We 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%|
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:
- 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.
- 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.
- 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.