One thing I would recommend to everyone is adding a multiple to your expenses. Essentially, < expenses > * < margin of error >
I manage my personal expenses down to the dollar and have managed seven figure budgets. One thing that always occurs is unexpected expenses. My go-to rule is assuming my expenses are going to be 25% higher than expected, per year I go out. I personally track my error between expected and actual to develop a hard number for my margin of error. However, between 25% and 50% larger than expected expenses is a good estimate to give you breathing room.
This method ensures you can be hospitalized for a week or so and it’ll kind of “be in the plan” so to speak.
We did seriously consider moving about 30 miles out of Seattle, where houses cost $350/sqft instead fo $500, but my family wasn't enthusiastic about being far away from our community, and it actually wouldn't have made that much of a difference to my runway.
If the circumstances were different, we could have made a different decision. But, in my situation I felt that I didn't have to.
That doesn't sound right at all.
I don't have evidence to support my following claim, but I think that having a stable home life with a supporting family, not subjected to unusual bankruptcies or bad financial surprises, is a key element to startup founder success.
I could be mistaken. But I am a failed founder who disrupted their family and friends lives and lost a lot of goodwill while running the business because of it. So I think I'm at least right some of the time.
Regardless, it's wise to think of your loved ones first, even if it's only a cold business decision to do so; your business will thank you later with smoother revenues and a happier, more capable decision-making process down the road.
This can be about something as big as where to buy a house to what security system to buy.
My only beef with the calculator is that I’d like to recommend another approach, that is you don’t actually need to quit your job to make, that is the end goal shouldn’t just be to quit. The costs of starting tech business have never been so low to get a an idea off the ground you can benefit from both a job and the other thing your working on. Steph Smith has a great post on this
You WILL make mistakes - a lot of them if its your first business.
When you are 25, you just have a lot longer runway to make those mistakes.
At 35 with a wife and kid, you have limited time to make mistakes and learn from them
I think your story is important and why I think we should be pushing people more to this sort of arrangement.
Even VCs will never give you a penny without first quitting your job, but honestly some of the seed stuff I don’t see why one couldn’t do both if there is promise.
Totally agree that could kill the idea of doing both. At times employers have made folks sign very strict contracts, most though would not stand up in courts as long as you never use their equipment and never do it on work time.
So many of the entrepreneurs I know just started with whatever money they had and just made things work somehow.
Well-compensated engineers at AppAmaGooBookSoft do quite well for themselves. I hope we can temper “This is not a situation everyone has” without swinging over to the common “... they must be lying about that then” because knowing true market conditions is instrumentally useful to many, many HNers.
Many here started businesses with substantially less; I think I had maybe $2k to my name when I went full time.
Financial "success" brings with it a problem. Suddenly there's more to lose than to gain. Once you realize you've "won the lottery" and you find yourself with a nice nest egg, you start worrying more about losing it, than about using it to gain some benefit.
It took me quite a bit of mental effort to break out of that myself. My approach was to mentally write off everything that wasn't super important to me. This helped me to stop worrying about losing my nest egg (and my career), and start taking speculative risks with it.
That's a pretty tone deaf response. Many people don't start something, anything, because they don't have $1.5m in liquid assets sitting around, mate.
I have my own business. I'm writing this from the office we hire. I have tens of thousands in business bank account, not $500k. I have tens of thousands in personal savings, not $500k. You don't need a lot to start, in my opinion, but when you have $500k it's really not a hard decision to start at all.
With $500k you can start, then start, then start, and keep starting and failing over and over, easily, for 5-10 years with that kind of cash.
> Suddenly there's more to lose than to gain. Once you realize you've "won the lottery" and you find yourself with a nice nest egg, you start worrying more about losing it, than about using it to gain some benefit.
I believe this is a sign of a deeper problem, Daniel.
If you can maintain a happy lifestyle on (for example) $50k per year, there's no reason you shouldn't be able to maintain the same lifestyle should you "win the lottery" and find your self with $1.5m in the bank... you simply keep living off of $50k. The lottery winnings are just a bonus you can grow on the side.
Worrying about losing it is, essentially, worrying about being poor. And that's a valid concern for some, but it's not a valid concern for you, sorry.
From my own anecdotal observations, people with little to lose (no wealth, early career) are much more willing to start their own business than someone with a successful career and $1M in the bank. This was the point of that paragraph you quoted.
I think you're right. A lot of people are afraid of being poor. Of losing everything and being on the street. They forget that they can just get a job and start again, really. They're lowest point is a $100k+ job, right?
I really do hope young people are taking bigger risks and starting something for themselves. I'm 34 but my brother-in-law is 24. I'm bringing him into my business because I need him to understand that selling his time for money is a bad investment, among other things.
Thanks for clarifying.
There's this industry, which anyone with decent intelligence in an industrialized country with access to free time or a university can enter that will catapult beyond the global 1% in income.
Half a million in savings after a decade of aggressive savings in the tech industry is not unrealistic.
This isn't just an anecdote: plenty of studies have shown a correlation between starting socioeconomic position and success.
Having skill and natural talent helps. I don't think it helps nearly as much as having the luck to be born in the right place to the right people.
If $500k in savings sounds like a lot to you, I would suggest you have a personal check-in on your retirement planning. I was pretty shocked when I first figured out how much I would actually need in retirement and it helped me really get serious about saving in a way that I hadn't before. To support a $100k income in retirement with 0.04 withdrawal rate I will need a nest-egg of $2.5M. I nearly fainted the first time I heard that. I had been feeling good about myself since I was maxing my 401k, but hitting targets for real financial security requires saving far beyond that.
Somebody bootstrapping is taking a large fraction of their savings and making a big bet on themselves that it will get them to their financial targets faster. I don't have the stomach for that risk but admire those who do.
- High school graduates (88% of the population, per 2015 Census numbers): $900,000
- Associate’s degree (42.3%): $1.1 million
- Bachelor’s degree or higher (32.5% with bachelor’s, 12% with advanced degrees): $1.8 million
I don't know a single person with that kind of cash. The most wealthy people I know (they live in $500k+ home, their neighbours have million dollar homes) in rich area of Chicago and makes a combined $400k (estimated) in income between him and his wife, don't have even close to that in the bank.
(what they do have they have to budget to save up, though they live really well despite this...)
I really think Silicon Valley is disconnected from the rest of the world's realities.
Saving $500k should be trivial on the $400k annual income you describe. Dual income, put $46k per year into tax advantaged retirement accounts (401k + backdoor Roth). Wait 8 years including interest.
Edit: Found a PDF online: https://www.pdfdrive.com/the-millionaire-next-door-book-mant...
(and verified that it actually downloads).
I've read plenty of books on getting rich, and all it takes is a couple disasters or huge expenses (adopting kids, legal fees, tax audits, etc...) and all those money making plans are worthless.
They don't solve real life problems, they only work for those with charmed lives.
I think you are surrounded by rich people and don't realize the vast majority of people live pay-check to pay-check or worse.
Edited to add: And I'm surrounded by academics more than anything else. To quote the millionaire next door (page 136):
> Isn't it interesting that a disproportionately high number of used-car shoppers come from the ranks of teachers and professors?
> How did Dr. Bill, an engineering professor who never had a total household income of more than $80,000 become a millionaire? [...] His success in accumulating wealth is based on living well below his means. The professor is a classic example of a used vehicle-prone shopper. [...]
You'd be surprised how well that description fits me and many of my colleagues. So in a sense, yes, I'm surrounded by rich people, but they're rich because they're comparatively frugal, not because we all earn bay area tech salaries (trust me, we don't -- I grouse enough about this that I wrote a blog post about it a few years ago: https://da-data.blogspot.com/2016/12/finances-for-recent-cs-... )
You can just take your $1M in savings, move to a cheaper city, and live off it for years. Heck, it doesn't have to be some third world country either; a city like Atlanta will give you a huge house for $400k and plenty left over to live off for a decade.
The Bay Area is divorced from reality
People that think "just read this book on investing" to solve financial problems either don't have kids or have never suffered devastating financial hardships.
Make money in SV or another high paying locale, don't piss your money away on silly cars that drive themselves or homes to impress your friends, and when you're ready move to a place like Spain, France, even Canada if cold is your cup of tea.
There's nothing riskier than not working, not having Medicare and not being very rich in the US. How do you know you don't have a chronic medical condition that manifests in your 50s?
Not disagreeing that it's expensive though. Basic healthcare should be universal, like fire and police protection.
You didn’t give an age for your $400k/yr couple but they are well-positioned to accumulate significant wealth in a short amount of time if they prioritize saving. The lesson of TMND is that it’s very easy to be an under-accumulator of wealth on any income if you are not prioritizing savings and budgeting.
I completely agree that Silicon Valley is disconnected from the reality in many other places.
As long as you keep expenses low, and you don’t have too much debt starting, it’s fairly easy to build that if you’re patient.
For reference, many of my friends in their late 20’s already have a nest egg of similar size. (No kids, low expenses, high end tech jobs)
The average software developer makes around 100k (https://money.usnews.com/careers/best-jobs/software-develope...). This average includes fresh college grads as well as 40 year veterans. So let's say the average 22-30 year old makes 90k a year.
Take out fed, state, sales and property taxes and that's 60k a year. Even if you save 20% of your after tax income (vastly, vastly higher than the normal savings rate), you're going to have a hair over $130k saved by age 30 assuming you invested all of it and the stock market did it's usual 7% thing. (And this doesn't count first paying off the average college debt of $30k...)
The average software developer salary is not $200k or $300k - that's top 10% salary. Even in SF, the average household income (including all earners) is around 100k.
This isn't sour grapes, by the way - I make in the top 10% myself. But we can't fool ourselves into thinking that's the average.
Typical income loss to taxes is around 20% as well (effective tax rate). So if you graduate at 23 years and average around $90k that gives you ~8 years of saving (31 years old) and at $30k savings a year (expenses around $2k/month), plus the growth of investments, it’s reasonable to assume that they can save $500k.
Again it really depends. However, I know people who started right around $100k at 22 and are now late 20’s who had that much saved. The trick is to be frugal, which many people are not. Also id argue $90k in Chicago goes a lot further than $150k in the bay (having lived in both). It’s actually easier to save and live frugal elsewhere.
If you look at mrmoneymustache.com the vast majority are software engineers and other technologists.
It's probably due to that introspective nature that developers typically have. Our needs are often fairly modest. We're pretty happy to have shelter, food, internet, computer, and eat out a few times a week, etc.
They are making under $100k too, and putting away $30-40k/year. They started working at 21-22 years old and the time they hit 30 years old, they've probably ended up close to $500k assuming their investments compounded.
$100k/year pre-tax is still a tremendous bubble by most of developed world countries and out of reach for the most of the developing world average people (or even engineers) out there.
The whole US is in a bubble.
What does too rich mean?
You might be able to live for years before making any money, but it's likely that your startup can't.
If you can bootstrap with $2000 in the bank, that's awesome. But I'm more traditional with money and would heed the "three years' worth of expenses saved up" mantra before quitting my job to start a business.
I spend around $1.000/month and that includes a new car (paid off), rent for 2 bed-room with a garden, eating out regularly. It doesn't include extensive traveling (which I have been doing in the last couple years).
I think the two key points here:
1. Having a family is expensive. If you are considering this track, you may want to postpone having a family/kids.
2. Living in cheaper cities can save you a whole lot of money. Obviously, I would not recommend doing that with a family or if you need extensive networking. But if you want to do 3-4 years of discovery without burning a whole in your savings, then there is countless countries to pick from.
After the text "If you include retirement funds, also subtract early withdrawal fees." I'd add something like "Most experts suggest not using retirement funds for anything other than retirement." or similar discouraging of that action.
(Those people who really ought to use retirement funds to bootstrap something will find a way to blow through whatever caution you put there; most people shouldn't, and I'd rather they at least see/feel the small speed bump...)
I don’t know why general advice is to leave the day job and go all in. IMHO that is terrible advice.
Not only that, but you are putting yourself in precarious legal territory by bootstrapping a side project. Your employer could easily claim ownership of all your IP.
OP was a senior software engineer at AWS, how difficult do you think it would be for him to re-enter the workforce with a competing cloud provider nor even coming back to Amazon?
It’s not insane, it’s the market.
$450k is totally within reach for people willing to put in the effort to hit E6/L6, but it's definitely not the norm for terminal level.
Source: personal experience and https://www.levels.fyi
Ok so is this just the global tech firms, who have a 1-2 billion user base so every good and bad software decision gets multiplied by a lot of zeros and it's worth the cost.
Or is this a function of tech firms in the valley - a function of supply and demand (plus house prices)
Or are the non global reach tech firms also having to join this bidding war - this is the part I have trouble believing
I have worked for the past several years in a major US bank - and I do very well for a UK contractor - but no where near this well.
And I am not noticing that there are people on a large multiple of me as a daily rate. I am sure there are but this seems ... common ... at FAANG
In short, Do I move to silicon valley and get any job, do I apply to Google any location or do I just wait for the rest of the world to catch up?
So I think my main question is, is software eating so many jobs that it is reasonable for a "mid level" software dev to capture so much of the cash, or is this a function of specific tech firm structures (SV scarcity, amazing stock options right now, etc)
Looking at the levels.io site it indicates that there is a massive FAANG/ non Faang gap - so I think the later might be accurate.
But it is a scary thought for any company competing for talent ...
Just a thought: You can generate $15k of monthly passive income directly with $300-350k investment. If the bootstrapped business fails to make money fast, there's always this option with your amount of money.
Developers often miss those obvious ways to make money because these ways aren't technically intricate.
Source: I do affiliate marketing. This are the usual ROIs.
Good luck on your journey!
edit: wrt. the downvotes - that's one of the reasons I don't want to talk about this in public. I agree that it sounds unbelievable, but most people also don't believe in $500k salaries. Many people dismiss those opportunities because they don't believe it's possible.
$15k/month is $180k/year
$180k/year passive return on $350k/year is over 50%
Can you please share something about how you achieve that level of return? If 50% IRR is 'usual' for affiliate marketing, why isn't competition pulling those returns down?
(genuinely curious, not doubting you!)
edit: To clarify - most people don't sell them because they're literally money makers. Usually they need the money for investments or have unexpected expenses that force them to sell. Some are just tired of their projects, but this is rare.
"If the bootstrapped business fails to make money fast, there's always this option with your amount of money."
So let's say I'm in OP's shoes and I have the $350k. How do I take advantage of this option that's 'always' available to make $15k/month of passive income?
But when they do sell them, why for so little?
You can only really achieve 10x+ for companies that proce they’re growing or have reached significant and stable profitability.
Do you have experience yourself getting that specific ROI (ie, 350k USD investment to get 15k USD monthly passive income)?
Or are you extrapolating from a smaller sample that you have direct experience with, or is this all something you've just read about?
The main reason I openly talk about this: Most people won't do something. They're comfortable. So I'm not afraid to share information because 99% will simply ignore it. And for 1% it'll be life-changing.
Do you mind leaving your mail address? If those returns are stable and you want to sell (in the future, too), I would like to talk. Many others here probably too.
Not looking to sell right now though. This site is in a field I have more than an amateur interest in. I plan to stick around with it for a while :)
1. Great content + organic backlinks. It's slow and takes skill (especially in content ideation and creation) but the results will be enduring
2. Great content + cheap, paid backlinks. This one is much faster but requires a budget and there is a substantial risk that Google will simply shoot down your rankings
You can't compromise on content though
The big ones are flippa.com and https://empireflippers.com/ , but the deals there aren't good. But you can learn a bit about affiliate marketing just browsing the projects.
I understand why some others have said those returns sound unbelievable. It's because they aren't completely passive. It requires absolutely zero skill/effort to put money in the stock market, mutual funds, etc. It requires skill and effort to put it into an online business and maintain or grow that business. Most people can't (or won't) do it.
edit: @badfrog - If he'd asked, I would have provided links (e.g. to flippa.com and similar). OP didn't seem to be interested so I thought it might seem disrespectful. But I've provided links in another comment.
Without providing any actionable information, that tip sounds more like a brag.