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There was one enormous hidden expense that my profit and loss chart didn’t show: me. My living expenses were rapidly eating away at my personal savings. Betwee

by steve1977 8y ago

There was one enormous hidden expense that my profit and loss chart didn’t show: me. My living expenses were rapidly eating away at my personal savings. Between my $3.3k/month Manhattan apartment, private health insurance, food, and utilities, it cost $6-7k per month just to sustain myself. I wouldn't really consider this hidden expense. It's just expense. I think this is one of the most dangerous lies startups tell themselves.

azhenley 8y ago
This sentence threw me off too. I would have expected the author to have budgeted these living expenses prior to doing this... maybe "hidden" is just a bad word choice.
mtlynch 8y ago
Thanks for reading! >I wouldn't really consider this hidden expense. It's just expense. Maybe I should have worded it differently. I meant "hidden" in the sense that the chart I showed didn't reflect it because that only showed my business expenses. I definitely did take into account my living expenses when I decided to quit my job.
- deleted 8y ago
  [deleted]
- polygotdomain 8y ago
  >Maybe I should have worded it differently. I meant "hidden" in the sense that the chart I showed didn't reflect it because that only showed my business expenses. Salaries are a business expense. If you hired a second programmer would you not expect to pay them? So why wouldn't you expect to pay yourself?
  - mtlynch 8y ago
    They are, but all my other expenses are objective and quantifiable. I could make up a salary for myself, but it would kind of be pulled out of thin air. I've thought a lot about what the dollar value is of my time and I haven't come up with any way of reaching a number that I find practical. It can't be my earnings, because that's negative. It's not 0 because I do value my time. It's not my opportunity cost from not doing consulting work because that would just tell me that I should outsource everything. I could just make up a number like $50/hr, but I don't know that it would help me make decisions that I couldn't other make.
    - prewett 8y ago
      I think you should figure out what salary you want to make and charge yourself that. It might be that you are happy with $2k/month as long as you get to do your own projects. It might be that you want $80/hr (~13k/month); maybe you want $20k/month. If you have a number that you are aiming for, you will have a better idea of whether you are succeeding. For instance, if you want $10k/month, and after N months/years you find you are getting $2k/month, you would then have solid information that you are not achieving your goals with the given strategy. In which case maybe you get a job, maybe you do contracting/consulting, maybe you switch to project with better prospects, etc. Or maybe you find that your trend will achieve your goal in M years, so you know to stay on track even though things aren't looking that good right now.
    - ser0 8y ago
      Your salary doesn't have to be unquantified. Your own salary is an implicit cost that needs to be accounted for if you are viewing your efforts as an investment. As an example, PayScale says average software developer salary is $67k in Springfield, MA. I would recommend you put this down as an expense and a liability or equity in the business within the context of the "accounting equation"; see https://www.investopedia.com/terms/a/accounting-equation.asp https://www.investopedia.com/terms/a/accounting-equation.asp The key here is to make explicit your opportunity cost. You can then put that in context of how much you are willing to invest in this business. For example, if you wanted to give yourself a seed investment of $300,000, this could mean $50,000 cash and 3.5 years of labour. If you counted that as a liability you could say the business has to pay you back once it reaches profitability. Or if you view it as equity you would build that cost into when you sell your business. This would also allow you to better calculate ROI. If you account for your time this way, you can cleanly separate business and personal expenses. In terms of the "4 hour workweek" way of thinking, it also means you know when you can stop implicitly throwing money at your business and hire someone to fill the "dev" role and have the business run itself. If you will indulge my 2c, I would also recommend you cut any projects that are not performing to your expectations. When you have multiple projects you are acting as portfolio manager. This means that you are modelling your business like a much larger corporation with different business units, which require far greater management overhead. From reading your post, I believe the role you envision for yourself right now is that of product owner/manager. If that's the case you should limit the scope and complexity of all other responsibilities so you can do that role well.
purplethinking 8y ago
We'll there's your problem. If it were me, I'd look to cut expenses before doing something like this, but they're already as low as $1500. If I cut further I could be ramen profitable on his blog income. Edit: don't mind me...
- js2 8y ago
  The author already did so: So in August, I bought a modest two-bedroom home in South Hadley, Massachusetts. Population: 17,500. If you're worried about money, just buy a house. My living expenses here are ~$2k per month, which is close enough to the rate of return on my personal investments that I’m kind of at equilibrium.
  - purplethinking 8y ago
    Missed that part, my bad!
billfruit 8y ago
Well though there are difficulties, I do think my be moving to a place like India, or Malaysia etc, may be an economical viable option. The difference in living costs can be phenomenal: Reasonable appartments in many big Indian cities can be had for less than 300$ per month.
- cableshaft 8y ago
  You don't have to move out of the US. I see 2 bedroom apartments in smaller US cities (but still decent sized cities, 60k+ pop, within a couple of hours from major metros, has all the same franchised restaurants/shops every other city in the US has) for ~$350/month. Like, lots of them. If you're willing to live in a mobile home, rent can be as little as $250 a month, it looks like.
  - chrismeller 8y ago
    That is a very key point. Everyone focuses on digital nomads and living in Thailand. For the cost of the plane ticket there you could probably pay several months’ rent in Kansas. Is that ideal? Maybe, maybe not. Will it make a blog post that gets you on HN? Of course not. Still, if you need to be near a US time zone it’s a fantastic alternative to South America that doesn’t involve visas, dealing with a foreign language, etc.
    - throwyui43wr 8y ago
      Rent aside, the other big factors would be health insurance, car related costs, and food. Going to a large city overseas, you won’t even need a car. Food will be a lot cheaper, and going to the doctor will be affordable.
rafiki6 8y ago
Correct. You should always include your salary as a business expense. Being your own boss, you can set that salary based on your personal expenses.

azhenley 8y ago

This sentence threw me off too. I would have expected the author to have budgeted these living expenses prior to doing this... maybe "hidden" is just a bad word choice.

mtlynch 8y ago

Thanks for reading! >I wouldn't really consider this hidden expense. It's just expense. Maybe I should have worded it differently. I meant "hidden" in the sense that the chart I showed didn't reflect it because that only showed my business expenses. I definitely did take into account my living expenses when I decided to quit my job.

deleted 8y ago
[deleted]
polygotdomain 8y ago
>Maybe I should have worded it differently. I meant "hidden" in the sense that the chart I showed didn't reflect it because that only showed my business expenses. Salaries are a business expense. If you hired a second programmer would you not expect to pay them? So why wouldn't you expect to pay yourself?
- mtlynch 8y ago
  They are, but all my other expenses are objective and quantifiable. I could make up a salary for myself, but it would kind of be pulled out of thin air. I've thought a lot about what the dollar value is of my time and I haven't come up with any way of reaching a number that I find practical. It can't be my earnings, because that's negative. It's not 0 because I do value my time. It's not my opportunity cost from not doing consulting work because that would just tell me that I should outsource everything. I could just make up a number like $50/hr, but I don't know that it would help me make decisions that I couldn't other make.
  - prewett 8y ago
    I think you should figure out what salary you want to make and charge yourself that. It might be that you are happy with $2k/month as long as you get to do your own projects. It might be that you want $80/hr (~13k/month); maybe you want $20k/month. If you have a number that you are aiming for, you will have a better idea of whether you are succeeding. For instance, if you want $10k/month, and after N months/years you find you are getting $2k/month, you would then have solid information that you are not achieving your goals with the given strategy. In which case maybe you get a job, maybe you do contracting/consulting, maybe you switch to project with better prospects, etc. Or maybe you find that your trend will achieve your goal in M years, so you know to stay on track even though things aren't looking that good right now.
  - ser0 8y ago
    Your salary doesn't have to be unquantified. Your own salary is an implicit cost that needs to be accounted for if you are viewing your efforts as an investment. As an example, PayScale says average software developer salary is $67k in Springfield, MA. I would recommend you put this down as an expense and a liability or equity in the business within the context of the "accounting equation"; see https://www.investopedia.com/terms/a/accounting-equation.asp https://www.investopedia.com/terms/a/accounting-equation.asp The key here is to make explicit your opportunity cost. You can then put that in context of how much you are willing to invest in this business. For example, if you wanted to give yourself a seed investment of $300,000, this could mean $50,000 cash and 3.5 years of labour. If you counted that as a liability you could say the business has to pay you back once it reaches profitability. Or if you view it as equity you would build that cost into when you sell your business. This would also allow you to better calculate ROI. If you account for your time this way, you can cleanly separate business and personal expenses. In terms of the "4 hour workweek" way of thinking, it also means you know when you can stop implicitly throwing money at your business and hire someone to fill the "dev" role and have the business run itself. If you will indulge my 2c, I would also recommend you cut any projects that are not performing to your expectations. When you have multiple projects you are acting as portfolio manager. This means that you are modelling your business like a much larger corporation with different business units, which require far greater management overhead. From reading your post, I believe the role you envision for yourself right now is that of product owner/manager. If that's the case you should limit the scope and complexity of all other responsibilities so you can do that role well.

purplethinking 8y ago

We'll there's your problem. If it were me, I'd look to cut expenses before doing something like this, but they're already as low as $1500. If I cut further I could be ramen profitable on his blog income. Edit: don't mind me...

js2 8y ago
The author already did so: So in August, I bought a modest two-bedroom home in South Hadley, Massachusetts. Population: 17,500. If you're worried about money, just buy a house. My living expenses here are ~$2k per month, which is close enough to the rate of return on my personal investments that I’m kind of at equilibrium.
- purplethinking 8y ago
  Missed that part, my bad!

billfruit 8y ago

Well though there are difficulties, I do think my be moving to a place like India, or Malaysia etc, may be an economical viable option. The difference in living costs can be phenomenal: Reasonable appartments in many big Indian cities can be had for less than 300$ per month.

cableshaft 8y ago
You don't have to move out of the US. I see 2 bedroom apartments in smaller US cities (but still decent sized cities, 60k+ pop, within a couple of hours from major metros, has all the same franchised restaurants/shops every other city in the US has) for ~$350/month. Like, lots of them. If you're willing to live in a mobile home, rent can be as little as $250 a month, it looks like.
- chrismeller 8y ago
  That is a very key point. Everyone focuses on digital nomads and living in Thailand. For the cost of the plane ticket there you could probably pay several months’ rent in Kansas. Is that ideal? Maybe, maybe not. Will it make a blog post that gets you on HN? Of course not. Still, if you need to be near a US time zone it’s a fantastic alternative to South America that doesn’t involve visas, dealing with a foreign language, etc.
  - throwyui43wr 8y ago
    Rent aside, the other big factors would be health insurance, car related costs, and food. Going to a large city overseas, you won’t even need a car. Food will be a lot cheaper, and going to the doctor will be affordable.

rafiki6 8y ago

Correct. You should always include your salary as a business expense. Being your own boss, you can set that salary based on your personal expenses.