The Freedom to Quit Your Job

Quite often, I talk about the concept of “financial independence” on The Simple Dollar. Financial independence, as I define it, is having the financial means to be able to survive for the foreseeable future without having to work for money. In other words, you’re living off of investment income (or a very slow withdrawal rate from those investment) and/or proceeds from previous work, like book or album royalties.

That is one audacious goal. It’s not an impossible goal by any means, but it’s a goal that the vast majority of Americans would really have to work hard to achieve. For anyone outside of the top percent or two of earners, it would take many years of spending far less than you earn to be able to make it there.

The thing is, however, that the journey to financial independence doesn’t have to end at financial independence. It can end at other stops along the road. The same exact path can take you to many different places in life.

Let’s roll back the clock on my own story to early 2008.

At that time, Sarah and I were free from debt with the exception of our home mortgage. We had around a year’s worth of living expenses saved up and we had been contributing to our retirement accounts appropriately.

It’s worth noting that over the previous two years, we had seriously cut back on our living expenses. We went from having no children in 2005 to having two children in 2007 and we actually spent substantially less in 2007, mostly due to really cutting back to the things that mattered most.

Aside from that home mortgage, we really were on the road to financial independence at that point. We had a healthy emergency fund. We had a healthy income. We had a lifestyle that didn’t stretch our income. We only had a single mortgage as our debt and it was already starting to shrink pretty rapidly. We were in good shape.

At the same time, however, there were two big things going on in my professional life. One, The Simple Dollar had really taken off and become successful. It was earning some income from advertisements, but it wasn’t nearly as much as I was making from my main job. However, I knew that if I devoted more time to the feeding and care of the site, it would become much bigger and open other doors for me.

At the same time, I was very frustrated with my main job. I liked the people I worked with and I liked the actual work tasks that I did, but those work tasks took up only a handful of hours per week. The rest of the time was filled with bureaucracy and meetings and jumping through hoops. This had been a gradual change from my first year or so in that position, where I barely had any bureaucracy at all – during those years, I loved the job. I could feel my passion dwindling and my frustration growing by the day.

Given all of that, I made the decision to quit my job. It took a huge psychic load off my shoulders and allowed me to focus on building The Simple Dollar into something great. Yes, our income dropped like crazy, especially at first, but our reduced spending and our emergency fund made it possible for us.

This choice was only possible because we had committed strongly to spending less than we earned and we stuck with that for two years before making that leap. In other words, we rode the path to financial independence for two years, but we made an earlier stop than we expected.

That’s the beautiful part about the road to financial independence: it doesn’t have to just lead directly to financial independence. It has many, many potential stops along the way, stops that are available to you because you were practicing smart personal finance in your day to day life.

Things like quitting your job to take on a new challenge, starting a side business without taking on a loan, taking a career risk that might not necessarily pay off but has some incredible upside, moving abruptly to follow love, or adopting a special needs child are the types of life challenges that can be very difficult when you’re living a paycheck-to-paycheck lifestyle, but are quite doable if you’ve been walking along the path to financial independence.

These kinds of things can even represent your big final goal if that’s what you prefer. The specific tactics might shift a bit – you might not put all of your savings into the stock market if your goal is more short term, for example – but the big principle of saving far less than you earn and doing something productive with the difference still holds absolutely true.

So, how can you do this? What are the key initial steps for getting on the path to financial independence – or whatever goal you might have in mind?

First of all, you absolutely have to commit to spending less than you earn – a lot less. For many people, that sounds painful and miserable. If you’re like almost anyone who has considered that kind of change in life, your mind immediately flew straight to the small handful of nonessential expenses that are the most important to you and you rightfully think that it would be miserable to give those things up.

The thing is, the vast majority of ways to cut back on your spending are connected to the things that you don’t care much about. This is truly one of the keys of personal finance, in my opinion. If you’re honest enough with yourself to identify the small handful of expenses that you truly do care about versus the very large number of expenses that are of lesser importance, it becomes easy to save for the future.

I mean, is buying name brand items at the store really part of your identity if the store brands are functionally identical? If it’s not, buy store brands and you’ll start saving 30% or so of your grocery bill. If you kept the services needed to watch your two or three favorite television programs and didn’t worry about the rest, how much would you trim off of your cable/satellite/Netflix bill? Is there any drawback to your life whatsoever in finding ways to trim your energy bill through improving the energy efficiency of your home with better light bulbs, air sealing, and so on? If you’re hardly ever at home, why have a big home? You could just move to a much smaller home or a small apartment and save a bundle.

Just apply this kind of critical eye to everything that you spend and keep track of all of the ways you cut back on that spending. Total it all up and set up automatic weekly transfers from your checking account to slurp out all of those savings and put them elsewhere, out of sight and out of mind.

Notice that none of this involves giving up anything you really, truly care about. I’m pretty picky about the foods I buy, for example, and I didn’t have to give that up one little bit. I have some hobbies that I dearly love and I can still support those quite well, too. I just gave up a lot of lesser things, things that weren’t nearly as important to me.

At first, your goal should be to wipe out debts. If you’re holding on to any debts – and especially anything besides a mortgage – you need to get rid of those as quickly as possible. Take the money you’re saving and apply it as an extra payment each month to your highest interest debt and keep it up until your debts are all gone.

The big benefit of this is that you’ll no longer have those minimum monthly payments, which means that your monthly expenses are far lower than before. That makes it even easier to save a lot for the future and to tolerate a drop in income if you decide to switch careers.

Another key part of this is automation. Once your debts are paid off, you need to set things up so that you don’t have to think about it to start saving for these goals. There’s nothing more tempting than a lot of money sitting in your checking account, after all.

The best method is to sign up for an account at another bank or, better, an investment house like Vanguard, and set up an automatic transfer on a weekly basis at an amount that eats up the money you used to be spending on relatively unimportant things and debt payments. Then just sit back and watch the money build.

This puts you on a path where you can do those things you dream of. You can quit your job if you’re unhappy – trust me, I did it. You can chase your dreams. You can do pretty much anything. It just requires giving up a bunch of things that, in all honesty, you don’t really care about, and that’s harder than you think.

Good luck.

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