Updated on 03.13.15

Financial Independence and Career Choices

Trent Hamm
Graduation ceremony

A college degree will help you earn more in the long run. But if financial independence is your goal, should you be more interested in the short-term? Photo: Nazareth College

At dinner a few days ago, I was discussing the concept of financial independence to a friend of mine who had really never heard of the concept. He and his wife are actively saving for retirement, but they fully expect to retire between the ages of 62 and 65, not earlier, so the idea of effectively “retiring” much earlier than that was intriguing to him.

That’s when he asked a question that’s left me thinking for the past few days. Here’s what he asked:

How can you feel motivated to build a career that will eventually earn really well if you’re planning on retiring in five or ten years?

In other words, he was asking why a person who was thinking about financial independence would ever make career choices that don’t pay off very quickly.

For example, why would a person considering financial independence ever go to college? College does come with significantly improved earnings potential, but it also comes with a staggering load of debt, and it takes years to complete school and more years to pay off that debt. All of these elements are exaggerated if you choose post-secondary education. A person who attends trade school could be very close to financial independence by the time someone who got into graduate school is even close to paying off their debts, let alone saving for the future.

You can make a very similar argument about most career moves. Why work yourself into a position to rise up the corporate ladder to make it to the boardroom when you’re 50 if your intent is to be retired before you’re 50?

Here’s the truth: In all cases, those aren’t smart moves. Financial independence requires a completely different sort of professional goal setting than most career paths.

First of all, your focus should be achieving the best possible income in the next few years, not 20 or 30 years down the road. This can greatly affect the specific job choices you make.

For example, earlier in my career I had a choice between a lower-paying job that had a ton of advancement opportunities down the road or a higher-paying job that had limited advancement opportunties. One was at a startup company (the one with lots of advancement opportunities and resume building) and the other was an academic job. As I was a young person in my career path, I leaned strongly toward the lower-paying job as I felt that I would be in that career path for a long while (though I ended up choosing the other because I doubted the viability of the startup beyond a year or so – and I was right, as it went defunct a year or two later).

This also puts things like graduate school in a much different light. Going to graduate school is all about playing the long game, as it doesn’t pay for itself for quite a few years after you graduate. Any other certifications or career-related education doesn’t make a whole lot of sense, either, unless it can be done quickly at low cost and directly translates to more income very quickly.

It’s important to note here that I’m not saying education is valueless – I actually believe quite the opposite. My point is that the cost and time investment in education usually ends up delaying financial independence if you’re trying to get there quickly.

Second, debt must be viewed as a direct drain on your salary. If you have a choice between a $60,000 job that requires you to have a big debt (due to education) or a $40,000 job that requires you to have a tiny debt (thanks to trade school), you should think of those jobs as being pretty close to equal.

Why? There are two key factors that really matter when it comes to moving toward financial independence: your living expenses need to be low, and the gap between your expenses and your income must be high. Having debt decreases the size of the gap between your expenses and your income. Student loan debt, as useful as it may be for furthering your career ambitions, often stands in the way of financial independence at an early age.

As a bit of an aside, this rolls over directly to your spending choices. You cannot afford to be racking up credit card debt, not only because that’s an indication of spending beyond your means, but also because it’s going to delay your financial independence as you pay it back.

Of course, many people come to the decision to work toward financial independence after building up student loans and credit card debt. That simply means that financial independence is a little further off than it might otherwise have been. You’re earning more, thanks to your education, but you’re starting off in a bit of a hole.

Third, entrepreneurship, especially in the form of side gigs, is a very valuable tool. I’d call it a nearly essential tool if you’re going down a financial independence path.

When the idea of turning our finances around first came to us, the concept of financial independence and retiring early was barely even on our radar. Our goal, at first, was to simply to escape from debt so that we could purchase a house for our growing family. We both worked at our jobs, came home, and enjoyed the evening.

It didn’t take long for me to realize that the most powerful thing we could do to move toward our financial goals was to simply improve our income. Yet, the most reliable methods of improving income – going back to school – involved significant investments of time (years of it) and money (tens of thousands of it). That wasn’t really an option.

So I turned to small-scale entrepreneurship. I launched a bunch of different small side businesses in late 2005 and 2006. It just happened that for whatever reason The Simple Dollar took off like a rocket, while some of the other things I tried didn’t. Freelance web design, for example, always suffered for clients, as did home computer repair. I abandoned my online poker career when the first restrictive laws passed in 2006 and I could see the writing on the wall.

The point was that I kept trying different things. Some of them were successful. Many of them were not. I stuck to things I enjoyed doing and gradually dropped things that were less successful and increased my focus on things that were more successful (like, well, The Simple Dollar). The Simple Dollar was so successful that it became my full-time gig in 2008 and by 2011 had actually exceeded my personal ability to run the site.

The point is, without entrepreneurship, it would have been much harder for us to move toward financial independence. It has provided a huge income boost for us that enabled us to get rid of debt much more quickly than before and start saving a lot for retirement.

Finally, don’t be afraid to negotiate hard for salary right now. Many people are afraid to do this because they’re concerned that it will put them on the “hot seat” at work and cost them long-term job stability.

Guess what? If financial independence is your primary goal, long-term job stability is a lot less important than before.

Remember, your goal is to maximize your earnings over the next few years so that you can rapidly build toward early retirement. Let’s say your living expenses are $25,000 per year and you’re making $45,000 per year. After taxes, overall, you’re able to save about $10,000 per year. Well, if you go in there and play hardball a little bit with your salary, you might go up to $55,000 per year, which would nearly double the amount you can save each year.

If that’s coupled with a commitment to hold your personal spending in place, that kind of change can put you on a direct road toward financial success. You can shave years off of your goal with this kind of approach.

How do you negotiate? Put in the effort to hit a home run during a performance review, then ask right there on the spot. If your boss is sitting there noting how much you’re contributing to the workplace, he’s ready to hear the pitch. My recommendation for preparing for a performance review is to obtain a description of your current job, document your work toward every element of that job, and spend as much of your work time actually producing work as you possibly can. That means less time spent web browsing and less time spent wasting time.

Here’s the big catch: financial independence often means more work in the short run, but that additional work simply serves to shave years off of your goal of retiring early. You’ve got to keep your eyes on the prize, and that means sometimes doing things in an unorthodox way while also working very hard.

Your career is your most powerful tool for financial independence. Use it smartly. Make good choices. If you do, you’ll find financial independence creeping closer and closer.

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