A Question to the Readers: What Should Steve Do With His Money?

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Steve is 51 years old. He hates his job and has $250k saved up that he really doesn’t know what to do with. $150k of it is in a self-directed IRA and the other $100k is in the bank. He owns a rental property and a personal residence – both of which still have mortgages.

Steve has mentioned going on a 1-year sabbatical to volunteer internationally, and has also toyed with the idea of starting his own business to free himself from the job he hates, but doesn’t want to do anything that’s going to sabotage his future retirement.

  1. What should Steve do with his $250k?
  2. Should Steve start his own business and/or take a sabbatical?

What do you think?

Steve, I’ll give you my response in the video below, but I’ll leave it up to my readers to agree or disagree (Readers: share your thoughts in the comment section at the bottom of the page). Best of luck to you!!

Links referenced in video:

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Video Response Sunday

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

6 Comments

  1. Hi Derek & Steve –

    I’d recommend that Steve take the following steps:
    1. Create a personal balance sheet (assets & liabilities) and monthly cash flow statement. Do a cash flow statement for your rental property over a broader timeline (recommend since purchase). Ask the following questions: Do your personal assets exceed liabilities, is revenue from rental income > rental costs, and is there net positive cash flow on your personal and rental statement at month end? If yes, proceed to next step. If no, you have some work to do.

    2. Is personal month end cash flow >= 50% of expenses? If no, decrease expenses to achieve 50/50 split – expenses vs. free month end cash flow.

    3. Do a pro-forma cash flow statement under the assumption that you quit your job and have no income. Look especially at: ability of passive income streams (if you have any) to cover your expenses; and what increase you might realize in insurance premiums (if not employer-sponsored – health insurance is the big variable). Are Passive income streams able to sustain your proforma expenses for 1 year? If no, do they cover 60% or more of your expenses? If yes, consider 1 year sabbatical. If no, consider changing your job or careers – use estimated income from new job and do another pro-forma income statement.

    Advice beyond this point is highly variable based on the outcome of recommended steps above.

    • Hi Dave. That’s pretty specific advice. For me – I’m just a no debt guy, so I pay off consumer debt, then invest while paying off my home debt, and then invest with cash. It’s neat, simple, and effective.

  2. Im confused. 1, are you a licensed financial advisor because this is very close to requiring licencing. 2, $319,000 to generate $50,000/yr for 30 years requires a 15%+ annual return, and thats with $0 left on 30 years. 3, I’m not sure I agree with anything that you have said

    • Hi Shaun. Nope, no need for a financial advisor license since I’m not recommending stock picks. Plus, I’m just letting Steve know what I would do in his situation. He can choose any route he wants.

      For your second point, you should probably read the article. $319,000 is continually added to until Steve retires. It will likely grow to nearly a million bucks, which he can then easily draw the $50k a month.

      Ha, and third, you are entitled to your opinion. 😉

  3. It’s difficult to provide much detail without additional information, but I like Dave’s advice about looking at cashflow. I might consider selling one or both houses in order to take a sabbatical volunteering. Then, I would come up with some ideas for covering my expenses while out of the country, such as tutoring English or teaching English as a second language. Ultimately, I would try to avoid dipping into any of my savings and figure out how to make it happen without doing that.
    Jim recently posted..What Happens When Your Grand Per Month Dries Up?

    • Hi Jim. I would for sure steer clear of dipping into any savings. If it were me, I’d work to decrease my expenses, increase my income, and get rid of all debt. It’s amazing how fast cash can build when you hardly have any payments!


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