Hello! This is Burning Questions, an advice column where I answer your questions related to investing, getting out of debt, building wealth, and FIRE (Financial Independence, Retire Early)! I am not a licensed financial advisor; I provide education. The information here is based on my opinions, my personal experience, and the work I’ve successfully done with clients. In these columns, I’ll give you practical steps to conquer your top challenges in money, plus insight on how real people are achieving financial independence from a variety of circumstances.
I’m excited to kick off this new column with two questions that resonated so much with me. It’s that crazy spot that so many people can’t ever even imagine – being almost done with paying down debt!
I Want to Quit My Biotech Job to Train Dogs. Can I Really Do That?
I’m at the end of my debt now, but it was a major focus and still hard to let go of. I had $125K, student loans from an MBA I decided to get at the same time I got laid off + $10K in car loan. I paid off all but $40K in student loans. I have that in savings now earning interest until deferment ends.
Took about 3 years to get it all done while still maxing out most retirement. I do have a high income so that helps. I helped start a Biotech company, I’m the science lead – been here 7 years. My side hustle is dog training. I have been doing it for about 7 years and bought a dog training business that I’m the co-owner of.
I work a lot, but when free I tend to hike, walk, paint, read, workout, travel, hang out with my dogs, partner and friends. After my debt is paid off, I would like to build up my emergency fund, travel fund and brokerage accounts.
I was pulling in ~$20K/year with the side hustle – much less than I make now, but enough to live on and have fun with no debt. Made over $40k since we purchased the business 2 months ago.
How do you know when it is time to take your side hustle full time and quit your day job? And how do I transition from a hustle culture working full time and side hustle to part-time work only?
–Signed, Almost Student Loan Free!
Before we get into planning, let’s celebrate these huge wins!
So let me get this straight. You, in the last 7 years you:
- Completed an MBA while starting a biotech company
- Paid off $85K,000 of debt, and have enough saved to pay off $40K more
- Now own a paid off car
- Bought and now own a dog training business that you love
- Have started being profitable in said business (while most businesses are not), and…
- Are a fun human being? At least from what you told me, I’d like to hang out!
Any one of these would be worth throwing a party for, but all combined is amazing! Gather up your dogs and some friends and celebrate this with the same gusto people celebrate getting engaged or having a baby.
Since you mentioned loving travel, I highly recommend planning a nice getaway for when you officially become debt free. My husband and I planned a baller trip to Italy timed shortly after we made our last mortgage payment, and it just hits when you’re traveling with no debt!
But I’ve been there before – working hard for so long, that I was even more anxious on what I should be doing next! It’s crazy, but it’s a great spot to be in – full of opportunities and exciting choices to make (at least that’s what I had to start telling myself when I was you). Here’s what I suggest for you after your celebration:.
Commit to leaving by this time next year.
Unless there are some other extenuating circumstances (and there might very well be), the time is sooner than later, my friend! That would not always be my answer, because not everyone is 1) in a financial position to leave a day job or 2) has a business idea worth leaving a day job for.
But in your case you’ve:
- Proven that you can start a successful business (the biotech startup)
- Bought an existing business (the dog training business) versus starting one from scratch that’s already generating profit
- Picked a business, that in my opinion is not very risky. People love their dogs more than kids, from what I’ve observed.
- Likely thought it was time for a while now, and you need confirmation that it will be okay after leaving corporate
- Found something that would also support your other financial independence goals including travel and spending time with people you enjoy
A few other things:
Consider paying off the remaining student loans now.
I’m guessing because you mentioned having a high salary that you’re not eligible for the forgiveness. You said you already have the money in savings, and then also asked how to stay motivated while paying down debt.
But if you finish paying off the debt, you don’t have to worry about staying motivated anymore! At least not towards paying down debt. Now you can transfer that energy to your next goals that, to be honest, sound a lot more motivating!
Now some might argue, “why pay off the debt if it’s earning interest and it’s in deferment?”
Mathematically, I get the logic, but psychologically, the benefit of letting go of something that’s been hard to let go of is more valuable than you realize. I say that as someone who paid off $72,000 of student loans in a year. After I made that last payment, I felt like I could breathe and think more clearly.
Is making a $40,000 lump sum payment giving you hives? Try breaking it up into two $20,000 payments, or four $10,000 payments in the next few weeks to reduce some of the anxiety.
Build up six months’ worth of basic living expenses as your new business runway!
Assuming you pay off the debt, you can start working on replenishing your contingency funds (I don’t like to use the word emergency, because sometimes stuff just happens). In your case, you want to build a cushion of time when you leave your day job. You’ll have six months to figure out your next move should anything go awry in the business.
This six months are based on of your five basic areas of living expenses:
- Housing (rent or mortgage)
- Health (including therapy, that’s non-negotiable to me as a new entrepreneur)
- Food (I don’t care if you eat out or not)
I left my last (very safe) job after I paid off my student loans, built my contingency fund, and tested a business model I knew I could scale it up. You are almost there on all three.
Look at all that you’ve accomplished in this very short amount of time! Imagine what could happen if you were actually focused on this full-time. Even if things were to go sideways, you’re smart and capable enough to figure out what to do next. I’m rooting for you!
I’m a Single Mom With Literally No Time to Side Hustle. Can I Still Retire Early?
I’m 38, a single mom, and I paid off my student loans in 2018 and all my credit cards last year.
My car will be paid off next month, and the only debt I will have is $200K on my mortgage. My daughter will be 4 in November. Her father is not involved so I do not get any financial support or extra TIME for a side gig. She’s in daycare full-time right now.
I’ve been at my company for over a year and my salary about doubled when I made the career switch.
So, I have a lot of extra income I’ve been putting into savings. I’ve had thoughts about buying a second house as an investment, but I know that wouldn’t be possible in my current state. What do you suggest I do next?
– Signed, Soon To Be Debt Free Mom
Wow. I am super inspired by hearing about your journey! If no one has made this clear to you, you are doing a phenomenal job and your daughter is so lucky to have you as a mom.
But I don’t think you should be buying a second house right now. You clearly stated you don’t have time for a side gig, and owning an investment property is a real side gig. I can tell you firsthand that you should only get into real estate when you have the time and energy for it.
Still, based on what you are telling me, you make an excellent candidate for joining the FIRE movement! Debt freedom is so hard to do, and you did that as a single mom with a 4-year old?Raising kids is harder than anything you’d have to learn in investing. Here’s what I would suggest as your next steps (and I can’t be more excited for you).
#1. Rightsize your cash savings right now.
I have a strong inkling you might actually have too much in cash (that, and you told me that you have extra cash). So first, we need to decide how much you need to have saved in cash. Once the car is paid off, set aside six months in a high yield savings account, particularly because you have a 4-year-old. Kids that age tend to have a lot of unexpected happenings!
#2. Add up your total net worth.
Surprisingly, most single women I’ve met have never calculated their net worth before and only focus on what they have in debt and what they have in cash.
Your net worth is everything you own (your home, your car, your cash, your investments and any other property of worth), minus everything you owe. In your case, it would just be your mortgage!
#3. Get on a monthly budget if you aren’t on one already.
This will help us figure out how much in extra cash flow you can put towards investing.
Most people’s FIRE number is well over $1 million, and it will put into perspective how much more you’ll need to start investing.
#5. Max out your 401(k) plan first.
Because you have a Roth 401(k) with a match, that’s a no-brainer place to put extra money towards. Start working towards putting in the full yearly contribution limit ($20,500). Is it sexy like real estate? No, but it will eventually make you a millionaire.
#6. Consider starting to pay off your home.
With only $200K left on the mortgage, what a blessing and a mental relief it could be for you and your daughter to have a mortgage-free home!
I started real estate investing myself by buying primary residences, renting them out, and paying them down before buying the next one. Having a paid off home allowed me the mental freedom AND the cash flow to invest even more. It’s not a route that many people take, but it’s a route that helped me become a debt-free millionaire in my thirties.
Congrats on achieving debt freedom, doubling your income, and building this legacy for your daughter. I’m excited to see what you’ll do next in your journey to financial independence!