Opinion: Quitting Your Job & Living on Passive Income ISN’T Necessary for Financial Success
A while back, I received an email from Robert Kiyosaki, author of Rich Dad Poor Dad. Actually, the email was from RichDad.com—they just made it look like it was from the famous author for effect. It must work, because I opened the email.
Their purpose in life seems to be trundling out “truisms” from Kiyosaki’s books. One of them, along with some articles I’ve read right here on BiggerPockets, sparked a desire to push back on a point of view that has become pervasive.
The email opened like this:
“If you’re working a 9-5 job (even one you like), I have a question…WHY?
“You wake up every morning and go to work for someone else’s success. Is that really what you wake up for every day? To make someone else’s dreams come true?”
What I am about to say is borderline heresy on BiggerPockets. I might find myself tied to the digital stake and virtually burned for my beliefs. But here goes:
It is not a moral imperative that you quit your job in order to become financially successful.
As is so often the case, people conflate a set of principles with moral absolutes. In this article, I’ll take a look at those principles and how they can be applied without necessarily quitting your job. But first, for the benefit of the self-employed-or-bust crowd, let’s take a look at why someone might not want to quit their job.
4 Reasons Someone Might Not Want to Quit Their Job
I’ll start with what many assume is the only reason someone would have a job in the first place: money. If you currently have a job, then you have a source of income. There are risks associated with being an employee. But for now, at least, you have a stream of money coming in.
Robert Kiyosaki will tell you that “a job is a short-term solution to a long-term problem.” And I will agree with him. It’s true that you can’t stop running on the job treadmill if you want to keep the money flowing. But it IS a solution for you currently. Let’s not throw anything away just yet.
2. Specialized Skills
If you have a specialized skill that required many years of education and experience to acquire, you are quite likely an expert in that field and it takes up most of your time. You have a passion for your field and you are contributing to the economy and to civilization. It does not always make sense to throw this all away in order to start your own business.
It may even be that there are few places to practice your expertise, such as specific government departments or niche companies.
Perhaps you are a scientist researching a cure for a disease or an expert on redundant embedded software systems for nuclear power generation. An engineer focused on propulsion systems for spacecraft. A military naval officer. You get the idea.
I’m not saying that you can’t turn these careers into businesses in their own right. I’m just saying that the world needs your expertise, and it may be that the existing systems are adequate channels for you to bring your education, training, experience, and expertise to market for the benefit of society.
3. High-Tech Industry
There are many industries that require a great deal of time, capital, teams of specialized experts, and a list of paying customers just to get up and running. It may not make sense for you to start a new company from scratch. Elon Musk started SpaceX. But unless you currently have the kind of capital backing that he has, it may be difficult to put your expertise in spacecraft propulsion to good use in a startup.
4. Doing Great Work That You Love
Maybe it’s simpler than that. Maybe you’re just doing great work that you love.
According to Stephen Covey, author of The 7 Habits of Highly Effective People, when your talent, passion, and conscience overlap with a need, you discover your voice. In his follow-up book, The 8th Habit: From Effectiveness to Greatness, Covey describes how this confluence of factors—your voice—creates your “unique personal significance.”
Did you see it?
It says nothing of being self-employed.
Does the best use of your voice consist of creating a new business in your field of expertise? Does it make sense to throw away your education and hard-won experience to start a new, unrelated business?
It might. But it isn’t necessary.
Don’t get me wrong. If this is what you want to do, then go for it! If you see an opportunity to really add value, then don’t be afraid to let the world hear your voice!
But the skills required to start and successfully operate a business are probably quite different from the skills that you have acquired so far. What I want to combat is the idea that anyone who has a day job is somehow inferior and doomed to a life of financial mediocrity. It doesn’t have to be that way!
If this is you, then you are the educated middle class. You are probably an employee. And that means that no matter how expert you are or how much you get paid, you are trading your time for money. You need to understand this: Someone else is making a profit from your efforts. This is fine for now. Just understand it. Someone started that company that you work for, and someone is reaping the reward.
According to authors Thomas Stanley and William Danko in their book The Millionaire Next Door, there is a high correlation between self-employment and wealth:
“Interestingly, self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires.”
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This is the reason that so many personal finance gurus advocate starting your own business. But financial success doesn’t have to be mutually exclusive with having a career as an employee. It is important to understand the skills and disciplines that successful self-employed individuals apply in order to achieve financial success.
How People Make Money
It is instructive to understand the four ways of earning money that Kiyosaki describes in his book Rich Dad’s Cashflow Quadrant. These are completely independent of your field of expertise or industry; they have to do with how you get paid. Specifically, the Cashflow Quadrant identifies four ways to make money:
- As an employee
- As a self-employed professional or small business owner (in which you need to be present for the business to function properly)
- As a business owner (in which employees run the business on your behalf)
- As an investor
Employees and self-employed professionals or small business owners effectively trade time for money. You can think of this as “active income”—if you work, you get paid, but if you don’t work, then you don’t get paid. Active income is a key component of the “rat race,” i.e. you must keep working in order to make money. This is the approach that is much maligned here on BiggerPockets.
On the other hand, business owners and investors are able to generate passive income—that is, income that is not tied to their ability to physically perform the work. Generally, some amount of management is required to keep your income flowing with these approaches (e.g., reviewing your stock portfolio, finding and renovating a property before renting it out, etc.).
However, the amount of income that you can ultimately earn is not tied to the amount of time that you can work. This is the holy grail for most personal finance junkies and BiggerPockets enthusiasts.
But advice is not one-size-fits-all. If you truly do love your job and you are good at it or are providing value to the economy and civilization, why should you suddenly feel that this is no longer acceptable?
4 Personal Finance Principles to Live by
Studying personal finance has taught me many principles. However, foremost among these are the following:
- Personal responsibility: Take charge of your own financial future.
- Buy assets: Wealth is built through assets that tend to appreciate in value.
- Passive income: Decouple time and income.
- Risk: Being an employee comes with the risk of one income stream.
The lessons of personal finance are about awareness and taking action. It does not automatically follow that I should quit my job as a computer engineer designing high-tech gear and working with a fantastic team in a dynamic and challenging industry. What I do need to do is to be aware of how I earn my money and the risk that poses to my family and my future.
I have one customer—my employer—and that represents a risk. There are many ways to mitigate this risk; starting my own software business is only one way to attempt to do that. It is a valid way. But it might not be for everyone. As it turns out, I have a passion for developing products in my current role and have no passion for starting my own software business.
You know what I do have passion for? Real estate investment. It turns out that investing in real estate satisfies all of these principles. And I didn’t need to quit my job. The reality is, if I was financially independent tomorrow, I would continue working in my industry as long as I continue to feel challenged and rewarded.
After reading several personal finance books, including Rich Dad Poor Dad, Rich Dad’s Cashflow Quadrant, The Millionaire Next Door, The 4-Hour Workweek, and other similar titles, I felt awful about being an employee. It seemed like I had failed myself and my family. I was embarrassed.
But I decided to take action anyway.
I implemented a household budget, eliminated consumer debt other than our home mortgage, established an emergency fund, and set up various forms of insurance. This is an ongoing discipline, but it creates a financial buffer and a psychological boost to know you are starting to do things right with money.
I also set up a financial plan. Contributing to standard retirement plans to take advantage of employer and government contributions forms a “plan B” for retirement. Investing in real estate is “plan A” for achieving financial independence. I am now considering additional side hustle opportunities in order to create additional streams of passive income.
In the last several years, I have read more than 70 books on personal finance and self-development and continue to delve deeper into the topic. With each new nugget of knowledge, I review my existing plan and consider how it might improve my results. I also review progress.
While we have not yet reached our initial goal of financial independence, I can project into the future and see that we are likely to achieve and exceed that goal. As a result, I revise and set a new goal which we are currently not on track to achieve. This forces me to consider how I can achieve the new goal and a whole new plan develops. But I build this new plan on the success of the previous plan.
7 Steps You Can Take NOW for Better Finances
- Understand that you are valuable regardless of which kind of income you earn.
- Recognize the risks and benefits of each kind of income. I recommend Rich Dad’s Cashflow Quadrant to study each kind of income in detail.
- Take steps to mitigate your current risks. If you are an employee, I strongly recommend The Total Money Makeover by Dave Ramsey. Learning to live on a budget, pay off consumer debt, and create an emergency fund will put a buffer between you and those risks.
- Pay yourself first to ensure that you are setting aside 10-15% of your income for investment. George S. Clason’s classic The Richest Man in Babylon covers this principle and others.
- Invest. There are three primary classes of investment for the masses: paper assets such as stocks and bonds, real estate, and owning your own business. Learn a bit about each one, and decide what interests you. Then learn some more about it. But don’t wait too long—you don’t move forward until you take the plunge and invest. This is how people build wealth. It is not rocket science. It is achieved through investment and time.
- Consider whether you might like to start your own business. You don’t have to quit your day job. But starting a side hustle, whether it is related to your day job or not, could lead to streams of passive income that are not tied to the number of hours that you work. If your current job is a dead-end and you are not passionate about it, then absolutely consider how you can improve this situation; one option is most assuredly starting your own business.
- Research, review, and revise. Keep reading. Keep learning new things. Take a look at your own situation and what you have accomplished. And revise your plan.
As soon as I started down the path of claiming my own financial future, my whole view of my job changed. I got a bounce in my step. Wearing company branded gear and parking in the company parking lot no longer bothered me. I didn’t care that I was working for someone else’s profit, because I was also working for my own profit. I was applying my knowledge, skills, and experience to great projects and enjoying the ride. The difference was that I was now building my own future on the side—away from work. My job became the fuel for my investment dreams.
I also recognized that there were risks associated with being an employee, and I took steps to mitigate them.
One of the first things that benefited from my new understanding of personal finance was that I became better at my job. Strange, right? But taking ownership in one area affects all of the aspects of your life. This lead to a promotion and even better assignments. I went from liking my job to becoming truly passionate about what my team is working on.
Now, each day is another step toward financial freedom.
Is your end goal to quit your 9-5 jobs? Or does financial freedom look a little different to you?
Leave your comments—agreements OR disagreements—below!