SacramentoInvestor wrote: ↑Wed Sep 18, 2024 12:31 amHello,
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Do we need to own some type of small business in order to create wealth?
If so, I don’t know
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what business to start; so any recommendations would be welcome. I am not interested in food businesses.
I am a 41yo engineer ($206k/yr + $20k annual bonus) and my 41yo wife is in the medical field ($120k/yr - part time 2days/wk) so she can spend more time with our two children (6 and 4yo). We live in California in MCOL area (Sacramento), and I can’t help but feel poor all the time. We recently left the Bay Area because it is too expensive. My only debt is $500k on our current mortgage, and we have approximately $1.8 mil in investments/savings. Annual expense is between $100k-160k/yr, and we put away approx $68k yr in 401k/IRA (AA - 80/20). I would like to retire in 15-20 years, but I don’t think our salaries are enough in California and3
I constantly feel like we are just treading water. I don’t know how others do it.See AlsoReceiving Magazines...Never Subscribed - Bogleheads.orgAnyone's Take on Blue Dolphin Magazines?
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I am constantly thinking I need to start some type of business in order to create wealth. I must admit I got this idea from social media; and the narrative is that majority of people that are wealthy are usually some type business owners.
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The tax system is made to benefit business owners. Is that really true?
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Some of the businesses I considered are: a laundromat, buying into a random franchise, starting up a kids playroom, and others. But every-time I think about it, I am not sure those businesses will help me much.Any feedback are greatly appreciated. Thanks
Input From a perspective of "wealth" defined as "substantial wealth" far greater than FIRE.
to op:
What is your definition of "wealth"?
How much would you need to think your have "wealth"?
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No.
Triple No.
99% of new self owned businesses fail, leaving the owners in debt, or massive lost from initial investments. On average, fail or go to survival level within 3 years.
And, I would perhaps make an assumption that many that survive which they had your job and your pension, income, stability, etc.
a) Self owned small business owners work (most, especially on start up) 24/7/365 with no assurances of income, etc.
2
Businesses to start for a mid life professional with an excellent income stream (that should not be jeopardized or compromised because it is your "deep pocket" and safety net for yourself and family), are often an adjunct or related field or skill (with passion) to what you already do.
And, if there is a ready market and network such that "people/customers" would "Pay You For Your Time, (goods and/or services).
3
Small self owned business owners do indeed feel like they are treading water as well, for many years, and going nowhere, or backwards, or trapped in survival mode. Start up resources gone, safety nets gone, savings gone, etc.
The only stories on social media and fancy websites peddling "LLC" creation and website design, et al, are successful self promotions, bloated golden rags to riches "Kiyosaki" type seminars, etc.
Why?
Because "real" business owners that are treading water and slowly accumulating wealth, are focused on work and busy 24/7/365 with no time for social media, or anything else. They succeed or survive because they are working and focusing at an intensity level that others can't or won't do. If it was easy, then everyone would do it and have wealth.
4
Small business ownership appears to be a source of wealth. But, that is illusory if it seems pervasive.
"Bigger Pockets" is a well known large R/E investing website filled with tons of success stories.
https://www.biggerpockets.com/forums
It may be and often is a tangent to wealth or income streams earned elsewhere. For example, Highly paid professionals, celebrities, etc, already with substantial funds, invest in R/E, businesses, etc, for diversification, for tax advantages, etc.
5
No. There are areas and States where this is definitely not true. It also very much depends on the type of business and financial structure, etc.
6
None of what you mention and any in that genre are viable. Especially franchises. For example, the average McDonalds takes well over 1 mil. to build and open, earns 3+ mil in sales annually, franchise owners work 24/7/365 and earn from 1-400k/year before paying back the investment. The franchises earn while the franchisees work. Franchises of all types are structured in some ways, conceptually, like a tier system or "ponzi scheme" (not really but feels like it). For example: a "Roto Rooter", or "shower/tub refinishing service", or ...etc...franchise "small business owner" (advertises be your own boss, etc), invests in the company van and equipment, then pays it off slowly, makes a "living", and works 24/7/365 going from house to house etc clearing drains and toilets.
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Thoughts and questions:
a) As an engineer, you already have skills and education and credentials far above many. Are there people or companies that would pay you for those skills on a part time basis as a consultant, etc?
b) would you be willing to spend all of your free time/waking time/and family time when you are not at your present job working for "your business"?
c) It takes money to make money. How much do you have to invest in a "small business" and, if it had monthly operating expenses, etc, can your income stream pay that if it is not making money?
For example, you buy a condo or apt to rent out, thinking that social media and so forth advertises that landlords become wealthy. You pay a mortgage on the property and think that it is passive income. You hire a property management company who takes care of renting, maintenance and repairs (passes those costs on to you), etc. For some reason the property is vacant for 6 months. You have to use your existing income stream to pay monthly expenses for this property until cash flow resumes (no matter the CAP rate). Or, there is a tenant lawsuit. Or, you sell the property at a loss to get out of all that.
So, you see how things like this can and do result in a negative cash flow.
What do you think?
7b
Many small businesses are generational. Others have a path to slow earned wealth, read book, "Millionaire Next Door" but often through the only skills and resources that the owners had. They did not have engineering degrees and excellent pension careers. IE.
And, many have a strong and intense "passion for what they do" and sense of purpose in it which is the driver for success that sets them apart (Elon Musk ie:) Do you have a strong and intense passion like that for something?
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Do you know how to make a formal professional (not online template) business plan with projections, etc?
Do you have a business education background (business/finance/economics)?
Do you have family or extended family that have been "rags to riches" entrepreneur business real life success stories?
Did you grow up that way?
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(huge question for you)
What would it take to grow your income stream doing what you do now?
In a big way?
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Consider posting for a "portfolio review" by forum senior reviewers.
Portfolio Review Request
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Let's see if you are on track to wealth already, or FIRE, etc.
Some tools for you.
Engaging Data: website portfolio projection tools.
https://engaging-data.com/early-retirem ... and-tools/
The grass is not greener in the pasture in the distance. It is just the angle of the light in the setting sun.
j
My input perspective: some immersive business experience.
dis laimer: zillions of ways to things, this is only one. Perspectives vary. There are always exceptions. Redefinitions and contradictionaries.