The following is a guest post from Bogey at Back Nine Finance about a couple of things that may cause a future entrepreneur to pause before leaping out of a day job.
I’ve been blessed through my very brief 4 year stint in the real world. Or, perhaps cursed, depending on how you look at it.
I’ve worked hard to grow my career and had some good luck along the way. At age 26, I’m in a position that a lot of people would be more than happy to be in. I have a job that includes a lot of responsibility, tons of interaction with the top executives of my company as well as a great portfolio of customers, and I’m paid very well. Don’t get me wrong – I am very thankful and I feel very blessed to be in such a good situation.
The difficult part is this: I am not particularly thrilled to get up each morning and go to work for someone else. I’d like to focus all my efforts, and spend all my time creating value for a company that I own.
I have an entrepreneurial spirit.
My Inner Entrepreneur
I just began investing in rental properties in early 2010, and while the return from that investment is very small so far, there is something very liberating about having revenue coming into your own business. It doesn’t even have to be a large amount of income for it to create an awesome feeling.
I find myself spending inordinate amounts of time researching various business opportunities, dreaming up creative ways to get these opportunities financed, thinking about possible partners, etc. I’ve done an extensive amount of homework, planning, etc. In fact, I’ve done everything except actually pull the trigger on becoming a full time entrepreneur. Why?
Why I Deny My Inner Entrepreneur
I’ve become attached to a quickly growing salary and the comfort of having a large amount of cash in the bank.
If the very first salary I received out of college ($40,000) had never grown a bit, becoming self-employed wouldn’t seem like such a hurdle. There are plenty of things I could do that would get me close to earning that kind of money on my own. I might have to work a lot harder than I do at my office job (think physical labor), but I am pretty sure I could get it accomplished.
What seems more daunting is when I start thinking about replacing multiples of that original salary, now that my career has had a bit of time to flourish.
Entrepreneur Enemy #1 – The Rising Salary
It’s my personal opinion that most people don’t think so much about what their absolute income level is, rather, they think in terms of income growth over time. If you get a 2% raise at year end, you might not be so happy, but if you get a 10%, you may be elated. Unless you are already earning a huge salary, neither of these raises will create much of a difference in your monthly paychecks. Yet, the more income growth you have, the better you feel.
A lot of the entrepreneurs I have talked to were in a situation where they were unhappy with the pace at which their income was accelerating. Their motivation was created by a belief that they could grow their income more quickly if they were to strike out on their own.
Being in a situation where my salary is currently 2-3 times what it was when I entered the working world 4 years ago makes it very difficult to think about leaving my job to go out on my own. As much as I would love to be working for myself someday soon, I also enjoy living in a nice house, having money to go on vacations, and being able to participate in enjoyable recreational activities, etc. There is certainly no guarantee that I can replace the income from my day job, as well as the potential it creates for even more income growth.
Entrepreneur Enemy #2 – The Love for Cash in the Bank
My wife and I currently have enough cash in the bank to cover about 14 months worth of living expenses, assuming our total household income were to drop to $0. It’s very comforting to have that type of cushion.
I love to have cash in the bank.
It’s very tough to picture a situation where I would jump into am entrepreneurial opportunity without having to dip into this cash cushion up front (for example, if I were to purchase an existing company) or over several months while I got a new company up and running. It’s actually quite terrifying to me to consider putting myself in a situation where I had little to no cash in the bank and a self-employment situation with no guarantee of income each month.
Summary
Perhaps, as many people are, I am just too risk averse to ever be self employed even though I have a very strong desire to get out of the rat race and begin creating something on my own. Or, perhaps my financial conservatism will lead me to a place where I would finally feel comfortable taking the plunge within another 3 to 5 years.
I have a strong feeling that having the confidence to make the jump to self employment will also be heavily reliant on my finding the correct opportunity that I feel gives me a solid opportunity for success. I certainly have not found that type of opportunity yet, but that doesn’t mean I’ll ever stop looking.
For those of you who want to be self-employed, what are the main things holding you back?
For those of you who are self-employed, what were the biggest obstacles and fears that you had to overcome?
Crystal’s Comments: I personally will be happy as heck to leave my current day job behind, but I don’t get big raises or make a lot, so that is not too hard to pass up. I also don’t think we’d need to dip into our emergency fund cushion since I won’t blog full time until it is making enough to consistently cover what it needs to at home. BUT, I will miss having full benefits. I will have the same cruddy benefits my husband gets as a school librarian and will have to pay $200 more a month for the privilege. But that is worth it to me never to have to work for my current company again.
I often feel that Im too risk adversed to start my own business. Though Ive thought about opening a franchise at some point, like a pizza place. I can handle the initial investment, but I would never quit my day job to go on my own. But they do say big risk big reward.
Many risk averse people start their businesses on the side. I started investing in income property nearly seven years before I went out on my own. You cannot manage a restaurant absentee! The entrepreneurial pull has to be stronger than anything that may hold you back. If it is not, you should not go. Personally, I see no reason to trade a good career you enjoy for just anything. Keep looking.
I was in similar situation at your age and stayed working at the corporate job. I am not as entrepreneurial as you though. It took me another 10 years to build up my net worth, but I think I’ll be ready to cut the cord soon.
Keep your eyes open for a good opportunity and keep saving.
@ MoneyIsTheRoot –
Perhaps I am too risk averse as well and just have not realized it yet. I guess there is nothing worng with that. It is comforting to see that paycheck rolling in each month.
@krantcents –
I already have some real estate investments on the side, and I am in process of doing another one. It’s see hard to see a time when these investments could provide enough income where I could quit the day job – maybe in 20 years when they are all paid off. I also have my blog on the side, which is a huge moneymaker for me
(not a single cent yet, but then again, I have not tried to monetize it)
I don’t want to go anywhere near owning a restaurant…so don’t worry!
Maybe having a good career is way underated and I should be more thankful…good perspective.
@ retireby40 –
My projections tell me that if I stick with the corporate job and contune to save aggressively, I can cut the cord around age 45 or 50 (I am 26 now). That doesn’t take into account my real estate investments, but those won’t be paid off until around that same time, so they don’t really speed up the process any.
Thanks for the comments!
I too have a large salary job. I am so spoiled. I make enough to cover all expenses and still able to take a trip to Costa Rica
(Cash). I have a pt business. When you combine both I am have my cake and eating it to
B, I would put your projections aside re paying off your properties. If you keep lifestyle inflation in check, you will pay them off much quicker than you think possible.
As to the entrepreneurial options, something will come along that you can’t resist. In the meantime, begin to learn how to manage people and monetize your blog.
That education alone will help you immensely when you are on your own, even if it doesn’t pay off re income stream soon…
I think with the way your salary has increased it makes sense to stay in your job for a while longer to create more cushion. This will also give you more money to pursue your entrepreneurship without having to into debt or give up equity to investors. I think that’s the way to go. Much different than if your salary is increasing 3% per year.
@ Marc –
“I am so spoiled” haha I love the honesty. That’s awesome that you really enjoy your job, and you make plenty of money to do the things you want to do.
@ Dr. Dean –
Well, those payoff projections assume that I don’t every prepay the loans. Right now the plan is to invest the cash flow (along with additonal capital from my pocket) into purchasing additonal properties. We’ll see what happens along the way.
“As to the entrepreneurial options, something will come along that you can’t resist. In the meantime, begin to learn how to manage people and monetize your blog.”
That is really good advice, much appreciated. It’s hard to remeber sometimes that I am still young, and have plenty of time to find that one opportunity that I am looking for. In the mean time, I really do enjoy what I am doing now.
@ Will –
Definitely agree. I am able to build my cushion rather rapidly right now. Although, I am a bit torn between hoarding cash and stuffing my retirement accounts. Part of me wants to remain totally liquid, but the other part of me knows its important to stick money back for retirement.
A blend of two of my favorite blogs all in one! Awesome.
The good news is, Bogey, that you have a problem that most people wished they had. At 26, you’re definitely in all the right places, and I’m sure that within a few more years you’ll be doing even better. Great stuff, and best of luck on whichever route you take.
Bogey – I agree with what you are saying for sure. It’s hard to break away when the raises keep coming, and the cash pile keeps growing.
Security and comfort is addicting! Almost mesmerizing actually.
Some day, I plan to just go out on my own…. but I would be a fool to quit my job now.
Cheers, Sam
It depends on how you look at things. I really like to study business, learn from others, and even go to a few networking events. So when I’m paying for that it’s a valid business expense and it’s my form of “vacation”
That’s a bit harder to pull off in a relationship but my wife does appreciate that I’m always around and when she can’t leave work to do something I’m usually available. I’ve been working hard to increase that flexibility from hours into days and weeks which has benefits that are hard to match.
If you think you really do have the entrepreneurial spirit and you have enough passion to work a lot harder, it sounds like you can pull it off. Even without a lot of proven results you can tell people about how you were put in your current position and it’s likely to get you some attention. If you simply provide similar services (advice is easy to start with because you don’t have as much responsibility for getting things done on your own) to similar clients (maybe slightly smaller at first to make it easier) you can often double or triple your hourly rate from what you earn now (but don’t expect to bill much more than half your time at first, and expect many delayed payments).
You should have enough contacts to find someone who will commit to a certain amount every month or a good length of time (like a year) so you have a bit of protection. At first this can be a bit like doing the same job with 5 bosses but if you plan it right you focus on the most valuable skills and the best learning opportunities so you get experience faster and increase your earning potential. It won’t leave a lot of time to manage rental properties – that would have to stay a low-involvement business or you’ll be too distracted.
It’s easy to forget that things which seem obvious to you are almost impossible to many people, and that it’s extremely difficult to hire good people. When you realize how much people spend on those two factors it’s not hard to talk your way into some contracts.
I think that it comes down to inertia. We all have to start somewhere. Many of us, however, are content to be miserable and don’t put in the effort to make a positive change.
This article speaks to me! I just wrote about my Mullet Money Strategy and was kinda regretting after I hit “publish” …..but just catching up on reading and just saw this…now I feel better. Was feeling like I’m such a loser safety girl. Anyway……
The main thing holding me back from being self employed is the $$$. I too have experienced income growth and like having the flow of $$ and also cash. But, working for The Man the rest of my life sounds a little zzzzzzzzzz.
So right now just saving saving saving so I flexibility to bounce one day if I want to.
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