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The ROI on being an entrepreneur vs. an employee

marcbarros.com

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Re: The ROI on being an entrepreneur vs. an employee

#71

Post by [deleted] »

larrykubin wrote: post #44
shutupalready wrote: post #8

There's not a single mention of taxes in the article. I don't think that the average employee is aware that an entrepreneur/founder/self-employed person can save a lot of tax if they structure it right and are meticulous about it. A self-employed person earning $70K a year can be better off than an employee earning $100K.

I disagree and think this is completely wrong. I've paid a ton of self-employment tax and the write-offs for a web developer have never made me better off than someone who makes 100K and doesn't pay self employment tax. An employee making 100K and paying regular taxes and low state income tax probably has over 70K left over after taxes. How can someone making 70K pre-tax that has to pay self-employment tax do better…

[deleted]

Re: The ROI on being an entrepreneur vs. an employee

#72

Post by smm2000 »

nostrademons wrote: post #29
timedoctor wrote: post #18

This is very theoretical and I would say there are a lot of mistakes in the analysis I would look more simply at all the people I know that are entrepreneurs versus those that work in a job. At least 50 percent of the entrepreneurs have over $1 million In assets and in a few cases over $10 million Zero employees that I know have over $1 million in assets I think it is far more likely to be wealthy as an entrepreneur,…

I know quite a few employees with over $1M in assets. Unless you're a relatively close personal friend, there's basically zero reason for someone who earned over $1M in non-public transactions (notably salary) to tell you about it, though.

There is zero reason to tell close personal friend that you have more than $1M in assets unless your friend have comparable assets. People are jealous and telling somebody that you have much higher salary (especially if are in the same industry) or you have a lot of assets is the sure way to destroy friendship.

Re: The ROI on being an entrepreneur vs. an employee

#73

Post by richardking »

MattSayar wrote: post #61
richardking wrote: post #5

There seems to be so much variance in starting a company that I'm not sure how valid it is to use the 'averages' to create an earnings graph.

That's the entire purpose of averages, though.

Not in this case, because a lot of business fail in a year or two, and a lot businesses survive for 10, 20+ years.

I'll bet there's a lot of '$ made' graphs for entrepreneurs that don't go up much, or even go down; and a few that are hockey-sticks. There's really no point of averaging the two out into a scenario that rarely/never happens.

Re: The ROI on being an entrepreneur vs. an employee

#74

Post by [deleted] »

rdl wrote: post #70
ChuckMcM wrote: post #64

Earlier quoted context omitted.

I'd like to make a small observation here, $10 - 15MM after taxes is fine. That is where you earn $240K after taxes and fees during a recession , or $20K a month free and clear. You live in a nice single family home that is paid for anywhere in the US, and you spend a lot of time travelling and sight seeing. Or if your more entrepreneurial you spend your time building things, coaching youngsters, collecting old cars…

I'd call that "post economic", but $5-10mm pretax (which is more likely what an employee gets at a Google as an engineer hired before IPO who stays through IPO for 4y) is not enough, after taking care of one's personal expenses, to really fund serious startups. My definition of "rich" is being able to do something (fund businesses) which you fundamentally can't do while earning a salary. You could do that at an extre…

[deleted]

Re: The ROI on being an entrepreneur vs. an employee

#75

Post by smm2000 »

adventured wrote: post #36
daemin wrote: post #21

Who manages to only save 6% of their salary? For $75,000/year that's a measly $4,500. For someone working in tech on a good salary this should be closer to 50%, easily. Even paying a high rent, and heading out every night one should be saving at least 25%.

I've never met a person that could save 50% of their income that wasn't making $250k+. If you're living in California and making $125,000 per year at a job, you're paying $33,000 in income taxes alone. Your 50% savings rate would be $62,500 - after taxes you have $92,000, so the person can live off of $30,000 per year. Rent alone can easily run $1,500 to $2,500 per month. This is an impossible scenario without even g…

Looking at pre-tax saving rate for high income individuals in California is useless - top marginal tax rate is ~53% so often it's mathematically impossible to save 50% pre tax. Looking at saving rate post tax makes much more sense. Though you should always utilize 401k, 529k and other tax-efficient methods to save of course.

Re: The ROI on being an entrepreneur vs. an employee

#76

Post by hotpockets »

adventured wrote: post #36
daemin wrote: post #21

Who manages to only save 6% of their salary? For $75,000/year that's a measly $4,500. For someone working in tech on a good salary this should be closer to 50%, easily. Even paying a high rent, and heading out every night one should be saving at least 25%.

I've never met a person that could save 50% of their income that wasn't making $250k+. If you're living in California and making $125,000 per year at a job, you're paying $33,000 in income taxes alone. Your 50% savings rate would be $62,500 - after taxes you have $92,000, so the person can live off of $30,000 per year. Rent alone can easily run $1,500 to $2,500 per month. This is an impossible scenario without even g…

Its ridiculously easy to live off about $20,000. You don't even have to try very hard. Source: any graduate student.

Re: The ROI on being an entrepreneur vs. an employee

#77

Post by [deleted] »

cpwright wrote: post #33
daemin wrote: post #21

Who manages to only save 6% of their salary? For $75,000/year that's a measly $4,500. For someone working in tech on a good salary this should be closer to 50%, easily. Even paying a high rent, and heading out every night one should be saving at least 25%.

People who have expenses like child care, mortgages, car payments, unexpected medical bills, don't contribute to a 401K through automatic payroll deductions, or who just don't budget as well as they might. The average savings rate from 1959 to 2014 was 6.82%. [1] [1] http://www.tradingeconomics.com/united-states/personal-savin...

[deleted]

Re: The ROI on being an entrepreneur vs. an employee

#78

Post by cliftonk »

adventured wrote: post #36
daemin wrote: post #21

Who manages to only save 6% of their salary? For $75,000/year that's a measly $4,500. For someone working in tech on a good salary this should be closer to 50%, easily. Even paying a high rent, and heading out every night one should be saving at least 25%.

I've never met a person that could save 50% of their income that wasn't making $250k+. If you're living in California and making $125,000 per year at a job, you're paying $33,000 in income taxes alone. Your 50% savings rate would be $62,500 - after taxes you have $92,000, so the person can live off of $30,000 per year. Rent alone can easily run $1,500 to $2,500 per month. This is an impossible scenario without even g…

In Texas salaries average around 80% of what they are in CA. No state income tax. Rent is around 1k (albeit higher in Austin). Food, gas, etc is less expensive. Saving 50% of post-tax income is very doable.

Re: The ROI on being an entrepreneur vs. an employee

#79

Post by phlyingpenguin »

hotpockets wrote: post #76
adventured wrote: post #36

Earlier quoted context omitted.

I've never met a person that could save 50% of their income that wasn't making $250k+. If you're living in California and making $125,000 per year at a job, you're paying $33,000 in income taxes alone. Your 50% savings rate would be $62,500 - after taxes you have $92,000, so the person can live off of $30,000 per year. Rent alone can easily run $1,500 to $2,500 per month. This is an impossible scenario without even g…

Its ridiculously easy to live off about $20,000. You don't even have to try very hard. Source: any graduate student.

As a successfully graduated grad student, I disagree. It is possible, but not at all easy, healthy or sustainable.

Re: The ROI on being an entrepreneur vs. an employee

#80

Post by jsaxton86 »

timr wrote: post #69
jsaxton86 wrote: post #62

Earlier quoted context omitted.

"You'll almost certainly walk away with the equivalent of a few hundred thousand per year" "Certainly" is an inappropriately strong word. Even if you assume a salary of $150,000/year, in order to reach $300,000/year you would need to make $150,000/year in stock options, which comes out to $450,000 total if you assume it takes 3 years to get from series B+ to an acquisition/IPO. Of course, it could take longer. Or the…

If you're in a company that's series B+, a $180M liquidation event is a fail, and you shouldn't expect to make anything. I'm not counting angel rounds as a series A here. I'm talking about the big rounds that are invested to scale the business of an already-successful product. Companies that take these kinds of rounds can still fail, but the rate is nowhere near the same as for an early stage startup. And there's sti…

Yeah, I think we're pretty much on the same page. I think we both agree that established startups probably provide the best balance between risk and reward, but I'm less optimistic about the potential reward, especially for an engineer.

I joined the company I currently work for about a year after they raised a series C round. Most importantly, I get a pretty competitive base salary, but I also have some stock options. Even in the best case scenarios I think I'm looking at new car money, not mid-six figures. From talking with other coworkers, joining shortly after the series B round would have increased my options by roughly a factor of 3, in which case that "new car money" becomes "down payment on a house" money. Which is great, I'm not complaining at all, but it's not enough such that anyone post-series B that I know will be making a few hundred thousand per year.

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