Should I pay down student loan debt or start a business?

Hi, I am 32 years old and have student loan debt of $100,000 and I make $70,000 per year. I have about $30,000 in retirement investments, with no other debts. I am married, no kids, but looking to have kids in the next year or two. I wanted start a business so I can work from home as a mother. Is it wise to leave my day job with so much debt? My husband makes about $65,000 per year, we have free health insurance, and the only debt he has is the mortgage.

Debt, Retirement, Real Estate, Insurance, Women & Money
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4 weeks ago

Hi!  So glad you wrote to us.  My colleagues offer great advice, and I’d like to add few thoughts. I love your idea of arranging your life to be able to care for your kids yourself as much as possible. I was able to stay home with the kids for 4 years, and after that I had flexible, non-demanding jobs during their growing-up years. Our two kids are now 30- and 27 years old now, and making that choice to put them first was the smartest thing I ever did. My husband was completely behind this decision, both emotionally and financially…and he didn’t divorce me later, either, for a new “trophy” wife, ha ha. Well, at least not yet – but we’ve made it 35 years, though, and I’m a pretty good cook, so I think we’re ok! So that plan worked for our family, but the financial risks when a person (usually a woman) makes that decision can be very negative and detrimental.

I realize that your plan is to work from home, and in today’s “gig” economy with all its remote work possibilities, that desire is more realistic than ever before. However, starting a business is usually very time-consuming and capital-intensive; it’s unlikely that your new business will be profitable in its first year and even less likely that it will generate income even close to the $70K you are currently making per year. So you and your husband will want to make sure that you can live and continue to live comfortably on $65K per year rather than $135K in case you don’t bring in any income for a year or two or more. That’s a huge drop in income; you might want to try a month or two of living on that amount of money and see how it feels, trying to imagine how it would be with another human being added to the mix.

You’ll have strong incentive to try to make that planwork because if you are like me, you are NOT going to want to leave the kids with other people while you go to work.  My husband faced a layoff when our second child was two, and we made the decision for me to go back to work. Even though I got a job just half a mile away, could come home at lunch, and was able to afford a caregiver who came to our house, it was awful to be away from the kids every day and entrust their care to someone else not me.

So if you find you are able to live on less, that will give you more courage to consider this plan. Another thing to think about is if you might be able to telecommute or work remotely or continue your current job in a part time status after you have kids. Do you have skills that will let you work from home for another company or your current employer rather than starting your own business? That option would minimize your time away from the children you are going to have.

Also, you will want to make sure your hubby is “in” – if he wants you to keep earning that $70K per year or if he isn’t happy about the self employment thing, it will be hard to make a go of it. Consider too that if you take time off from working to start a business, you won’t be putting in money to your social security account or a 401k, which could hurt in the long run if your marriage and/or business don’t work out and you’ve missed out on years of earning and years of gaining experience that will help you get continually higher responsibility and higher paying jobs. I don’t mean to be a kill joy here but that reality has negatively affected the long term financial well being of many women.

So in answer to your specific question about whether you should pay down debt or start a business, maybe what you could do is for two months send your whole paycheck to pay down your student loan principal and live just on your husband’s salary. That two-month trial will accomplish both goals and give you a window into how it might work in the future.

So excited for you as you think about becoming a parent. It’s been the best experience for our family, and I hope you’ll enjoy it just as much.  Best wishes to you!

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