I get a bunch of random messages on facebook sporadically
with people asking me one of three things:

“What the fuck do you do for a living, I want to travel also”

“How do I get good at poker, I think I will do that for a living”

And “I want to leave my job but am too nervous to, any advice?”

Well the answer to the first question is that I play poker
on the internet mainly and travel. I am
also pretty diligent and good with my investments on the side as one must learn
to make their money work for them.

The answer the second question usually leads to me going on
a rant about how very few people can get good at it. In addition to the steep learning curve, it
is even more seldom to ever make substantial money from it. Lastly, you need to give up all your family
and move out of the USA with whatever money you have praying that you will be
the 1 in a long shot person. Tis’ not
intelligent at all.

The third question is the most intelligent question that I
get, and one that I try to truly help people with if they have the right
attitude and are willing to push themselves.
As with everything else in life…this too comes down 100% to mathematics. I will be able to keep them fairly basic in
this blog and hopefully it can help some people that are thinking of quitting
their jobs and starting something on their own.

The first step with figuring out if you can go this route is
to come up with everything possible you can think of that should be included in
your decision. It is okay if this takes
some time, you can alter your equations as you go. I will for sure leave quite a bunch of them
out of this blog as I am writing this on the fly, but that is fine as I am just
trying to give you the gist of how to approach this. The factors off the top of my head that I
would include:

1)
Current savings (debt included if applicable)

2)
Current Salary & estimated future salaries

3)
Initial self-employment income

4)
Future self-employment income

5)
Ease of returning to old work force in same position

6)
Chances of making it with your business

7)
Happiness at current job

8)
Company retirement perks

9)
Happiness if self-employed (guess work included
here)

10)
Tax Implications

If you analyze the list, you will realize that only 2 of the
points that are tangible figures, and that the rest will be decided by values
that you give to them. People may have
trouble assigning values to these, but it is something to keep practicing with
a lot of your life decisions until you hone the skill to more accurately assign
values. Generally, people thinking of
making this decision factor in numbers 1, 3, and 9. They also tend to over value number 3 by a
long shot, while leave out the other factors that also bring down number
3. Due to this, the majority of people
are left with a lopsided equation that is very incorrect when approaching this
problem. I understand why this happens
as it is how the human brain is hard wired.

The first issue with how the brain works is that it over
values one’s ability more or less, always assuming that it will go well. While this is a good positive mindset, it is
not realistic and the person needs to properly assess all risks and assign more
accurate projections. The second issue
is that people do not approach it as a math problem and simply go, “I want to
work for myself, I think I will go for it”.
When they do this, they are thinking of a few of the bullet points, but
not all of them, and more importantly, they are not weighing them in properly. This leads to my attempting to give a solution
for people thinking of going down this route.
Please note that I left out some bullet points that I did not think of
off the top of my head, and your values could be completely different than the
ones I use in my example. THAT IS
COMPLETELY FINE, THE BIGGEST STEP IS RECOGNIZING THE MATH, AND approximating
the values to the best of your ability.

First we will try our best to set up an equation, ultimately
it will be a greater than or equal to equation, which means we will have to
determine which factors to place on each side.
Initially I did it with powers as that is how you find your future earn
with future salaries, but I began to do way too much math and it became
confusing and potentially incorrect, I’ll leave that at the bottom of the blog
if anyone wants to view it. For this
though I just used initial salary to a power and did not factor in initial and
future to keep it simpler

((Initial Salary ^ (1 + 0.1n)) * chances of making it) * tax
implications + happiness + current savings > current salary^ (1+0.01n) +
retirement perks ^ (1+0.03n) +
happiness + current savings

Now let’s assign some values to are tangible… current salary
is $50,000…but you can make life simpler and just divide by 1,000 and work with
smaller figures, so we’ll denote current salary at 50 and $8,000 for retirement
perks or 8. We will use $20,000 or 20 as
our current savings.

Where n = number of years at job, starting with year 1 and
increasing by 1 with each passing year

*anything to the 0 power is equal to 1, thus future income
will not be a large number off the bat.

I have left out he ease of returning to your work force as
it’s something that can easily be factored in whenever the situation is close
to neutral, it can be the deciding figure in that case.

Let’s plug in the tangible figures for year 1 (n=1)….

((Initial Salary ^ (1 + 0.1n)) * chances of making it) * tax
implications + happiness + 20 > 50^ (1.01) + 8 ^ (1.03) + happiness + 20

Giving us a simpler

((Initial Salary ^ (1 + 0.1n)) * chances of making it) * tax
implications + happiness + 20 > 52 + 8.5 + happiness + 20

Now for the non-tangible figures which is the tough
part. Let’s take our initial salary at a
base of $30,000 (30). The chances of
making it are where most people over estimate their own ability and that is
bad. You should map it with stuff you
have a strong grasp on. If you work at 150%
higher capacity than colleagues, or outperform people at that rate with most
tasks, then let’s take the average chance of making it and multiple that by 2.5
(100%+50%). Let us say that people in
our field of choice succeed at a 20% success rate. This means we are succeeding at a rate of
0.2*1.5 = 50% or 0.5.

Tax implications, this is so dependent on how you file your
corporation, but self-employed people get hit with higher taxes so let’s put
this at 90% or 0.9.

Now Year 1 looks like this:

((30 ^ 1.1) * 0.5) * 0.9 +20 + happiness > 80.5 +
happiness

39 + happiness > 80.5 + happiness

Ok, in this scenario our happiness of working for ourselves
will have to be massive to overcome the large different…but let’s take a look
at down the line. You can solve for
equilibrium points by solving the equations for the variables, but I will not
delve in to that here.

Year 4

(((30 ^ (1.4)) * 0.5) * 0.9) + happiness + 20 > 50^ (1.03)
+ 8 ^ (1.12) + happiness

We get

73 + happiness of self-employment > 89 + happiness with
our company

From this, we can see that probably at this point, with our
self generated figures for happiness that we will probably be at this point to
the breakeven point. Thus from all this,
I’d gather that if you wanted to do it for 4 or more years then to go for
it. Now, be careful, I formulated a
random formula from what I considered important. Your figures can vary drastically from these,
as well as your occasion. The main
points are to factor in what are the most important things to you, as well as
being able to put realistic numbers to figures that are not tangible. I hope you enjoyed, I rushed this one a
little on my own with no proof reading.
I’ll re-read and edit some tomorrow.
Leave any comments below. GL
BEING SELF EMPLOYED.

I went more in depth below and got off on a tangent doing a
little more complex math and confused myself a little so I knocked it out to
keep it simpler, read on if you’d like to see what I was working on originally. Enjoy the weekend!

-P12

Let’s explain the equation in detail, we are adding in how
much we will make now and in the future at our job, with the factor “n” just
denoting time in years. We put in our
discipline and drive, our current savings, as well as our happiness in to the
positives for self-employment. Tax
implications are deducted as self-employed persons from the USA (myself), have
to pay an extra 15% on their income which is ludicrous. This will vary depending on the corporation
or company you set up as, so do your own research on this.

On the other side, we have our current salary plus our
future salary, as well as our happiness and retirement perks.

The hardest part is assigning values, if we take our income
now and give it a value of $50,000…this will make the other numbers very tough
to factor in and make it a mess. This is
why you should learn to simplify and reduce equations in to simpler forms to
work with. Thus, if we assign our income
a value of 50, this will make the whole process easier. For this problem, I will use random values I
am assigning to each.

Current Salary = 50 ($50,000)

Current Savings = 15 ($15,000)

Initial Self Employment Income = 10 ($10,000)

The rest we are going to have to come up with on our
own. For future incomes, we can use our
current values of salary and projected salaries, as they will increase at a
factor that was denoted above. Note that
for self-employment, the rate of growth is higher for future income at 1.n-1 as
opposed to the slower pace of income increase at the job where we just used our
initial salary in the equation and let it grow at a smaller growth factor.

Now simplifying the equation as we go…

(Initial self-employment income +
((future self-employment income ) ^ (1.n-1)) + discipline and drive +
happiness of being self-employed +
current savings – tax implications) * chances of making it > current salary)^ (1+0.0n)) + happiness at current job + retirement perks

(10 + ((future self-employment income) ^ (1+0.n)) +) *
chances of making it) + D&D +
happiness + CS –TI > 50^(1+0.0n) + happiness + retirement perks

As we continue, we just assign more values…I know it Is hard
to equate values to “happiness” or “discipline and drive”, as well as being
realistic and putting a value for chances of making it.

Let’s say our potential future income is $100,000, let’s add
this and retirement perks in which I would value at maybe $50,000 or 50 but by
years so it will be denoted as such. I
would typically look at how successful you are compared to others in most
fields and use that to sway the chances of making it in either direction from
what is normal in your field. Let’s say
I do countless things at about a 50% rate better than others, and the success
rate in my self-employment field is 30%...I would go ahead and do (0.3*1.5) =
45% or 0.45 as percentages are written as decimals. I multiplied by 1.5 as that means I am doing
it as 150% of my competitions level.
With this factored in, we can drop discipline and drive from our
equation as it was factored in to this.
For tax implications, I am taking our full value and multiplying by 90%,
giving an estimate of losing an extra 10% to the government each year with
being self employed. Note that this is
not nearly always the case, and can vary drastically, so do your research on
how you can set up your corporation for tax filings.

Our updated equation becomes

(((10 + ((100) ^ (1.2n -1))) * 0.45) + 15) * 0.9 + happiness
> 50 ^ (1+0.n) + 50 ^ (0.n) + happiness at current job

We can look at this by year to see where the equilibrium
point with money and happiness is achieved

You can solve the equation by being a math nerd, or you can
plug in numbers for trial and error as it would be the easiest method for most
people.

Year 1:

(((10 + ((100) ^ (0.2))) * 0.45) + 15) * 0.9) + happiness
being self-employed > 50 ^ 1.1 + 50 ^ (0.1) + happiness at current job

And analyze from there on out to find at what year you
breakeven and how comfortable you are with that.

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