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Can You Reach Early Financial Independence if You’re Not an Entrepreneur?

financial independenceWe all want to have enough money that we can live comfortable lives without having to work every day at a job we don’t enjoy. Many people however, have resigned themselves to the notion that they will only be able to reach that point after 40 years of suffering through that miserable job. Then there are the others who read books or take to the internet to learn from people who have managed to achieve financial freedom much earlier. And one thing becomes quickly apparent: a huge portion of those people are entrepreneurs.

One of the best ways to reach financial independence early is to start your own business, be it a plumbing company, a bakery, a monetized blog, or something as ambitious as a software company. But what if you’re interested in getting ahead financially, but don’t have an entrepreneurial spirit? Is there no hope for you? I should say not! Let’s take a look at how hard it really is to reach financial independence. Let’s pick a nice round number, $1 million dollars, to represent financial independence. In reality, your number may be lower or it may be higher, but many people still set $1 million as their goal, so let’s go with that. What would it take to build up $1 million in 10 years? 20 years? 30 years? 40 years? Looking at the required monthly savings at a few different growth rates, it’s really not as scary as you might think.

Monthly Savings Required
Years to $1 million 6% 8% 10%
10 $6072 $5430 $4842
20 $2154 $1687 $1306
30 $991 $667 $439
40 $500 $285 $157

Ok, maybe the 10 year numbers are scary, but are any of the others really so bad? In fact, saving $1 million in 40 years is downright easy! Anyone working a regular 9-5 job should be able to save $1 million in 40 years. But of course, the whole point was to reach financial independence as quickly as possible, and 40 years isn’t very fast. So is it feasible to achieve the higher savings rates required for a quicker path to financial independence if you’re working a regular office job? According to Wikipedia, the 2012 median household income was $45,018. To reach $1 million in 20 years at a modest 8% growth rate, you would have to save $20,244 each year, or about 45% of the median household income. It may require some sacrifice, but with careful budgeting, finding little bits of extra money on the side, and taking steps to minimize your taxes, it can be done. Or you could aim for 30 years, which would require only $8004 of yearly savings at an 8% growth rate, or about 18% of the median household income. Now that’s doable for just about anyone!

Here are some reasons you may decide that working an office job rather than starting your own business is the right path for you:

  1. You’re risk averse – When you start your own business, you get out what you put into it. And it still might fail despite your best efforts. To create a very lucrative business that will put you on the fast track to financial independence, you will likely have to invest a lot of money in the business, and there’s no guarantee your business will actually be successful. You may wind up wasting a lot of money. Instead, you could start a business that requires very little start up capital (like a dog walking company), but these types of businesses are unlikely to earn you huge sums of money and are generally a better idea as a side job or a part time job for a stay at home spouse to supplement your regular income.
  2. You like to clock out at the end of the day – Owning a business is not easy work. You’re accountable for everything – sales, marketing, finances, product development, and managing your staff. Even when you go home for the day, there is so much to manage that your thoughts likely stay on your business all the time. If you want to work 8 hour days, then go home and stop thinking about work, being an entrepreneur is not for you.
  3. You don’t want to give up your benefits – Office jobs come with lots of nice perks, including health insurance, dental and vision insurance, disability insurance, 401(k) matching, stock purchase plans, on-site gyms, day care, and free coffee and snacks. Start your own business, and you’re giving up all of that. If your $40k salary doesn’t seem like much, add up all the benefits you receive from your office job and you’ll see that you’re actually receiving a whole lot more than $40k.

All three of those apply to me, which is why I’m sticking with my office job and looking for ways to increase my passive income and earn little bits of money on the side. With my aggressive savings rate, I have no doubt that I will be able to achieve early financial independence at an office job, even if I cut back to part time after having kids.

What about you? Do you have the entrepreneurial spirit, or are you working toward financial independence at a 9-5 job?

16 Responses to Can You Reach Early Financial Independence if You’re Not an Entrepreneur?

  1. I started out investing in income property purely as an investment. It grew into much more and I turned it into a business. It helped me to reach financial freedom. I added some businesses and it has provided a nice nest egg for retirement. I could have easily stayed employed and kept building my investments.

    • Gen Y Finance Journey

      Rental properties are something my fiance and I would consider, but we want to own our own house first. And then we’d likely only do the rental property if we decide to move (and rent out our first house) or if we had a guest cottage or something like that at our house.

  2. I’ve always thought that I’d have my own business at some point, but not until I have enough saved up from my regular 9-5 to feel comfortable that making the leap won’t set me back. As you said, the benefits of the 9-5 are also really important and shouldn’t be underestimated. Good to know that everyone, not just the mega rich can be millionaires, and much quicker then most people would think.

    • Gen Y Finance Journey

      I won’t discard the possibility that at some point later in life I’ll start up a business, but like you, I don’t want to do it until I’ve saved up a pretty big safety cushion. If I do start a business later on, it would probably be just a small business to supplement our regular income, nothing too crazy.

  3. There are some HUGE advantages to being an employee versus owning your own business. I actually think owning your own business can set you back financially, especially if things don’t work out as well as you planned. I think if you can forecast 1.5 – 2x your salary you should consider it, but only if you truly want to be an entrepreneur and are ready for the lifestyle and risks that come with it.

    • Gen Y Finance Journey

      I agree. Being an entrepreneur is great if it’s what you want, but I worry that I see too much of the “start your own business if you want to retire early” advice floating around. Running a business is not for everybody, and there’s no reason you can’t retire early working a regular 9-5 office job.

  4. I want to be an entrepeneur, but the entry cost exceeds my abilities at the moment. Once I can drop my salary to nothing for a year or two, then I’ll make the leap.

    But for now, the three reasons you listed are why I am still at the office job. Now, to just make some omre side income so I can invest more…

    • Gen Y Finance Journey

      I think that’s the best way to do it. I’m far too risk-averse to drop everything and start a business when I don’t have a big safety cushion.

  5. While it is possible to do so, I don’t know how probable it is. That said, each situation is unique. I took the leap last year and absolutely love it. There are many benefits that get left behind, but at the end of the day we choose what we want to work on and we directly get to see the benefits. I will say that it’s not for everyone and that an extensive plan, generally, is needed if you want to see some success.

    • Gen Y Finance Journey

      It just requires discipline. I think most people could tighten their purse strings a little and manage to save $667/month to reach $1 million in 30 years. Especially when you include a 401(k) match. A 3% match on the median income of $45,018 brings your required monthly savings down to $554.

  6. 40 years, that is depressing! I like the breakdown on what you need to save, that is very eye-opening. As far as being your own boss, I think it is important to plan, plan and have a nest egg before you make the leap. The greatest importance is to always pay yourself first. Great Blog!

    • Gen Y Finance Journey

      40 years is indeed depressing! Fortunately, 30 years is easily doable for most, and 20 years is doable for those who are really committed to it.

  7. Not sure I get the post. You say “All three of those apply to me, which is why I’m sticking with my office job and looking for ways to increase my passive income and earn little bits of money on the side”

    But what is this blog? You aren’t getting home and checking out – you are working on your hobby that happens to have a possible income stream.

    • Gen Y Finance Journey

      Fair point, but there’s a big difference between blogging a couple times a week and running your blog as a business. True, I’m setting the groundwork so if at some point in the future I want to try and make some real money with this blog, I could do so. But at this point it’s purely a hobby, and not a means to replace my income.

  8. This financial independence is within reach for many if they have the resolve and discipline. When I first was working in the tax departments of Big 8 accounting firms in the 1970s I was amazed at how many clients who had modest jobs had so much saved and invested. You would be surprised at how a very modestly dressed person or someone who is unassuming in appearance may have more wealth than you would ever think possible. Picking and following a course of action using the above table will ensure financial success.

  9. They all apply to me, too. I do freelance as well (and do make a bit of money off my blog) but I don’t believe I have that entrepreneurial flame.

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