Entrepreneurs frequently need to flex, bend and break the rules of personal finance. Sometimes it means putting up safe assets for a risky investment. At other times an entrepreneur needs to accept a higher total cost to abate short term cash issues. No matter the rule you break, an entrepreneur wants the risk to be calculated. The trouble is that it’s not always easy to separate your entrepreneurship dreams with the cold hard math of reality.
How do entrepreneurs differentiate between calculated risk and foolish mistake?
My wife, Mrs. No Telly No Trouble, has been bitten by my entrepreneurial bug. She wants to start her own private music studio this fall. For years, she has been an elementary school music teacher, but the long 50 mile commute and scheduling changes due from budget cuts has taken its toll. Since she’s started work, we’ve also become parents of two wonderful kids and private teaching will allow her to be more involved in their childhood than working/traveling 11 hours a day. Success means great benefits for my wife and my family.
I’d like to think that we’re making a calculated risk, but I seriously doubt I’m an object voice. What better place to put it to the test than to ask the financial blogging community? What do you think?
Our Entrepreneurial Finances
Of course, you’ll need a little information to make an assessment. Here’s a rundown of costs, assets and issues surrounding starting a music studio.
Out of Work, but Still Employed
As a public school teacher, my wife can take the year off without pay and still go back to her job next year should things work out. It’s nice to know that there is potential income safety net. However, my wife will need to make a decision to leave or return to work 6 months before the start of next year. So while delaying is definitely a plus, it doesn’t leave a lot of room for building up a customer base.
Income Exceeds Expenses
Unfortunately, our finances aren’t as sounds as I’d prefer. Without a second income, we’d get by on emergency savings, but expenses would exceed income. I have full faith that we’d be ok for a year, but a second year would be tight if not impossible.
Some Assets Need to Be Purchased
Luckily, our house can easily be used for a studio, but some investment will be needed. We’ll need to purchase a new piano since our electric is broken and our current piano can no longer hold a tuning. As you can imagine, pianos are costly; between $5,000 and $7,000. Leasing is no longer a common practice among piano stores. If we buy, we’re going to have to get a loan or pay for it out of the emergency fund that is necessary for making up for loss of income.
More Budget Cuts Could Cut the Safety Cord
The school district where my wife works has cut so deep, she’s next in line for unemployment should additional cuts occur next year. In a way, this only increases the need for us to diversify income. However, that safety net we thought could replenish our losses could be nothing more than a mirage.
Access to Students
It’s not all worries and concerns. My wife already has a lead on 10 or more potential students this year. A full studio would be between 40 and 45 students. Few businesses opportunities start with 25% of capacity. Not without buying an existing business anyways.
We also live in an excellent location, where there is strong community interest in music. Additionally, our house is situated on a main road with plenty of commuter traffic. It should be easy to attract notice with little more than a sandwich board sign.
What do you think? Calculated risk or foolish mistake?
This Week’s Carnival
John @ Calling the Puts writes Save Money by Learning to Spend Wisely – The first step to investing is saving, and the key to saving money is learning how to spend it properly.
J Wayne @ All Things Finance writes The True Cost of Car Ownership – Car ownership costs much more than people think. It’s not just a matter of what you pay each month, but many more factors such as depreciation, insurance, fuel, interest and taxes.
harry campbell @ Your Personal Finance Pro writes Why Borrowing From Your 401k is a Bad Idea – here aren’t many loans out there that allow you to borrow without a credit check and pay yourself interest, but that’s what a 401k loan does. Sounds pretty awesome right? Well it isn’t all good, and although pundits argue that 401k loans are a good alternative to commercial loans and definitely a better choice than an outright distribution, a 401k loan goes against the whole principle of retirement investing.
Squeezer @ Personal Finance Success writes Dividend basics and important dates to remember – Dividends are when companies pay shareholders (investors) for owning a portion of the company. Money must be invested by a specific date to earn the dividend.
Darrow Kirkpatrick @ Can I Retire Yet? writes Choosing a Compact RV or Camper for Retirement Travel – Owning an RV can be a good road to cheaper travel. Nearly 10% of U.S. households own an RV of some sort, and the number is rising. Of households that don’t own an RV, almost 15% express some interest in purchasing one in the future. An earlier article of mine focused on operating costs for using an RV, so here I’m going to discuss some of the issues around the RV purchase decision.
TRL @ The Retired Landlord writes Real Estate Leverage – Using it to Your Advantage – Are you wondering what real estate leverage is? Find out the answer and how to leverage your money to build wealth faster without the risk.
Luke @ Learn Bonds writes Emerging Market Debt: Having Your Cake and Eating it Too – Emerging market debt trades at – twice the yield of developed country debt and triple the fundamentals.
PITR @ Passive Income To Retire writes Negotiating Your Salary and Benefits – Find out important career tips and what you can do to negotiate your way to a better job.
Eddie @ Finance Fox writes The Cold Hard Truth On Being a Personal Finance Blogger – What I Learned In Less Than 2 Years! – Looking back now at your blogging journey, you can agree with me on this: Being a blogger and blogging is anything but easy.
Tushar @ Start Investing Money writes How Are Stocks Classified? – Read my article to learn how Stock are classified, and in the process gain a possible new perspective on them.
A Blinkin @ Funancials writes Should I Die This Year or Next Year? – 2013 Federal Estate Taxes When you’re dealing with a death in your family, the last thing you want to think about is what fraction of the estate goes to the United States government. What’s remarkable is that depending on WHEN you die, that fraction could be significantly higher (or lower).
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MR @ Money Reasons writes Is A Roth IRA One Of The Best Protection Against High Future Tax Rates? – With tax hikes more than likely in the future, is a Roth IRA your best protection against the government being able to tax all of your money?
MMD @ My Money Design writes Blogging Tips from All the Dumb Mistakes I Made My First Year – I made a lot of mistakes within the first year of my blog. Here’s a look back at them and my blogging tips for doing things the right way!
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Jen @ Master the Art of Saving writes Preparing Our Finances 4 Home Ownership – By estimating our mortgage and bills and preparing our finances for home ownership now, we can begin to adjust our budget to avoid a financial apocalypse later.
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Ryan @ Early Retirement Investments writes How Solar Power Can Make You a Passive Income – Learn how solar power can make you passive income. I bet your in for a small surprise!
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Evan @ writes A Covered Call Traditional IRA Update The Great, The Good and The Bad – After years of largely ignoring my small traditional IRA I decided in March of this year it was about time to try out a covered call investment strategy I had thought about for a long time.
Evan @ My Journey to Millions writes A Covered Call Traditional IRA Update The Great, The Good and The Bad – After years of largely ignoring my small traditional IRA I decided in March of this year it was about time to try out a covered call investment strategy I had thought about for a long time.
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Lazy Man @ Lazy Man and Money writes Real Estate: To Invest or Not to Invest? That Is the Question – When it comes down to it, I view real estate investing as the ultimate in forced savings. We had to come up with the down payments and we lose a couple hundred dollars a month. (That negative cash flow was a consequence of buying at the height of the market for reasons other than “investing.”) The expected result in 15 years is profound. It is a significant portion of our early retirement planning and it provides great diversification of our income in the future.
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Don @ MoneySmartGuides writes Living Paycheck to Paycheck – In my recent wanderings on the world wide web, I came across an article on CBS MoneyWatch that said 38% of Americans are living paycheck to paycheck. This is up from 31% back in 1997.
Jon the Saver @ Free Money Wisdom writes Lack of Liquidity May Be Why You Don’t Feel Rich – Having a lack of liquidity has real negative consequences that can be really bad for your finances.
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Paul Vachon @ The Frugal Toad writes Decidiing When to Retire – Deciding when to retire can be a difficult decision to make. Will I have enough income from my retirement accounts, pension, and social security to live comfortably in retirement?
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SB @ One Cent at a Time writes How to replace HP Laptop – Effectively managing financial institution accounts is equally important as saving money. Still we don’t usually put much attention on managing side of the personal finance. In personal finance, diversification is as important as managing that diversified portfolio. Do it effectively
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