

Round Up

The 4th Yakezie Writing Contest is live! The YWC will award winners (3-5) with cash prizes to further their education. Follow the link to see the rules. The deadline for essay submission is June 2^nd so you need to get cracking. Tell your kids and anyone still working on their education about this opportunity for some additional funding.

Jay at Budgets Are Sexy asked “What’s your tip for saving money on travel?”

Here is my answer: Travel like a backpacker. Don’t carry a lot of crap and definitely hang out with other backpackers. They know all the cheap/free places to eat (sometimes even with good food.) Stay in hostels and make friends with interesting backpackers from all over the world who are taking a year off to travel as cheaply as possible. It will inspire you and will make you want to see more of the world.

Oh yeah, don’t pack a huge backpack. That’s a rookie move.

If you have a travel tip of your own, head on over to Budgets Are Sexy to enter his $1,000 giveaway, in partnership with HotelClub!

101 Centavos – Retirement Worries, Retirement Strategies. See Andrew’s retirement strategy. It sounds like an awesome plan to me so don’t miss this one.

The Dividend Guy – How Dividend Aristocrats have done over the past 5 years? Dividend Aristocrats have done mostly well, but a few lost some value. This is a great read for anyone who wants more dividend income.

The Passive Income Earner – How to review your financial plan. It is essential to have a financial plan. See what PIE learned in his 20s and see if his spreadsheet can help you.

Money Counselor - Net Worth: How are you doing? See how your net worth stack up against the median and average net worth in your age range.

Money Smart Guides – Half of American’s Save Nothing for retirement. That is pretty sad. The ones that don’t save must be pulling down the average Net Worth in Money Counselor’s post. How will they manage retirement?

Have a great weekend and don’t forget to spare some time to think about what the day represents.

Memorial Day Weekend Roundup is a post from: Copyright © 2010-2011 Retire By 40 All Rights Reserved

The free rail zone encompasses our downtown and part of Lloyd district across the river. Graphic via Trimet

In the previous post, I wrote about our choice to live in a 1,000 sq ft condo in the city. Two of the main reasons why we like living downtown are because it is centrally located and the easy access to public transportation. As a bonus, our home is near the free rail zone and we can ride the streetcar and the light rail within the zone for no charge!

The cost of housing in downtown is higher than the suburb, but the public transportation helps us reduce expenses on the transportation front. We share one car and save on gas by taking public transportation to work. On a typical work day, we drop off baby RB40 at the daycare nearby and then each take the light rail in separate directions. Our employers help out with the public transportation cost as well, so going to work away from the free zone is not too expensive. I drive if I need to run an extra errand or if I have an 8am meeting. On the weekend, we can take the train to various parks, libraries, farmers markets, and shops in the free zone.

I think the free rail zone is great, and I’m sure others who live and/or work in the zone agree. We frequently overhear tourists who love the free zone and many students regularly use it to get to the University. The free zone was established in the 1970′s to help reduce air pollution and previously the bus rides were free in the zone as well. Sadly, this benefit is coming to an end this fall. Trimet, the organization that oversees our public transport system, is facing a budget shortfall of up to $17 million and is planning to eliminate the free rail zone in the next budget year. Among their budget reduction outline, they plan to increase fares, reduce services, eliminate the free zone, and more.

Who pays for the free rail zone? About half of Trimet’s funding comes from a payroll tax paid by area businesses (57%.) The rest comes from fares(24%), state and federal operating grants(10%), and other sources(9%.) So we are paying for the free ride indirectly through our payroll, federal, and state tax. Many other people who do not use this service also pay into the pool. I guess it’s part of big government, but I love the free zone. It’s too bad that the free zone is being eliminated. That’s the problem with entitlement programs, those who receive them don’t want to give them up.

Anyway, I will probably drive a bit more frequently after the free zone is eliminated. The parking fee will cost less than the tickets. Of course, if the destination is within a mile or so, I’ll plan on hoofing it. Also, Portland is the 2nd most bikeable city in the US. Maybe it’s time to get the bike out of storage and buy a baby trailer. Those things look scary to me though. What happens to the kid if you get into a bike accident?

Do you think a free public transit zone is a good idea or a waste of tax payer’s money? Tourists love the ability to hop around downtown without having to buy a ticket. Many office workers also use this to go to lunch at various spots around town. I often see many low income elderly people use this free zone service and I feel the worst for them. It will be a big impact to their small budget to shell out $3 to go to the grocery store or library.

Free Public Transit is a post from: Copyright © 2010-2011 Retire By 40 All Rights Reserved

Average New Home Size data from the Census Bureau

What is the size of your ideal home? Take my poll at the bottom of the post. Do you want to live in a 5 bedroom McMansion or one of the eco-friendly tiny homes? The average NEW home size took a dive recently due to the recession, but it was steadily increasing before that. Is a bigger home necessary or is it just another facet of lifestyle inflation?

Currently, we live in a 1,000 sq feet two bedroom condo. This was perfect when it was just two of us, but with the addition of baby RB40, it’s a little tight. We make it work and do not have any plans to move at this time. I’ve lived in small spaces for most of my life, so it’s not a big deal for me.

My Home History

I lived in Thailand until I was about 12 years old and my parents moved quite often. Here are some interesting places we lived in.

• Rental home in a rural area near Chiang Mai. I was too small to remember this, but it was a two bedroom wooden home. We slept in one room and my dad kept the chickens in the other bedroom. My dad had some kind of chicken business going at the time. At least, that’s what my mom told me. How many chickens can you keep in a bedroom?
• Wooden log home in a rural area. I think this was a bigger two bedroom home on a larger property. Dad moved on to raising pigs and needed more land. I hated going to the outhouse at night because it was so dark and scary.
• Dad had a Xerox business similar to Kinko’s and we lived in a room in the back. It must have been some kind of storage room because the ceiling was pretty low and we had to take a flight of stairs to get there. By this time, I had two brothers and all five of us slept in one room.
• When we moved to the US, we stayed at my aunt’s home and the five of us slept in one bedroom for about a year.

After that, we lived in various two bedrooms apartments until my senior year in high school. At that time, my parent’s Thai restaurant business enabled them to purchase a 3 bedroom home, but even then they rented out one of the bedrooms most of the time. So you can see, my living quarters when I was growing up wasn’t spacious. That’s probably why I don’t mind living in a 2 bedroom condo now.

Our condo is centrally located and we can walk or take public transportation to many places. Now that the weather is nicer, we have been going to various parks nearby and baby RB40 always has a ton of fun exploring. When he gets older, we can go to museums, libraries, theaters, and many other activities nearby. We love our location and Mrs. RB40 is done with moving. She had a much more rooted childhood than I did.

Perhaps my small living space in the past influenced my ideal home size because I don’t want to live in a McMansion at all. It would take so much time to clean and we would have to spend a ton of money to fill the place up with furniture and toys. Our small condo is full at this point and this probably helps us avoid buying unnecessary stuff.

We also spend a lot less in utilities, transportation, and entertainment in our location. I hated the $200+ heating bill we had to pay when we lived in a bigger home. The easiest way to reduce the energy bill is to move to a smaller place, but you can also use an energy rate comparison site to make sure you are not overpaying.

If money was no object, I would probably opt for an additional bedroom in the same location. So my ideal home size is about 1,500 sq feet, but I’m pretty happy with 1,000 sq feet. What about you? What’s your ideal home size? How does your current home compare to your childhood home?

What is the size of your ideal home? is a post from: Copyright © 2010-2011 Retire By 40 All Rights Reserved

image via wikipedia

Have you heard that the US has 100 years supply of natural gas in the ground? Accessing this untapped resource requires a process called Hydraulic Fracturing (Fracking). You can read all about fracking at Wiki, but the bottom line is by using this process, we are injecting all kinds of nasty chemicals into the ground and contamination is unavoidable. I’m sure the companies do their best (as cheaply as possible) to minimize the environmental impact, but you know there is a problem when your tap water catches fire. There have also been many reports of earthquakes in previously stable areas that may have been caused by fracking. Is natural gas worth the environmental cost and are there any viable alternatives to fracking?

Alternative to Fracking

It turns out there is. Hypersolar is a small startup that is developing a nanotechnology solution to produce hydrogen and natural gas from the combination of sunlight, water, and CO2. The key piece of this technology is the ability to use waste water instead of purified water. Can you imagine a factory that takes in sewer waste water and turns that into energy? Instead of screwing up the environment, the Hypersolar energy factory will help clean it up. This factory also does not need electricity to run because it is relying on photosynthesis. Imagine a large field of solar panel array in Death Valley with a natural gas pipe leading away from it. That’s what this factory would look like. A press release earlier this year stated that the initial testing of wastewater from a paper mill proved to be a success so it seems the technology is feasible.

However, this technology is still in development and hasn’t been tested on a large scale or for a long period. It will most likely be much more expensive than fracking to begin with because the infrastructure is not there to support this technology yet. I’m sure it will take millions in investment dollars to nurture this technology and bring it to market. My prediction is the company will have to look outside the US because we have so much “cheap” natural gas trapped in the shale. China and other countries that have an increasing need for energy might be a good place to look for investors.

How much do you think a technology like this is worth? Facebook is going to be worth over 100 billion dollars. Personally, I think an energy solution like this is worth much more than something frivolous like Facebook, but that’s just me. Should they take this to Shark Tank?

Disclosure: This is not a recommendation to invest in Hypersolar. I have a few shares because a friend is involved in this project. I invested in the company pre IPO at 10 cents per share. After they went public, I sold about half my shares at 14 cents/share. At this time, the stock is worth 3 cents. Overall, the investment is in the red, but I’m comfortable enough to let the rest of the money ride. It’s not a large amount of money. This kind of investment is very risky and doesn’t fit my current dividend investing philosophy, but I think of it as supporting the environment. I just want to share an alternative to fracking, especially since some of Mrs. RB40’s family members recently inherited some land and are considering negotiating with a natural gas exploration company.

Natural Gas Without Fracking is a post from: Copyright © 2010-2011 Retire By 40 All Rights Reserved

Last month, Financial Samurai challenged his blogger friends to reflect on their sites and write down their value proposition. Your time is valuable I would like to be helpful and entertaining in the 5 minutes you spend here. There are millions of sites around the world and we need to differentiate Retire By 40 to maintain quality and to grow. I would like to go over the reasons why I think you should keep coming back to make sure they are in line with what you expect. I need your feedback on this post and would really appreciate a comment.

The Retire By 40 Value Proposition

The retirement journey. The first and foremost reason for this blog’s existence is to keep track of my journey toward an early exit from a corporate career. There are thousands of personal finance blogs, but only a few are focused on early retirement. Many of my posts are about the incremental steps needed to leave the corporate job and I think many readers enjoy reading about the ongoing effort and progress. I write encouraging posts like Go It Alone and also explore the opposing view with Don’t Quit Your Job to Follow Your Dream. I believe this is helpful to readers who are thinking about a career change or early retirement.

Frugal lifestyle. Let’s face it, we all need to work toward being less dependent on our day job. The corporations only care about you as long as you can contribute to the bottom line. If there is another big downturn, we need to be ready to face more layoffs. The RB40 family is better than the average American family at being frugal and it’s a big part of my early retirement plan. Some people are better at making money and some are better at saving money. As one of the latter, I try to inject some personal experience and personality into our frugal posts. We cook at home, share one car, and are spending much less than we make. All these steps will help with early retirement.

Passive Income. Spending less is only the part of the game plan. We built up our saving and are converting a large part of that into passive income through rental properties, dividend stocks, P2P lending, and more. I have a good job and earn a good wage from the corporation, but passive income will lead to financial independence. Here is a recent post on how to start making passive income to get you going.

Collaborative efforts. I want to learn from you and enable you to share your experiences. I am learning so many new things through comments and private emails which will help me on my journey. In my HARP 2.0 post, there are many comments from home owners going through similar experiences and quite a few very helpful readers. I will probably have to add a forum to the site to further increase collaboration.

Baby. I think many readers enjoy reading about our cute baby and seeing his progress. Is this true?

The perfect picture for the high school graduation party

Post retirement. My plan is to quit the corporate job and become a stay at home dad for a few years. After that, I plan to work for myself and never go back to a corporation again. Quitting the corporate job is only the first step. Many people quit their job, but eventually go back to work. Staying out of the corporate world will be huge challenge and will be a large part of Retire By 40′s future.

In conclusion, Retire By 40 takes all of the above and wrap it up in an easily digestible package. Any one of these topic by itself can be found scattered all over the internet, but here the readers can follow an average Joe’s progress and be inspired to plan for the future. Retiring by 40 is not easy, but keep cheering for me and I’ll get there. Let me know if I’m on the right track with the blog! What can I do to improve your experience here?

Thank you for stopping by!

The Retire By 40 Value Proposition is a post from: Copyright © 2010-2011 Retire By 40 All Rights Reserved

Thanks for the $150 new account bonus!

Over the last few months, I have been taking advantage of various banking promotions to generate a little extra income. I signed up for new accounts and got $50 from ING checking, $50 from ShareBuilder, and $150 from Chase checking. Last week I received a mailer from Banner Bank with another $50 new account promo. Previously, I ignored these mailers and just stuck with my credit union, but this year, I’m taking full advantage of any promotions I can find.

The only downside to these new account promos is that I will have to keep track of them. I have 4 checking accounts now and do I really need another one? However, $50 is a great bonus in this low interest environment. My ING savings account is paying out only 0.8% interest at this time. That’s only $32.50/month with our $50,000 emergency fund. My Credit union saving account pays out even worse at 0.2% interest. At this rate, it’s better off to scatter the cash and earn some new account bonuses. I used to think $50 is peanuts and it wouldn’t make much difference to our finances, but when the cash flow is tight, $50 does make a difference between a positive and a negative month.

Bank new account promotions

The Banner Bank promo sounds good to me because I only have to deposit $50 to receive the $50 bonus. After a few months, I’ll close the account and transfer the money back. I don’t think opening a new checking account is a big deal. It doesn’t impact our credit scores so there shouldn’t be any adverse side effects.

Credit cards new account bonus

On the other hand, applying for a new credit card can lower your credit score especially the store cards. At this time I am still ignoring credit card promotion offers, but I’m starting to waver. The Chase Sapphire Preferred^SM Card currently has a 40,000 points promo, that’s worth $500 toward travel rewards. I’m really tempted by this one since we are planning to travel to Denver in September for the 2012 Financial Blogger Conference and haven’t purchase the flight tickets yet. The reward would go a long way toward paying for the trip.

What about you? Do you ignore the new account promotions like I used to do or do you take advantage of them? Are there any good promos that you have taken advantage of lately? Don’t hesitate to share.

Disclosure: I’ll receive a commission if you sign up through the link above.

Do you take advantage of banks’ new account promotions? is a post from: Copyright © 2010-2011 Retire By 40 All Rights Reserved

Hello readers!

I hope you are enjoying Spring so far. We had a wet April this year, and are finally getting some sunshine in the Pacific Northwest this month. This is really timely because my last blood test showed a very low level of vitamin D! Maybe that’s why I’ve been feeling a bit low-energy lately. I’m taking a huge daily pill of vitamin D + calcium, but now that the sun is up I’ll be able to get some free vitamin D. This upcoming weekend, we are supposed to get our first days in the 80′s. Maybe we can go out for a picnic in the park or something like that. Do you have any plans for the weekend? It’s Mother’s day so be extra nice to the moms in your life.

This month we have a few Personal Finance books to giveaway. You can click on the links to see my reviews of the first two books.

1 Millionaire Teacher by Andrew Hallam.

2 The Psychology of Wealth

2 Someday Is Not A Plan by Dave Straube (review below)

a Rafflecopter giveaway

Someday Is Not A Plan

Dave Straube gave a grand tour of Portland’s coffee house establishments in this book. He wrote this book as a conversation between himself and his nephew who just started a job and has no clue about saving, investing, and taxes. The book is easy to read and would be a great help to any young person who is just starting out in life. As we all know, most young people need a lot of help with personal finance, but they couldn’t find any adviser. Many Americans are in debt and they can’t even make ends meet let alone give advice to their kids. All in all, I like it and it would have been very useful when I started working.

Here are our social media goals. Thank you in advance for helping Retire By 40 with this!

Social Media Goals

1. Increase Twitter followers to 5,000 (currently 1473)
2. Increase Facebook likes to 1,000 (currently 462)
3. Increase Feedburner counts to 1,000 (currently 809)
4. Increase Klout score to 55 (currently 46)
5. Increase Google +1 to 500 (currently 173)

May Giveaway – Personal Finance Books is a post from: Copyright © 2010-2011 Retire By 40 All Rights Reserved

cough for me

In my previous post, Don’t Quit Your Job to Follow Your Dream, I put health care first in the post and it was not a coincidence. Health care is one of my biggest concerns about quitting corporate America. The cost of health care keeps increasing every year, and it is outpacing inflation by a wide margin. Sometimes I wonder if my investments can keep up with rising health care costs! I’m only 38 and I won’t qualify for Medicare until I’m 65. Medical insurance can be very expensive and difficult to obtain if you have any pre-existing condition. This is a huge HUGE problem for early retirees, the unemployed, and the self employed. Here are some health care options:

COBRA

If you leave a job with a group health insurance plan, the Consolidated Omnibus Budget Reconciliation Act allows you to continue using the same health care plan for a limited amount of time if you are willing to pay the whole cost. This means you will have to pay any amount your employer used to cover plus administrative expenses. The good thing about COBRA is that you benefit from the group rate and continued coverage. However, the cost can be a bit shocking to employees who formerly paid only a part of the cost. COBRA coverage generally lasts for up to 18 months, so if you are 63 and a half, this might be the way to go until you qualify for Medicare. This is not a good option for me because I have 27 years left before I hit 65.

Spouse’s insurance

If you have a working spouse whose employer offers a family health care plan, this is another way to fill in the health insurance gap. The premium is generally much less than buying insurance privately. I just checked Mrs. RB40′s plan and we’ll have to pay an additional $160/month extra to cover me and the RB40 kid. This is a good option until Mrs. RB40 retires, and I’m planning to go with this. $165 per month is not trivial, but it is affordable.

Part-time job

A part-time job might provide the health insurance you need until you are old enough to qualify for Medicare. Costco, Starbucks, and Trader Joe’s are some of the companies that provide health care benefits to their part-time employees. However, there is a qualifying period before part-timers can sign up for the health care plan, which could vary from a few months to a year or more. I won’t be able to take any part time job until the RB40 kid goes off to school, but it could be an option for the future if I need to. This would be my last option though because I’d rather work for myself.

Private insurance

This is a very costly option because you will not receive any group discounts. The insurance provider will usually decline your application if you have pre-existing conditions. Your state may have a group plan that you can join if you’ve been turned down by a private insurer. Your state may also subsidize a portion of the health care premium if your income is below a certain level. However, low income plans have many requirements and a long wait time to join. This cost and the difficulties with pre-existing conditions are why so many self employed people do not have adequate healthcare coverage. You can get a quote from eHealthInsurance to see how much it would cost.

On demand health care

This might be a good option if you are young and relatively healthy. On demand health care clinics offer an affordable option for everyday health problems. For example, each visit at ZoomCare costs $99, which may be a good short-term solution if you don’t have a chronic illness. But this is not a good option for older folks because long-term illnesses will inevitably show up.

Move to a country with more affordable health care?

My parents live in Thailand and they have access to basic healthcare for a minimal cost. I tried to find insurance for my mom in the US, but she kept getting turned down due to pre-existing conditions. The wait time for elective surgeries such as a cataract operation is a few months long, but it is available at a cost that regular folks can afford. If you have more money, you can always buy top notch care at private hospital.

Finding affordable health care in the U.S. is a big problem for early retirees, and there is no easy way to avoid the high price. Perhaps we will have more options when the health insurance exchanges become operational, but I will have to see it to believe it. Until then, we just have to take care of our health as much as possible and minimize our health care costs through better living.

Healthcare Options for Early Retirees and the Self Employed is a post from: Copyright © 2010-2011 Retire By 40 All Rights Reserved

Being a stay at home dad isn't always like a day at the beach.

Do you love your job? Have you ever thought about quitting your job and following your dream? Don’t do it unless you think it through first! We are all in unique situations and there are many variables to complicate the equation. If you are in your 20s, single, and in good health, then you can take much more risks than someone like me. I am getting close to 40, married with one kid, and have a mortgage. At least I don’t have any credit card debt, car loans, or student loans. There are many 40-year-old men with all of the above who is stuck in a job he doesn’t like. When you are older and have more financial obligations, it will take much more planning to quit your job and follow your dreams. Here are some of the things that you need to plan for.

Health Care

Health care is a huge problem in the US. When your employer offers health insurance coverage, you don’t think about it much, but when you don’t have a job, it can be a huge problem. As we get older, we will need more health care and it will get more expensive and difficult to obtain. I found out how difficult it can be when I tried to obtain health insurance for my mom. As for me, Mrs. RB40 has a good plan from her job so I’m planning to jump on that. See JD’s struggle to get health insurance at Get Rich Slowly.

Cash Flow

Can you make the finances work and for how long? Most financial experts recommend 3-6 months of emergency saving. If you are planning to quit your job, this is not enough. Can you start making money right away after you quit your day job? If not, then you will need some kind of supplemental income while working on your dream. I kept track of my cash flow for about a year now and most of the time, we had a surplus. Last month, we had a negative month for the first time in 2012, but I’m not panicking because we have enough liquidity to cover the $29 short fall in April. Even if we average $1,000/month shortfall, we can last 50 months before having to go back to work because we are maintaining a $50,000 emergency fund at the moment.

Time Frame

It is important to figure out the time frame for your dream. Suba at Wealth Informatics is giving herself 2 years to make self employment works after she quits her job. She plans to go back to the corporate job if it doesn’t work out in that time frame. I think it’s a great idea to give yourself a time frame to pursue your dream. It will help with the financial planning as well. I’m planning to be a stay at home dad/online entrepreneur after I leave my cubicle job and I’ll have about 3 years to see if it will work out. Once the RB40 kid goes off to school, I can work on other self employment ideas or go back to a corporate job as a last resort.

Future Financial Needs

Retirement and saving for a college education are the two big items for us. You can put off these for a few years, but you can’t ignore them forever. Mrs. RB40 will continue to max out her 401(k). I’ll put retirement saving on pause for a few years. Once we are comfortable with our monthly cash flow, I’ll start back again. We will also continue to save for college as much as we can. We can always sell the rental home to pay for college if we really need to.

An Action Plan

What will you do after you quit your day job? It is best to have a plan of action before you burn your bridges. Kevin at Invest It Wisely is working on his websites, a book, and an app. He didn’t start these entrepreneurial ventures after he quit his job. You can bet he was already working on them before he handed in his 2-week notice.

All Aboard

Is your partner on board with this? This is extremely important. This kind of career transition is challenging and you need your partner’s support for any chance to make it work. If you are thinking about self employment at all, then you should start working on your partner too. The family may need to downsize or make other changes to make it work. Here are some tips from Mr. Money Mustache on selling the dream of financial independence.

As you can see, it is much easier to go it alone if you are young and have less financial responsibilities. My friend Alison quit her office job, started her own yoga business and became a full time yoga teacher with very little savings when was in her 20s. It will only get more difficult as you get older to quit your job and pursue your passion. I’m not saying it’s impossible, but it will take a lot of planning and saving up to do so. Do you ever think about leaving your day job to pursue your passion? What is stopping you? 

Don’t Quit Your Job To Follow Your Dream is a post from: Copyright © 2010-2011 Retire By 40 All Rights Reserved