No. of Recommendations: 3
Hi, Cesar,

Congratulations on the large raise and the potential future partner status!

The first thing that struck me in your post is this phrase:
Currently my net worth is negative, and debt repayment will be part of the strategy...

On a $200,000 per year income, absent uninsured medical emergencies, having a negative net worth is a likely sign that you've bit off more than you can chew, somewhere along the line. Where were these debts incurred, and for what purpose? Are they medical debts? Credit card debts? Student loan debts? Are you upside down on your mortgage or your car(s)? Are you living above your means, as substantial as they may be?

My personal philosophy on money management is as follows:
1) Take care of the necessities of today.
2) Clean up whatever happened yesterday.
3) Prepare for tomorrow.
4+) Quality of life improvements.

With a negative net worth, with the possible exception of qualified retirement account funding, I would not even consider investing. And the only reason I say 'with the possible exception of qualified retirement account funding' is because retirement accounts have legal time and dollar limits around their funding, so if you don't contribute by the appropriate deadlines, you lose the tax advantaged growth potential on that money.

Your overall financial plan has got to focus on living within your means first and foremost. No matter how much money you take in today, that money can be spent, and without the necessary spending control discipline, you can overspend even a $200,000 salary plus profit sharing.

You also mentioned this:
My projections show that these funds should probably pay for retirement at 65. I made this decision because I would like to have the freedon to stop working earlier, and I don't want to pay early-withdrawal penalties on those accounts, so I don't want to overfund them.

As for your retirement accounts, there are some withdrawl rules you should know about, if you're looking to fund your retirement with them. Legally speaking, you can withdraw money out of 401(k) accounts, without penalty, around age 59.5 . So you don't need to wait until age 65 to retire, if the account balances are enough to allow you to leave earlier. Additionally, there is a provision in 401(k)s for something called "Substantially Equal Periodic Payments" (SEPP), that allow you to work out a withdrawl plan that let you take money out of those accounts without penalty even earlier, as long as you follow the formula guidelines and distribute the withdrawls ove the appropriate time frame.

On another retirement account front, what are the provisions on your employer's retirement plan? You may be able to draw on that as early as around age 55 without penalty.

The fact is, there are LOTS of ways to access retirement money, penalty free, well before age 65...

In your shoes, I would:

1) Take a snapshot assessment of current financial state.
a) Personal Balance Sheet (assets & debts)
b) Personal Cash Flow Statement (income and outgo)
2) Build a core budget
a) Core living expenses
b) Debt repayment
c) Qualified Retirement investing
3) Determine longer term financial goals
a) Early retirement
b) College education
c) Different house
d) Different car
e) Significant charitible donations
f) etc...
4) Determine lifestyle enhancement desires
a) Cable TV
b) High Speed Internet
c) Meals out
d) Vacations
e) etc...
5) Prioritize financial goals and lifestyle enhancement desires
6) Build a funding plan for the priority items
7) Execute against the plan

Given your income and apparent future career growth, you have a great potential to be financially sound. Just make sure you start off on the right foot, and you should be able to meet many of your highest priority goals.

Best of luck,

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