Scared of the future

August 29, 2006 3:35 AM

How best to handle my partner's business proposal, given our relationship and my reservations?

Way back when, my life partner and I both worked in high-tech, with very well paying jobs. We had more money than we knew what to do with, though still managed to spend it all.

When our child was born, we agreed that I would stay home while my partner retained a well paying job. We still managed financially. Through inheritances we managed to pay off our mortgage. However, we still continued spending as if we have two incomes so have racked up some (approx $20,000) of debt on a line of credit.

Child is in school. I have a part-time job that I love, but that doesn't pay very much. I also bring in a bit of income from a home-based job.

My partner wants to quit the existing, well-paying job to start a new business. A business plan is in the works and will likely be presented to me before too long.

I'd like advice on how to best handle this. I tend to be a very negative person, so will immediately see all kinds of problems with the business plan. I also worry about money - having our existing debt doesn't sit well with me. We could use savings to pay it off. We could also use that savings to help finance the new business, but I'd be scared that, as small businesses often fail, the savings would be 'wasted'. I'd be terrified that we could lose the house and all savings if the business fails. Given that making money from the business would be a long way off, how do we survive for the foreseeable future? Should I give up the job I love to try to get a better-paying job that I won't enjoy half as much?

However, I also want to be a supportive partner and can appreciate why my partner wants to do this. We don't always communicate very well, so I'm nervous about how the discussions will go, particularly as my partner is the 'stronger' half of the relationship. We have tried to discuss the basic concept but it didn't go really well, and I only found out that it is now a 'concrete plan' by overhearing a discussion at a family gathering.

I'm thinking of suggesting that we see a marriage counsellor to help us through the discussions. We've used one in the past that I think could be helpful. Is it valid to use a counsellor for such situations?

Any other advice for a situation that is already causing me a certain amount of stress? Throwaway email for offline advice: [e-mail]

posted by anonymous to human relations (21 comments total)

It sounds much more reasonable to pay off the debt you currently already know exists than put money towards potential, future, intangible money that may or may not come. If you start a business, you have to prepare yourself for not making any money for at least a year while it gets off the ground, and likely incurring many expenses just to get it started. That's more debt.

Sacrifice is one thing, but it sounds like he's sacrificing the security of his own family for his own personal dreams and ambitions. That. Ain't. Cool.
posted by Civil_Disobedient at 3:46 AM on August 29, 2006

Small business loans, venture capital, and angel investors exist for a reason. Don't risk your savings, especially if you have a child.
posted by NotMyselfRightNow at 4:32 AM on August 29, 2006

I would tend to agree here. You've got $20k in debt, but you've also got savings? I really hope you're making more money in interest on those savings then you're paying for the debts.

I think you should be honest with him about your feelings about the business plan - tell him what you really think, and don't let your fear of the future cloud it. If you think it's a bad idea for valid reasons, tell him that. But likewise if you think it's a GOOD idea, tell him *that* too. I don't think it will go particularly well either way, since your partner has already gone from a preliminary plan to a "concrete" plan without even discussing it with you.
posted by antifuse at 4:53 AM on August 29, 2006

To start with - if you are having communication issues and they are affecting such a potentially life-changing situation as this then counselling is a good idea anyway.

Most of the successful small business owners I know strongly suggest that before you start you should have no debt, and 4-6 months "salary" in reserve before going at your own business full time. Many people negotiate to go part time at their current place of work, while working part time at their own business.

I think also that as you don't know the full plan yet this is putting extra stress on you.

So the next stage would probably be finding out what the plan is and working towards making it work within your lifestyle.

A few thoughts:

- One goal should be paying off the exisitng debt - whether this is done in full, or partially to start with and having a monthly figure to pay towards it each month.

- If you go full time how will that affect your child? Starting a business is very time consuming so your partner will be busy, and if you are picking up the slack with full time work who will be home?

- Finding a good financial advisor - even on two good salaries you managed to incur a quite considerable debt. It might be worth getting professional help to assist you with budgeting your personal expenses, paying off the debt and working towards starting a small business.

Checking and making sure you are financially secure isn't being negative.
posted by gomichild at 4:56 AM on August 29, 2006

There are publicly-funded small business development centers all over the country -- some affiliated with the SBA, others with local universities -- that exist to "help" people like your husband with their business plans.

They help people come up with realistic assessments, like: Is there a demand for the product/service I want to provide? How much will it cost to start this business? How much income -- if any -- can I expect in the early years? What kind of time commitment will I be getting into? Are the time and money sacrifices reasonable, given the current income demands on my family? Etc.

They do this all for free, even.

Here's a list of these places.

Going to a third-party expert sounds like it would benefit you, your husband and your marriage in two ways: If his plan is realistic, you'll be hearing it from someone who understands how these things work, which should ease your mind some; if his plan is not realistic, he'll be hearing it from an independent third party and won't have the right to blame you down the line. My guess is it's not realistic, but I do know folks who've gone out on their own and met with enormous success.
posted by croutonsupafreak at 6:41 AM on August 29, 2006 [1 favorite]

You need to have significant savings before launching your own business and leaving your current, steady income stream. Take whatever savings you have now, subtract $20,000 from it, subtract a years worth of living expenses and bills, then ask yourself how much you have left. If it's still pretty sizeable, you're most likely OK. Remember that if he gets hurt working for himself, there's no worker's comp, so definitely make sure you're covered insurance-wise.
posted by Mr. Gunn at 6:52 AM on August 29, 2006

N.B.: The poster was very careful not to specify the genders of anyone involved in this scenario.
posted by raedyn at 6:54 AM on August 29, 2006

This is going to be harsh, but It doesn't sound like you guys are good with money. At all. However, it's never too late to start.

I'm going against the grain and saying that I would start the business. This might be the catalyst you need to get your lives and your family on track (you seem to be just sort of helter-skelter right now).

While you don't necessarily have to start it right now, I would work towards doing it- just get your house in order first. It'll provide you with stimulus to pay off your debts, build your savings etc.
posted by unexpected at 7:01 AM on August 29, 2006

Oops, sorry about the "husband" / "marriage" stuff. This should apply in any relationship, given any gender roles.
posted by croutonsupafreak at 7:07 AM on August 29, 2006

How best to handle
communication, calm rational analysis

My partner wants to quit the existing, well-paying job to start a new business.
Why, have they found something they especially believe in, can you see it too? Can anyone else? I'd be very wary of an entirely money-driven decision for several reasons, not the least of which is your history of unrealistic financial management. You have two things that raise the 'unrealistic' red flag for me: the high-dual-income no-kids period, and the inheritance windfall. Both these contain a strong element of mere good fortune and no element of sound management. Were I an investor, I'd be extremely concerned that your partner's desire is to return to the good old days when you "didn't have to worry about money".

We could use savings to pay it off.
This should be non-negotiable, besides the obvious financial benefit involved, your partner would then be required to do a significant reality check by needing to convince someone else like a banker or other investor that they've got a good idea.

how do we survive for the foreseeable future
This shouldn't be simply your worry, it should part of the logic in the business plan - if it isn't, the plan ain't ready yet.

Is it valid to use a counsellor for such situations?
If you think the situation threatens your relationship the answer is yes.
posted by scheptech at 7:31 AM on August 29, 2006

Holy crap, pay off your credit card debt first before making this kind of investment.

It is absolute idiocy to have that kind of thing blemishing your record (how will you get loans from banks or convince investors of your financial responsibility) and sucking up money from interest while you make a gamble. Doesn't matter how much of a "sure thing" that gamble is, it's still a gamble. And you have a kid, for Chrissake! You need that debt paid off and you need some savings before you start taking financial risks.

Your partner is being irresponsible.
posted by schroedinger at 8:19 AM on August 29, 2006

It sounds like you both have trouble with finances. How is your partner going to run a business while not knowing how to manage money well? There should be something in the business plan about how that can work well (ie., someone else is managing the money, or your partner is getting counseling/classes to learn).
posted by Margalo Epps at 9:13 AM on August 29, 2006

I've been up and I've been down and I've started my own business. If I had to distill what I have learned into one statement it would be this:

Don't quit your day job.

While it is sometimes impossible to start something without leaving something else, the reality is that most ventures fail. Positive thinking and believing you can succeed is necessary but the reality is that sometimes things fail due to pure chance.

Working 'without a net' when you don't have to is reckless and quitting a known moneymaker when you can't afford to be without the salary definitely qualifies.
posted by phearlez at 9:38 AM on August 29, 2006

I know nothing about finance, nothing at all, and even I know that there's no point having both debts and savings. Anyone assessing how much money you actually have will just subtract the debt from the savings, so you might as well do the same thing.
posted by AmbroseChapel at 2:31 PM on August 29, 2006

Another good reason to pay off the debt with the savings: if the savings are gone, your partner won't be tempted to use it to fund the business.
posted by Civil_Disobedient at 3:46 PM on August 29, 2006

Anyone assessing how much money you actually have will just subtract the debt from the savings - AmbroseChapel

This is true.

there's no point having both debts and savings.

This is often but not always, true.

If the cost of debt (interest rate) is higher than the rate of savings growth (interest rate and/or increase in value and/or dividends paid) then your net worth is decreasing, so it's silly to keep them

But when you find a (rare) situation where the increase in savings is greater than the cost of the debt, it can be advantageous to carry debt. However this is always riskier than killing the debt with the savings. These are typically agressive strategies and they aren't for everyone. See: leveraging.
posted by raedyn at 3:51 PM on August 29, 2006

>when you find a (rare) situation where the increase in savings is greater than the cost of the debt

OK this I don't get. Isn't there always some differential between the maximum interest you can earn for saving money and the minimum interest you can pay for borrowing money?

If X was greater than Y anywhere in the system, wouldn't the whole thing spiral out of control and collapse into a financial black hole?
posted by AmbroseChapel at 6:42 PM on August 29, 2006

It depends, AmbroseChapel. For instance, some credit card companies will offer low introductory interest rates if you convert your existing credit line to their. I know MBNA offers something like this.
posted by Civil_Disobedient at 7:22 PM on August 29, 2006

Here's an example, Ambrose Chapel:

I locked in my student loan rates at 4.25 percent when I consolidated a few years back.

I can now earn interest on savings at 5.05 percent through HSBC Direct.

Paying off the loans early may be psychologically more fulfilling, but I'm making better use of the same amount of money if I put it into savings.
posted by croutonsupafreak at 7:36 PM on August 29, 2006

So there's never a generalised case of a loan-repayment rate lower than the interest you can get on a good savings account?

In order to arbitrage the 0.8% difference between crouton's 4.25 and 5.05, I'd have to illegally employ a thousand students to take out student loans, make less than a cent on the dollar, pay them out of the proceeds, handle the paperwork ... yeah it's not going to work.

Sorry to hijack the thread.
posted by AmbroseChapel at 2:37 AM on August 30, 2006

You're thinking too narrow. Savings can be other things than just in a savings account accruing minimal interest. Mutual funds, stocks, bonds etc.

The important word in my original post was leveraging. Borrowing money in order to invest it. Instead of buying a little bit of mutual funds every month (for example), you borrow a larger amount and invest it all at once. Then, instead of making additional contributions to your investment, you make interest payments on your loan. In Canada at least, these interest payments are tax deductable. The advantage is both the tax deductibility* and the advantages of compound growth (when dividends are reinvested, for instance). Also, a larger initial investment means larger dollar gains, because 2% gain on $100,000 is a lot more dollars in your pocket than a 2% gain on $10,000 for example.

* I don't know if this applies outside of Canada. I'd be surprised if there isn't something similar in the US, but I'm not in a position to know.

Over time the stock market averages much greater growth than any savings account ever can offer. The downside being, of course, market volatility. This makes it a longer term strategy so your money has time to come back to value and then increase in there is a market dip. Leveraging magnifies both gains and losses, that's why it riskier.

I'm not any sort of financial professional, so don't take my word for any of this. When my financial advisor first started talking about this strategy, I thought he was nuts. But when we started running numbers and seeing what a huge difference it could make (even when projecting relatively modest returns) it started to make sense. Ask you own professional about it. They will have more complete information than I do.

This is off-topic to the original thread, but since we're talking about it...
posted by raedyn at 9:45 AM on August 30, 2006