Escape the 9-5 Life with Financial Planning
Do you feel trapped by the 9-5 corporate structure? Are you considering becoming your own boss and taking control of your schedule? I have led numerous clients through financial planning exercises to help them create a vision of their ideal life, and one constant theme that every one of them has become apparent. The ability to control their time.
Time wealth is the ability to spend your time in a way that is most aligned with your values. Do you want to exercise in the middle of the day? Do you want to work and live abroad for a few months? I certainly do, and I’d argue that someone who controls their time is wealthier then someone who has a ton of money without any time to enjoy it.
The best way to improve your time wealth is to leave your 9-5 job and work for yourself. However, this is much easier said than done, as being your own boss comes with both emotional and financial challenges.
Here are my top suggestions for your financial planning prepares you to break away from the 9-5 structure.
Manage Your Spending
The most influential action you can take to make this career leap work is to better manage your spending.
The first part of managing your spending is to bring awareness to your current spending levels. Most people don’t track their spending because they view it as a punishment. It’s easier to shut your eyes and not see how much money you spend on Starbucks.
But when you have this motivation, tracking your spending will get much easier. You’re doing it for a purpose. Now you can take your financial planning to the next level.
Once you know what you spend on average each month, you should take a good hard look at your spending and ask yourselves if there are areas in your budget that you could cut/change so that you’re spending is reduced. The more you lower your spending, the higher the likelihood of making this dream work.
Now, this doesn’t mean you need to become a minimalist. Yes, there are fixed expenses that you can’t cut, but there are likely areas where you could spend less on while still enjoying the experience. For example, rather than going out to dinner with friends, go on a hike. Instead of traveling abroad, go explore some National Parks. Once you know your average monthly spending and you’ve projected what you expect to spend going forward, you’re ready for the next crucial step.
Create a Separate “Runway” Savings Account
A runway savings account is a specific account that you earmark to help cover living expenses during your transition. This is not an investment account – it simply sits in cash in a high-yield savings account. You do not want to invest this cash in the stock market because there is a very high likelihood that you will be using it in the near future. How would you feel if your runway account decreased 40% during an economic crisis? Not great.
It is safe to have 12 months of living expenses stored in this account. It’s going to take time for your income to pick up and you want to avoid going into credit card debt or depleting other investments that you may have. The longer your runway, the higher likelihood you give yourself to make this dream work.
If you don’t have this type of account or one that is similar, then you are setting yourself up for failure. Yes, some people may be able to do it without a runway saved up, but your financial planning should not add any unnecessary pressure.
Adjust Your Federal Student Loan Repayment Strategy
One of the very unique features of federal student loans is that you can tailor your student loan payments to match your income. Is your income reduced or even $0? Guess what – you can significantly lower your student loan payments if you are on an income-based repayment plan.
These plans are structured so that you typically pay about 10% of your monthly income towards your student loans. However, most people don’t know that you can recertify your income at any time! You don’t want to be stuck paying an amount towards your student loans that is based upon your prior years’ income if your income has significantly reduced.
Keep Your Long-Term Investments Intact
Do you have savings in Roth IRAs, 401(k)s, Health Savings Accounts, etc.? Do your best to keep those intact and not plan to use them while you are making this transition work. If this career leap doesn’t work, you don’t want to start from zero by depleting your hard-earned long-term savings, which reinforces the importance of having a specific runway account.
This strategy can also act as a reality check for you. If you don’t have a runway account, then the answer is not just to use your long-term savings. It may mean that you need to take some more time and build up your runway savings and/or take on a side hustle before taking the leap.
As fiduciaries, we’ve taken an oath to prioritize your financial well-being above all else. We’ll treat you with the honesty and integrity you’d expect from someone with whom you are entrusting your future
Joseph Vecchio, CPA, CFP®, MBA, the founder of Shore Financial Planning, started his investment career in 1998 as a professional trader/money manager on wall street. He believes in a passive investing style founded on academic evidence.
Joe takes pride in protecting people from financial predators and helping them make smart financial decisions. We will provide you peace of mind through conflict-free, value-added financial, and tax advice.