How much are you willing to sacrifice to become financially independent?
Important Announcement: I had accidentally messed up the mailing list the other day. If you had previously subscribed to the newsletter, please resubscribe again. Sorry for the inconvenience.
Here is a hypothetical question for you – if you have to choose, which one would you pick?
- Your current salary.
- 1 hour of daily commute time.
- 40 hours a week. Flexible work hours. Can work from home occasionally.
- Average stress.
- About 10% of travel is required.
- 20% less than your current salary.
- 10 minutes of daily commute time,
- 35 hours per week. 9-5 Monday-Thurs. Half day Friday. No option of working from home.
- Very low stress.
- About 15% of travel is required.
- 100% more than your current salary.
- 3 hours of daily commute time.
- 60 hours a week. Flexible work hours. Can work from home frequently.
- Very stressful.
- Minimal work travel.
Do you go with the highest salary option (#3), spend more time each day commuting and at the office with the option of working from home frequently? Or do you go with the lowest paying, low-stress job, 10 minutes daily commute, and a little more work travel? Or do you simply go with Work #1?
What if I give you some numbers and tell you that the annual salary for Work #1 is $100,000 ($48.08/hr)? That means Work #2’s annual salary is $80,000 ($43.96/hr) and Work #3’s annual salary is $200,000 (~$64.10/hr).
What if I also tell you that Work #1 is your current job?
Does any of the additional information change your mind on which work option you would pick?
The grass is greener on the other side
It’s human nature to get the feeling that the grass is greener on the other side. You see your neighbour driving a brand new car, going to exotic locations for vacations, and you think to yourself, ‘my neighbour must be making tons of money, I wish I had his/her life’. But who knows, maybe your neighbour is full of debt and has no savings. Without knowing all the information, how can you possibly conclude that your neighbour’s life is much better than yours?
Similarly, after a bad day at work, do you question yourself why you are wasting your time at your current job? Do you begin to wonder, what if I change my job? When you start looking for job openings, do you get the feeling that every single job is better than your current one, regardless of what the pay is?
If that’s how you feel about your current job, what would be your criteria for a new job? Do you only apply for jobs that pay more regardless of other factors like commute time, work hours, and how stressful the job is? Or do you apply for jobs that have shorter work hours, less stress, and forget about the other factors?
When you read stories about people who have reached financial independence and have retired early, do you ever get jealous and feel that you want to FIRE as soon as you can? So, you dream about travelling around the world like Jeremy and Winnie at Go Curry Cracker, skiing on weekdays like Mark and Tanja at Our Next Life, cruising in the Bahamas like Justin and Kaisorn at Root of Good, or RVing all over North American like Steve and Courtney at Think Save Retire.
Does financial independence retire early really make life that much better? Have you thought about the sacrifices these people have gone through to reach this financial milestone? Have you considered that there’s a significant amount of learning and adapting for early retirees when they no longer work five days out of seven days?
What if the grass is not greener on the other side? There are things that may be better than your current situation, but some things may be worse.
It’s always easier to dream about other people’s lives and another job. It can be an entirely different story when you start wearing their shoes and getting the right perspective from the other side.
What kind of sacrifice is worth it for financial Independence?
The math to become financially independent is pretty simple and straightforward. All you need to do is have investments that can cover your annual expenses.
Investment Income > = Annual Expenses.
Using the 4% withdrawal rule, that means your investment is 25x of your annual expenses. And if you’re doing dividend investing, at 4% dividend yield, that means you need an investment 25x of your annual expenses.
To reach financial independence, it requires saving money and investing. The more money you can save, the more money you can invest. Therefore, people focus on the savings rate or the income-expense gap.
Simply put, you want to grow this gap as much as possible.
There are a few ways to increase the income-expense gap. The easiest and quickest way, typically when you first start the financial independence journey, is to reduce and optimize expenses – but you can only reduce and optimize so much. Eventually, you get to a point where you can no longer reduce or optimize further, because if you cut expenses further, you will end up depriving yourself.
Therefore, the next step to increasing your savings rate is to increase your income. Some people increase their income by having side businesses; some people increase their income by negotiating with their employers; some people increase their income by getting a higher paying job.
To be efficient on the financial independence journey, we must strive for both steps – reduce and optimize expenses and increase income simultaneously.
Increase income is great and all, but it begs the question – at what cost?
Back to my 3 hypothetical work scenarios above. Although Work #3 has a much higher pay, you are spending a lot more of your waking hours for the sole purposes of your job.
For Work #3, you are spending 60 hours a week at work, or 12 hours a day. In addition, you are spending 3 hours each day or 15 hours each week on commuting. This means you are spending a total of 15 hours for work each day. If you sleep for 7 hours each day, you are left with only 2 hours each weekday to do things. So during each workday, you have 2 hours to spend with your family, exercise, watch TV, read books, eat meals, etc. Personally, I think that’s not a lot of “spare time” at all. In this situation, I would go as far as saying that your sole purpose of life is work. Work is your life.
For Work #2, while the salary is the lowest of all 3 scenarios, you are spending 7 hours each day at work and only 10 minutes each day commuting. If you sleep for 7 hours each day, that means you have 9 hours and 50 minutes each day to spend on various activities. Due to the low-stress nature of your work, work is simply something you do to earn income. Work does not define you.
For Work #1, you are making a good salary, you are spending 9 hours at work and 1 hour commuting each day. If you sleep for 7 hours each day, that means you have 8 hours each day to spend on various activities.
Now consider the following additional info. The time to become financially independent for each work option is:
Work #1 – 15 years
Work #2 – 20 years
Work #3 – 5 years
While Work #3 has the highest income and therefore results in a faster time to reach financial independence, ask yourself – is the sacrifice worth it? Maybe it’s worth it if you are single. You most likely will stay single for the 5 years because you won’t have any time outside of work to date anyone. What if you are married and have kids? Can you live through 5 years of 15 hours of work-related activities and only get 2 hours of free time each workday? Will your kids know who you are? Or would they think that you’re a stranger in the house?
Or is it better to take a longer FI journey approach and enjoy your life with Work #2?
This is a very simplistic view of FI, however, since there are more things to consider than just work hours, salary, and how fast you reach financial independence. What if you are bored out of your mind with Work #1 and Work #2? Although Work #3 has ridiculous work hours, what if the work that you do is something that you truly enjoy and makes you excited every single day? Does this additional info influence your decision?
Finding the right personal balance
Needless to say, whenever we make a decision, we must factor in all the different options and make a decision based on what makes sense for us personally at that very moment. My decision may be different from yours, because our situations may be different.
Life is about finding the right personal balance. For me, it doesn’t make any sense to take Work #3 despite a shorter path to financial independence. Because Work #3 means I won’t have a life outside of work. I won’t have time to spend time with my family during weekdays. On weekends, I would probably be so tired and burned out from work that I would be spending quite a bit of time sleeping. I don’t think putting myself and my family through 5 years of hell is worth the eventual outcome of financial independence, despite that the job itself is extremely exciting.
Between Work #1 and Work #2, I think it’s a coin toss. Again, it comes down to personal preferences of what you’d pick. For me, if the work tasks are equal, I’d probably pick Work #2 over Work #1 to have more free time on my hand, despite a 20% lower salary. Work #2 would also give me more time to spend with Mrs. T and the two kids.
Given all the information provided, which work would you pick? I’d love to hear your rationale.