When to Quit My Job - Part 1
Every week I meet with a friend or associate and the topic of leaving the day job almost always seems to come up. This is one of my favorite questions to kick around because it is a fantastic thought exercise.
Before diving into quitting a job we need to clear up a couple of key points. If you are finding yourself in a dead end job, if you are working for a dysfunctional team, or if you are working for poor leadership you should assess how to get your career back on track. I have been in each one of these scenarios, and the emotions can be overwhelming. Focusing on moving through a circumstance is often a better solution than quitting altogether.
We often refer to the day job as a W2 job or simply the W2. The W2 is an IRS form that you receive at the end of each year. It tracks your wages and the taxes you paid to the government for any hourly or salary job you worked.
The problem many people have with the W2 job is that it can be a grind, it lacks flexibility, and your income is restricted. Put in another 20% effort by working late or coming in on Saturdays and the amount of extra cash a salaried worker earns is $0. Work 60 hours a week for a year busting your tail and the amount of increase in pay you are likely to receive over your peers is probably only 1% or 2% and that is if your boss even noticed.
There are lots of issues that come with being tied to a W2 job.
There are a lot of benefits that should not be ignored either. Healthcare is one of the biggest benefits that I can think of. The amount of money that is paid by the individual for their healthcare and their family’s healthcare often goes unnoticed because it is tucked into your payment statement among five or six acronyms.
The amount of money you are paying is significant, but your employer is often paying half or more of that amount. You need to have a good understanding of what the true costs are for things your company is paying on your behalf.
For entrepreneurs, there is an even more critical component that the W2 provides: financing. Most of our side ventures focus on real estate which almost always requires financing. Banks love to lend to high income earners with a strong W2. It has been my experience that a bank would be happier to lend money to someone earning $100,000 from a W2 income verse an individual earning $200,000 from alternative income. W2 income is seen as predictable and reliable over an alternative stream of income.
Flip The Script – How Long Can You Keep The W2
My generic response is that you should keep your W2 as long as possible.
Generally, my personal philosophy is that you should hold onto the W2 income until it is causing you to lose money in whatever you are doing on the side.
I advise people to challenge themselves to also continue investing and growing their career. A jump in pay by moving into management or another role just accelerates the timeline for financial independence.
The W2 Can Help You Trade One Rat Race For Another
Juggling a side hustle or two and a W2 job is not easy. It takes late nights, early mornings, long hours, and a lot of discipline.
It also forces you to be efficient in both. I have found that I have become a better employee simply because my side hustle pushes me to be more focused, efficient, and disciplined.
I have found that this has forced me to build processes, checklists, and automation to be as efficient as possible. I have not reached a point where I can begin outsourcing my work on my side hustles, but everything has already been documented so that when it comes time to hand work off, it is clear and easy to do so.
I have talked to too many small business owners that have traded a 60-hour a week job for an all consuming 80-hour a week job in a business that they own. Forcing yourself to work on your business instead of being a part of your business means that it has a smaller chance of becoming all-consuming when you strike out on your own. It also means that you will be good at working on your business which means you will be focused on growing and expanding profits instead of serving as another cog in the machine.
Know Your Numbers
Having a theoretical conversation about when to quit the W2 job is a great thought exercise, but you do need to understand what it takes to be financially independent.
If you would like the tools that we use to manage our budget and to calculate our expense profile, follow the link at the end of the article to reach out to us.
Step one is understanding your average monthly spend. Understanding where your money is spent is key to knowing what an acceptable minimum standard of living for your family is, what a normal standard is, and then what is your dream standard of living.
Take me as an example. Our minimum standard of living does not take immense sacrifice, but it involves eating out only one time a week, cutting back on our subscriptions (Netflix, Disney, Prime, Sling), and limiting the amount of eating out that occurs during lunch. Our vacation budget is also held to a minimum.
Our normal standard of living looks similar, except that our lunch tab grows quite a bit.
Our higher standard of living does not involve a fancy new car payment, but we do give more to charity and we do increase the number of vacations that we budget for.
The range between my low and my high standard of living is small, and there is not a lot of sacrifice going on with our low side number. This is not an exercise in spartan living or minimalism, or how to live a life of extreme excess. What does it take to be comfortable is the question you are looking to answer.
Once you know your expenses you now need to calculate what your income needs to be. I like to project 25% to 50% more income to cover my expenses. This helps factor in the unexpected and it allows me to continue growing my income streams.
Begin Putting A Plan Together
Turning a thought exercise or a dream into a reality not only takes work, but it also requires a timeline. When I started my journey, I chose a five-year time horizon to become financially independent.
At the time of this article, I have one year and seven months left of that timeline, and I am on track to beat my goal.
Having an end date has been immensely helpful for me. It provides a level of accountability for me, but it also helps me understand the math.
If the goal is to generate $10,000 a month in income you need to do the math to determine if what you are doing today will deliver what you need within your time horizon. If it does not, you will need to come up with an alternate plan, and additional plan, or you will need to double down on your current activities.
It is okay to not have a plan fully lined out when you start your journey. I had some ideas and developing opportunities when I set my goal, but I had no clear path to achieving financial independence. The benefit to having a goal was that I was able to sit down and research opportunities for a couple of months to come up with a plan. I was able to weigh opportunities not just against each other but against what I needed to achieve my goals.
Get Serious In the Final Stages
Take your plan to another level as you get near your goal. I have seen individuals near their goal write and date their resignation letter to hold them accountable. I heard of one individual that gave the letter in an addressed and stamped envelope to a buddy with a note to mail the letter on a specific date. That is commitment!
Moving forward, continue to work your plan and share it with like minded people who can give advice and pointers.