Earning – The basics

It goes without saying that you can’t FIRE without first earning some money. The quicker you earn money (and save it) the quicker you can quit your job and begin living the post-work portion of your life. It doesn’t take a wolf of wall street level income or anything near it in order to save enough to fire, but there is a minimum feasible amount you need to earn in order to set yourself up for success. Unfortunately, there is no one size fits all number that I can give you in order for you to assess whether or not your current salary is adequate. Since everyone has different backgrounds, lifestyles, and expectations, there are as many numbers as there are people, and your number may change in conjunction with your life. There are an overwhelming number of factors that go into determining your minimum viable number, but for the sake of simplicity, let’s just look at the largest ones.

First off, consider what your base level of expenses are (which will for the sake of simple math we are assuming will stay the same in retirement). This varies widely from person to person as we each have our own family situation, medical history, etc. Additionally, each of us has soft limits that we set for ourselves. For example, some people are okay with surviving on ramen if it means an earlier escape from a soul-crushing job. However, just about everyone is willing to spend the extra money to have variety in their diet. Outside of that, the field is pretty open. Some people consider vacations at least once a year as a virtual necessity, while others may be willing to forgo traveling for a couple of years in order to retire earlier.

Second is how many years you’re willing to work before retiring, which will determine your required savings rate. As long as your expenses will be staying the same, this simple table will tell you exactly how much you need to save. I highly recommend checking out this article from Mr. Money Moustache where you can read more about the details since there are some pretty big assumptions being made here.

The third is how sure you’re willing to be that you won’t run out of money. The typical number you see floating around the internet is 4% to use as a withdraw rate which comes from a popular financial publication called the trinity study. However, this number is supposed to be for people of normal retirement age and is based on a 40 year maximum time horizon, so if you’re planning on retiring extra young, you may wish to use a lower withdraw rate. Using a 3% withdraw rate all but eliminates sequence of returns risk (which I will be writing about in a later article), but the moral of the story is to do your own research and pick a withdraw rate in line with your own risk tolerance.

These three numbers should be able to give you a rough idea of whether or not your earning falls in line with your goals using this calculator here. Many readers will probably notice that the earning number for their goals is higher than their current post-tax income.

From here you then have a couple of options. You could give up, but I don’t recommend it. Once you understand that its possible to live without being a slave to a 9 to 5 job, it’s extremely hard to go back to grinding away each day with no plan and no end in sight.

The second possible solution would be to temper your expectations and try to find a mixture of these three numbers by lowering your expenses, working longer, or assuming a higher level of risk. For some people, this may be as easy as cutting Netflix or cable subscriptions, but for others, it could mean potentially committing to a significantly longer career than you hoped for, everyone’s situation is different.

The last option is to increase your earnings or earnings potential. If you are currently working at your dream job, then you absolutely should not leave it to go try to put in long hours as an investment banker. (unless that is your dream job) You can’t put a price on feeling fulfilled at the only place you spend more time than in bed.

If you hate what you’re doing already, then you should start to look for another occupation that pays more but also that makes you happy. FIRE is a noble and worthwhile goal, but you can’t make it your whole life. If you make retirement everything and put it over your friends, family, and interests, then your success will be hollow and there is a large chance of finding yourself bored and unfulfilled in retirement. It takes years to get to that point of having complete independence, and those years you can never get back.

If you already at least kinda like what you are doing, then you are the perfect candidate for increasing your income. First things first, isolate the parts of your job that you like and focus on those characteristics as you make your considerations for increasing income. You don’t necessarily have to change jobs to increase your earnings. Look to automate the portions of your job you don’t like if possible, then ask your boss for more responsibility in the areas that you do. This increased responsibility is good grounds for asking for a raise or promotion down the road.

If automation isn’t possible another avenue you can look into is undergoing training or getting certifications in your field. These will help you to specialize and will make you more marketable than your peers. Taking this to an extreme, if you haven’t already you may even wish to get a formal education such as a college degree or masters in your field. A word of caution though, analyze the opportunity cost of the education, many colleges at this point charge ludicrous amounts of money for schooling, and you’ll also want to account for the wages you’d forgo in order to make time for school.

Finally, if your boss, peers, or work environment are what’s stopping you from absolutely loving your job, then you have the surest and easiest path forward. Switch companies already! 99% of jobs have nearly identical positions at other companies, so if the culture or people at your current company just doesn’t suit you well, then it’s time to step out of your comfort zone, dust off that resume, and start applying. Who knows, you may even get hired in at a higher level when you jump ship to a new employer!

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