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

ENDORSEMENTS

Dave Ramsey

Living with roommates can quickly become difficult if one person doesn't live up to their financial...

Dave Ramsey

Dave says: It isn’t easy addressing late payments with your roommate

Living with roommates can quickly become difficult if one person doesn't live up to their financial promises. Here are best tips from Dave Ramsey.

3 days ago

A small business owner wants his company to have more passionate leaders. (File photo: Tim Douglas/...

Dave Ramsey

Dave Ramsey says: Should a small business owner plug in or promote from within?

A man who owns a small business with around 20 employees tells Dave Ramsey he wants to promote two people to the next level.

6 days ago

what to do when rent increases and parents offer to let you live with them...

Dave Ramsey

Dave Ramsey says: Parents of adults should provide a safety net, not a hammock

Should a woman and her husband who are $80,000 in debt move in with her parents? Here's what Dave Ramsay says.

10 days ago

Learn how to wisely invest and enjoy the inheritance while securing a financially stable future. (P...

Dave Ramsey

Dave says: As the older sibling, you can teach your younger sibling a lot

In this heartfelt letter, Dave Ramsey offers indispensable advice to Davis on guiding his teenage sister through a substantial inheritance.

17 days ago

This week's article discusses what could happen if you accept a loan from a family member. (Pexels ...

Dave Ramsey

Dave says: Should you accept your in-law’s offer to pay off your mortgage?

This week's article delves into the pros and cons of repaying family loans. While it may seem convenient, it's often advisable to avoid owing money to family members.

24 days ago

In this week's article, Dave talks about how to tackle a difficult family situation while not getti...

Dave Ramsey

Dave says: How to navigate tough times with love and understanding

In this week's article, Dave talks about how to tackle a difficult family situation while not getting on anyone's bad side.

1 month ago

Sponsored Articles

...

DISC Desert Institute for Spine Care

Sciatica pain is treatable but surgery may be required

Sciatica pain is one of the most common ailments a person can face, and if not taken seriously, it could become one of the most harmful.

...

Day & Night Air Conditioning, Heating and Plumbing

Day & Night is looking for the oldest AC in the Valley

Does your air conditioner make weird noises or a burning smell when it starts? If so, you may be due for an AC unit replacement.

...

Fiesta Bowl Foundation

The 51st annual Vrbo Fiesta Bowl Parade is excitingly upon us

The 51st annual Vrbo Fiesta Bowl Parade presented by Lerner & Rowe is upon us! The attraction honors Arizona and the history of the game.

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