Opinion: Quitting Your Job & Living on Passive Income ISN’T Necessary for Financial Success

by | BiggerPockets.com

I just received an email from Robert Kiyosaki, author of Rich Dad Poor Dad. Actually, the email is from RichDad.com—they just make it look like it’s 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. This latest one, along with some articles I’ve read recently right here on Bigger Pockets, has 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 everyday? 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.

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4 Reasons Someone Might Not Want to Quit Their Job

1. Money

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.

landlord-lessons

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.

Related: Forget the American Dream—Renting, Not Homeownership, is the Path to Financial Freedom

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-on 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.

Entrepreneurial Skills

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 to 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!

The Facts

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 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” (Stanley 8).

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 Cash Flow Quadrant identifies four ways to make money:

  1. As an employee
  2. As a self-employed professional or small business owner (in which you need to be present for the business to function properly)
  3. As a business owner (in which employees run the business on your behalf)
  4. 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, 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:

  1. Personal responsibility: Take charge of your own financial future.
  2. Buy assets: Wealth is built through assets that tend to appreciate in value.
  3. Passive income: Decouple time and income.
  4. 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.

Related: Dave Ramsey is Wrong: You DON’T Need to Be Debt-Free to Hit Financial Freedom

Take Action

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 four 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

  1. Understand that you are valuable regardless of which kind of income you earn.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.

Conclusion

As soon as I started down the path of claiming my own financial future, my whole view of my job changed. I got 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 your your life. This lead to 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!

About Author

Brad Lohnes

In 2013 Brad awoke from lifelong financial slumber and took responsibility for his family’s financial future. His primary vehicle for wealth-building is buy-and-hold real estate. He is passionate about financial education and helping others learn the tools they need to take control of their money. Brad believes there is nothing more empowering than self-reliance.

20 Comments

  1. Robert Easter

    Brad,

    I appreciate your summary advice and candor about opinion in the BP community about topics such as this. It must have truly bothered you for some reason that there are people stuck drinking their full glasses of water and I believe you have done a good job of helping to dispel such notions that maintaining employee status & job isn’t an avenue toward financial independence. Notice that it said 2/3’rd’s all millionaires are Self employed. I am sure that in the 1/3’rd there are many millionaires that have only been employees.

    I know that I am one. Yet I also have used my time to diversify my passive income base via Rental properties, equities, bonds and small business loans. I have now reached the tipping point of offsetting all monthly expense with passive income streams of various sorts which means all my employee income goes to purchases of property or other assets. It also means I carry absolutely no debt or mortgages on any of my properties….and I can’t wait until I decide it’s time to take advantage of the untouched collateral for much larger investments in the future.

    • Brad Lohnes

      Hi, Robert. Thanks for reading and taking the time to leave feedback. Congratulations on getting to the point of financial independence! It’s great to see that others who enjoy their careers have managed to be successful investors!

  2. Joshua Dorkin

    BiggerPockets isn’t about quitting your job. While some people do quit as a result of the financial freedom they achieve from real estate, our objective isn’t to get people to quit their jobs. We certainly celebrate them, but our intention here is to give people an opportunity to build wealth — what comes as a result of that is really up to the individual.

    • Brad Lohnes

      Oops! Hi, Joshua. It was not my intention to malign Bigger Pockets – it’s a great community! I only wanted to push back on a sentiment that seems to have become a foregone conclusion in many posts – that the goal is to quit your job. This view is as much from the literature external to BP as from the posts within it. But I wasn’t interested in calling out specific BP authors and thus used the group handle – i.e. “Bigger Pockets.” I apologize if my views came across as anti-BP; this is certainly not the case.

      I agree fully that the goal of real estate investing and personal finance in general is absolutely to enable people to build wealth and ideally achieve financial freedom. I think that the employee mentality puts many people on the back foot when it comes to building wealth. But once a person understands the concepts, it is completely possible to achieve financial success while continuing to work as an employee. I applaud the call to examine whether a person is doing what “makes them happy”, but if the answer is yes, it’s important for people to understand that this community and REI are still fully relevant to them.

  3. Christopher Smith

    I would certainly agree with this proposition.

    I am a full time employee and I would be a total idiot to quit my job. I have enough seniority and a skill base that allows me to work from home according to my own design 95% of the time (or better). I have no regular commute, I actually like what I do and while my pay isn’t eye popping its well into 6 figures. Plus technically as I am an employee, I receive all the benefits of an employee, defined benefit pension plan, defined contribution pension plan, medical, future SSA eligibility and the rest.

    However, I also own a portfolio of very highly appreciated rental properties in two areas of the country that throw off close to 100K in rental income annually. I have property managers to keep my actual day to day participation low, so that I can focus on long term strategic planning for the operation which I enjoy doing. I also have other passive investments since I am long time participant in the equity markets.

    So why would I ever give up the 9 to 5-er? If it were holding me back perhaps, but for me its an integral part of my overall portfolio of income generation activities and one where there is essentially no risk being incurred. Not that risk is inherently a bad thing if well managed, but its nice to have a substantial part of my income generating portfolio invested in a risk less asset (i.e., my job) that pays like a risky one. Can’t beat that number.

  4. Jade S.

    I agree with many posters in here. A high W-2 income can provide for a good quality of life and benefits, while providing a ready source of funds from saving 20-25% of that yearly income to roll into real estate and other quality investments. However, I do understand how many folks that loath their day jobs would see real estate as a “savior” that can “rescue” them from office politics or the 9-5 grind. This is why a comprehensive assessment of what one wants or needs either in their career or retirement/FI is in order before telling the boss to “shove it”.

    • Brad Lohnes

      Hi, Jade. Thanks for reading and sharing your thoughts. I completely agree – I’m in favour of financial independence and options. I guess I was lucky in a way – my parents suggested that I go into a field that I enjoyed + showed aptitude for + was/is in demand. I do feel bad for people to don’t get any satisfaction or fulfillment out of their daily work. Cheers

  5. Marin Rodriguez

    All of the above comments are valid, which just comes back to the fact that each person as an individual needs to examine what he or she wants out of life and then set goals to achieve those ends. Do you want financial freedom and if so what does that look like for you? Additional income? OK, how much?

    Personally, I fall into the category of loving my job and contributing a valuable service to the community, though my income is modest. Goals? Additional passive income stream via REI to supplement my salary. Eventually I want to be able to retire and live comfortably and NOT have to rely on retirement savings…did I mention my modest salary? How to achieve that? Creatively, since my pockets are not deep and California is a brutal real estate market.

    One size does not fit all. Thanks for your article pushing back, Brad. Its a good reminder of how individual all of this really is.

    • Brad Lohnes

      Hi, Marin. Thanks for sharing your story. Sounds like you’ve got your goals all setup and you’re working toward them. As you point out, it’s even more important for people on lower incomes but love what they do to invest wisely so that they have a strong future as well as present. Cheers.

    • Brad Lohnes

      Hi, Dani. Thanks for reading – glad you enjoyed it. And yes, whenever I consider a personal belief, I think about this question: what if everyone did this? While I can envision a situation in which everyone becomes an entrepreneur, I think that it would put a lot of pressure on some skills that benefit the world through specialization.

  6. John Murray

    I’m a millionaire and I’m worth a little north of $2M and leverage about $3M in BRRR. My passive income is about $100K per year and I do what I want. Not that many in the world can do that, if you can you are a small percentage of the population. I’m 2 years away from 62 and will collect another $36K per year SSI. I learned more about life and how to succeed in the military, it is not what you know it is who you know and who you are with. Now if I could get my adult children out of the house my life will be complete.

  7. Bart H.

    Great post. I know someone who loves their job and have been working at it for about 50-years! He is debt free, has two houses (all paid for), all of his children are college educated, buys his cars free and clear, and is an expert at what he does. Highly recognized in the community and the state in which he lives. Is he successful? You bet he is, even as an employee!

  8. Al Bigonia

    Thank you for this article (about how the other half lives) Brad. I am a buy and hold real estate investor, and still working for the other man at 68 years old. (69 in September) No plans to retire completely, but I have cut back on the number of hours I work per week, and I’m perfectly happy about where I am right now. I try to live, and let live and ignore all the hype articles, but I love BP for all it’s taught me. It just gets old sometimes seeing the article titles about the 20-somethings that fell out of the cradle, started to walk, then fell into mega properties. I’m probably just jealous, but had to say that. But I do hope they can all relate to the old Frank Sinatra song and can truly say (like we can) “I did it my way”.

    P.S. I’m an old Rocker, but Frank had some good stuff too.

    • Brad Lohnes

      Hi, Al. Thanks for your feedback. Sounds like you’ve got things setup pretty well. I definitely wanted to provide a different point of view. But I also wouldn’t have complained if I’d figured all of this out in my 20’s – I’d certainly be in a different position financially at this stage, employee or not! (Doing ok now – but starting in your 20’s is just such a leg up!)

  9. Whitney Tutt

    Thank you for this article! I have a great job that pays well, has flexible hours and I work from home. However, I have recently been very set on not working for someone for the rest of my life. But then I think about how much I have it made at my job…so it is kind of hard to give up the good, easy money. However, I would love to wake up and do whatever I want like one of the individuals commented. Hopefully my venture in REI will take off and I can someday work solely for myself. As I do have a small business that brings in great extra income annually also.

    • Brad Lohnes

      Hi, Whitney. Thanks for your feedback. Please don’t take my article as an indication of what you should do! If you have a strong desire to “be your own boss” then explore that further. I mostly wanted to combat the idea that I should _want_ to quit my job which is an underlying assumption in much of the personal finance literature. I wanted people to know that there are others out there trying to get ahead via REI and other means who have perfectly normal jobs in the meantime. 🙂

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