DAVE RAMSEY

Dave says: Why cashing out your 401(k) to start a business might not be the best idea

Mar 17, 2024, 5:45 AM

(Pexels Photo)...

(Pexels Photo)

(Pexels Photo)

Dave,

My husband is a good, hard-working man, who has been stuck in a job he really doesn’t like for almost 10 years. He came to me the other day with an idea to cash out his 401(k) and using the money to open a business. He has always loved the idea of going into business for himself, and I want him to be happy, but I’m not sure this is a good idea. Do you have any advice?

Renee


Renee,

Yes, I do have some advice. And it can be summed up in one word.

Don’t.

I admire your husband’s spirit, but the way he wants to approach this turns the entire situation into a trap. Think about it. If his business idea doesn’t work out, you guys have lost your retirement savings, and bankruptcy becomes a very real possibility. Diving head-first into opening a new business just because you’re bored with your current situation, or tired of answering to others, is not a good idea.

Look, I get it. Lots of folks have an entrepreneurial spirit. And everyone I know like that wants to live their dream. The problem is these dreams can turn into nightmares, for the entrepreneur and everyone around them, if they don’t plan wisely and very carefully ahead of time.

In my mind, one definition of a nightmare in business is “going all in.” When you’re playing cards, this means betting everything on a single hand. You never go “all in” when it comes to business. So, for the moment, the first question he needs to ask himself is this: How can I live my dream without going all in?

For starters, he needs to find something he truly loves doing and can look forward to every single day. To have any chance of success, he’ll have to live and breathe that idea. I know you love this guy and want to help. So, the best thing you can do right now is express your concerns about his idea, and offer to help him think about what he could do every day that would make him smile. Once he has the answer to that question, the next step is figuring out how to start that business without putting your entire financial world in danger. In other words, how can he save up some money—and start small—instead of blowing your entire savings or going into debt?

If you have some cash other than your emergency fund or retirement fund, it’s okay to use some of that. But never, ever, go into debt to start a business, or pledge every dime you have to something that could be a complete disaster.

It’s not an either/or proposition, Renee. He doesn’t have to risk it all to get away from a job he hates and live his dream!

—Dave

Dave Ramsey

Mortgage, debt, stock market: Financial advice for 2025...

Dave Ramsey

Dave Ramsey says: Senior mother’s mortgage advice and the best-laid plans about debt

Do you have concerns about mortgage, debt and the stock market? Dave Ramsey has a variety of answers for concerned.

6 days ago

Emergency fund, getting out of debt: 2025 Dave Ramsey advice...

Dave Ramsey

Dave Ramsey says: Make your money safe and easily accessible – How to get out of debt quickly

One reader asks Dave Ramsey about an emergency fund strategy, while another is curious about getting out of debt. Here's his advice for both.

13 days ago

Employees don't care about your mission statement? Try this...

Dave Ramsey

Dave Ramsey says: How to make your employees care about your company mission

Are you a business owner who has ever said, "My employees don't care about my company's mission statement"? Check out this article.

16 days ago

should a teenager have an emergency fund 205...

Dave Ramsey

Dave Ramsey says: Should a teenager have an emergency fund, too?

One of Dave Ramsey's followers wonders if he should encourage his teenager, who has a part-time job, to create an emergency fund.

20 days ago

Sales management job caught your eye? 2 email tips to follow...

Dave Ramsey

Dave Ramsey says: How many follow-up emails should you send after a job interview?

In this letter, a listener of the Dave Ramsey Show asks him how many follow-up emails she should sent after applying to a sales management job.

27 days ago

financial obligations Phoenix Arizona money...

Dave Ramsey

Dave Ramsey says: Honor your financial obligations

Financial expert Dave Ramsey shares a letter from a reader and shares advice on why it's important to honor your financial obligations.

1 month ago

Sponsored Articles

...

Asset Preservation Wealth & Tax

How to optimize the most money in 2024 tax returns

As tax season begins, getting your financials in order is important to maximize your tax return.

...

Bright Wealth Management

How IRAs are a helpful tool in retirement planning

When it comes to retirement planning, individual retirement accounts (IRAs) can be a great tool for income growth.

...

The UPS Store

How The UPS Store is giving back to the community

PHOENIX -- As 2024 nears a close, The UPS Store is looking to give back to the Arizona community with the holiday season approaching.

Dave says: Why cashing out your 401(k) to start a business might not be the best idea