Part of Starting Over is trading an upper-middle class salary plus benefits and bonus for a hope and a dream. And a lot of spare time. If there wasn't self doubt before, writing that sure seals the deal.
We know a lifestyle change is required. We live in a beautiful 7,500 square foot home on 50 acres in the country, and while we paid less for it than most would pay for a three bedroom / two bath home in a more populated area, it isn't exactly consistent with a sustainable lifestyle for two self/semi/un-employed people.
Rather than continue building anxiety, today I put together a simple budget to understand approximately how much gross revenue we need to generate to cover costs of living. This was an accuracy over precision exercise. With our current cost footprint, we save roughly half of my typical monthly take-home meaning we spend the other $4,500. Factoring in some savings from downsizing (back to renting cheap, small houses) and some minor ($200/month) trimming back on monthly expenses leaves us with a need of just under $40,000 per year, net.
Now enter health insurance. We are both young, relatively healthy individuals with no plans for kids or obviously harmful addictions. Should be easy, right?
Not quite. I was diagnosed with Type 1 diabetes at 13 months old and require a slew of routine medical purchases to remain healthy. While the control these products provide has increased over time, so has the cost. I have seen estimates that effectively treating Type 1 costs patients approximately $1,000 per month, and although that feels a bit high, it certainly isn't out of the realm of possibility.
So skimping on health insurance isn't an option, but what does that imply for cost? The short answer is "I don't know yet." Rather than attempting a precise calculation that will inevitably prove incorrect, I tried to make several attempts at a conservative estimate and penciled in $20,000 per year for the two of us.
To put that in context, health insurance could be equivalent to 50% of our non-insurance cash flow needs. I hope I am being pessimistic, but this isn't an area I can afford to miss materially.
Beyond net cash flow needs we have taxes. Did I mention taxes are really burdensome for an entrepreneur? 15% for Social Security and Medicare/Medicaid plus something in the ballpark of 20% federal income tax for our "breakeven" target. I'm not even considering state taxes yet.
With a few allowances for deductions, we will ultimately need nearly $85,000 per year in profit to cover our $40,000 per year in non-insurance expenses. Remember the Ron Burgundy quip "that really got out of hand" from Anchorman?
So that is terrifying, but at least we have a target. Split between the two of us, we need to generate over $40,000 in profit from each of the two businesses. Not a crazy goal on an absolute basis. Not for a business with actual customers. And, you know, revenue. That sort of thing.
Good or bad, this is getting very real.