Single mom building a business- $50K in bank- what to do?
June 12, 2016 6:29 AM   Subscribe

I’m meeting with a CFP next week, but also wanted to see what guidance I could get here. What would you do if you were me/how would you spend vs save? Details and numbers inside. TIA

Hello all,

I’m meeting with a CFP next week, but also wanted to see what guidance I could get here. What would you do if you were me/how would you spend vs save? I try to live as frugally as possible which has allowed me to save as much as I have, and I am now starting my own business as a LPC (licensed professional counselor). I also have rarely acquired debt fortunately.

Current at-a-glance:
Liquid assets (checking, savings accounts etc) - $25k
Investments (brokerage accounts)- $25K
Yearly pretax income - Previously $35K, Current: Unknown, variable*
Current child support: $450
Average money out (last 12 months): $850
Debt: None
Age: 30
Children: One son, age 2
Short-term goal: Auto
Next goal: Own housing (living with family for last year)

1) I’ve been looking at cars in the $10-$20K range, and have been debating cash vs loan vs partial financing (Also electric vs gas because I found an affordable electric car for $10K that would meet my needs now… but need a replacement battery within 5 years for appx $5K). Any words of wisdom here? Should I be looking in an even lower price range?

2) I’ve been living with family for the last year to save money, but will want to get my own separate housing soon (within the next year ideally). So my rent/mortgage/housing expenses may go up $1K at that time (and hopefully my income will cover all of that as well). I'd love to purchase my own home, but I'm not sure when its feasible and responsible for me to do so. Thoughts?

3) Net income from business may only be $5-10K this year as I’ve been working low hours to have more time with my son, but I will be increasing business next year and anticipate working 3x this and making about $30K by the end of 2017.

Thanks in advance!
posted by anonymous to Work & Money (10 answers total) 1 user marked this as a favorite
While you have money in the bank, you seem to be in a tight spot. You have virtually no income. Now is not the time to buy a home. If an auto can significantly improve life, ok.

50k is a reasonable amount of retirement savings at this point in life. A home is often not a great investment, depending on location.

Enjoy this time with your son. Then build your business. Then consider the home as a good investment. Which it may or may not be or worth it to you. Businesses are hard to start. I'd keep your costs as low and flexible as possible until you have some experience or another sure way to make the mortgage year after year.
posted by Kalmya at 6:51 AM on June 12, 2016

The only practical car choice is a small used toyota that is checked out by a good mechanic before the sale. Electric is not a stable technology, a wonderful thing for someone with a good chunk of discretionary income.
posted by sammyo at 6:57 AM on June 12, 2016 [5 favorites]

Quick (hopefully) clarifying note before anyone else chimes in - by "Next goal: Own housing," Anon seems to mean "her own housing," ie not sharing with others, not necessarily "owning a house," because she later refers to "rent/mortgage/housing." (I happen to strongly agree that buying a house is a terrible idea in this context - never mind that even getting a mortgage with a new and variable business is going to be very difficult.)
posted by Tomorrowful at 6:59 AM on June 12, 2016 [2 favorites]

Borrow for the car now, if you can.

As soon as you declare yourself "self-employed," no lender will touch you for two years. Every underwriter will want to see two years of tax returns.

Borrow now, because you won't be able to for a while.
posted by yesster at 7:34 AM on June 12, 2016 [2 favorites]

If I were me in your situation I would forgo the car in favor of walking/biking/transit assuming it's physically possible, and focus on one: the house or the business.

Both will cost more money than you plan for, and if you do one at a time it will be less stressful when the inevitable surprise expense crops up.
posted by aniola at 8:48 AM on June 12, 2016

At this point in time, you don't really need a financial planner for investments. What you need, starting a new business, is cash. Your brokerage account should be a safe bond fund or CDs which can be turned to cash if needed.

If you need a car, you should get a loan because you can't afford to deplete your cash reserves at this point. Unless you have long commutes, an electric car probably doesn't make economic sense. Get a used conventional compact.

If your business takes off, come back in a couple years for further investment ideas, but right now all you need to think about is making your business successful. In the mean time, you need to conserve your cash reserves until you have a proven steady, reliable income. Stay with your family as long as possible, if that is agreeable to all.
posted by JackFlash at 9:38 AM on June 12, 2016

A line possibly missing from your budget - any childcare costs (which may increase as your working hours expand in the coming year/years).
posted by Iris Gambol at 10:48 AM on June 12, 2016

I think your first priority is to retain enough cash to cover your living expenses for a year. With a small practice like yours, you can easily have two clients terminate in the same week plus a no show and income is down 50%.

Second priority is to work on getting your business going. You said, "net income" so I assume that you've already planned for your business expenses (rent, insurance, continuing education, business and professional licenses) as well as the cost of increased marketing to bring in those new clients. Good news is most of those costs are relatively fixed so your take home goes up dramatically with each new client you add. Bad news is that the LPCC and LMFT that I know in California (and I knew a few) generally find it harder to build up a practice in the beginning than ever expected. You know (I hope) that local market for your services but as the sole support for your family you need to have enough cushion that you don't panic where growth is slow or uneven.
posted by metahawk at 1:12 PM on June 12, 2016

Oh you mean living on your own! How is living with your folks? If it's hard, make own housing more of a priority.

You need a budget for what that will cost you. Rent/utilities/groceries/soap etc. Can you cover all your expenses for 3 months. Save that money. Then when you know you can afford it, rent.

Starting your own business is really hard. Can you work at an established place? Few people can make ends meet working less than 30 or 40 or for some 50 hours a week. Balance how hard it is to live with your folks with how much time you'd need to work to make rent. Do your best to take care of you, whatever that may be. Your kid needs a happy you.
posted by Kalmya at 8:28 PM on June 12, 2016

At this point in time, you don't really need a financial planner for investments. What you need, starting a new business, is cash.
posted by JackFlash


While your income is so precarious, you should view your cash as an emergency fund. For the next few years, it's there if you need it, and yay if you don't. I wouldn't spend any of it unless you really need to.

(I could see a car being a necessity, especially with a little kiddo, in which case I'd get an older used car. Be sure to budget for gas and oil changes. Ditto an apartment if you really need to get out of the family home. Again, make sure that your are still living below your means after paying rent.)

You also don't want advisor's fees eating away at your stash; your affairs aren't complicated, and fees can cripple a retirement portfolio over many years. (See John Oliver's take on this from last night, Retirement Plans.)

In the meantime, it's pretty easy to begin educating yourself about finances and investing. For a quick introduction, I like to recommend William Bernstein's free e-book, If You Can.

Best wishes!
posted by Short Attention Sp at 12:50 PM on June 13, 2016

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