Is Now the Time to be Taking Risks?

Even though the economy has shown some signs of life over the last month and a half, I feel it is safe to say we are still in or around the low-point of the economic cycle, the trough if you will. Many individuals are feeling that because things have gotten so bad, now may be a good time to ‘start over’. This starting over can mean many different things for many different people. For some it may mean making that jump from renting to buying due to historically low mortgage rates coupled with depressed home prices, or maybe it means purchasing that vacation home or rental property you have been thinking about. For others, this catharsis of the financial system may signal that it is time for a career change or maybe time to branch out and start your own business.

This topic really hits home with me personally because it was during the last bear market that I took that leap of faith and stepped out to start my own business. Fortunately, it has proven to have been a good decision. It was not a haphazard and hasty decision, however. It took a lot of patience, planning, and saving by both me and my wife to make sure that we would be able to, and could afford to, take this risk.

As you listen to the show, I try to walk through each stage of adult life that you may be in and provide you with some thoughts and considerations to make before making a significant life change. Listen for some of the following high points:

• Age 20-25. You now have a good job with a strong company and a well defined career path. You have a sense of your earning potential over the next 5 to 6 six years and are fairly certain you won’t have to worry about losing your job. Here are some things to think about:

1. Are you saving 10-20% of your income?
2. How much debt do you have?
3. Now may not be the time to try and start your own business from scratch. Even though you feel more than qualified and adequately educated, get out there and get some valuable experience under your belt.
4. Do you have emergency reserves or a cash cushion (i.e. money for a down payment)?
5. DO NOT FAKE SUCCESS!!! Success is a process that takes hard work and time. Don’t try to do too much too fast and get yourself in over your head with debt and unnecessary obligations.

• Age 25-30. You’ve been in the ‘real world’ for a while now. Maybe you are married with a child or contemplating getting married or having children.

1. If you do have a spouse and children, please think about them before deciding to make a huge career or life change. Remember, it’s not just yourself you have to think about anymore.
2. Are you saving 15-20%?
3. Do you have adequate emergency funds and cash reserves?
4. If you are going to make a life change (new home, new career, etc.), how much additional debt will this change have and how will that affect your cash flow situation?
5. Where is your current career going? Is there still potential for vertical movement or has it become stagnant?

• Age 30-40. It’s probably safe to say you are getting close to established.

1. Are you saving 20%? Remember that Social Security is not what it used to be.
2. How much debt do you have? By this point, even if you have a significant amount of debt, it should be controlled debt (such as a home loan). Credit card debt and student loans should now be a thing of the past.
3. Have you begun to really start accumulating some assets so that your net worth is growing? Remember that our ultimate goal is financial independence.
4. If you have children, they are getting older. Have you begun to save and prepare for college or weddings?
5. If you do decide now is the time to start your own business, how much will it change your current quality of life and family life? Do you already have an established network and market or are you having to start from scratch?
6. Are you well diversified? Make sure that all of your human capital, investment capital, and earning potential are not tied to the same tree.

• Age 40-50. Now things should start getting comfortable. If you’ve made sound financial decisions, saved like you should, and lived below your means, you should begin to start seeing the light at the end of the financial independence tunnel.

1. Risk capacity begins to play a more significant role in your thought process.
2. If you start a new business now, how much do you want to work for the rest of your life?
3. What stage in life are your children at? Have they become independent or are they still heavily relying on you for support?
4. Retirement is coming up. Have you been saving? You are getting to the point now where you can begin to estimate your desired retirement cash flow. This will allow you to set a dollar figure goal to know if you will be able to retire when you would like to.
5. If you are thinking about purchasing a second home, how will this affect your current cash flow?
6. How much debt do you have? Your primary residence should now be close to actually belonging to you.

• Age  50-60. This is retirement crunch time. Your children should be grown up or at least close to it. Are you ready for this next step in life?

1. Can you retire comfortably?
2. Are you completely debt free?
3. What is your desired retirement lifestyle and have you made the decisions that will allow you to enjoy that lifestyle?

In the show I also give a big shout out to Erin at Atomic Podcasts as well as the team at ABC’s local affiliate station, WSB.

To wrap up the show, I thought it would be fun to share an article with you done by InsideCRM.com. The title of this article is ‘14 Big Businesses That Started in a Recession‘. For those of you who are contemplating starting your own business, I hope this article provides you with a glimmer of hope for what could be!

I also read a few listener emails, comments, and criticisms concerning last weeks show, How to Build Your Credit Score.

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