Recently I was scrolling through Twitter and noticed the following tweet from Ty at Get Rich Quickish:
This tweet got the wheels turning in my head. What should people do once they reach the upper limit of their savings rate and essentially have their personal finances on autopilot?
A Moment of Awakening
Odds are, when you discovered the concept of financial independence, you had a moment of “awakening”.
Holy shit, my spending habits are preventing me from saving any money and killing my chances at achieving financial freedom.
So you rushed to find a cheaper phone plan, downsize your home, cook more meals at home, reduce your transportation costs, cut your cable, and a whole slew of things to cut the fat out of your expenses.
But at some point all the fat is gone. All that’s left is the necessary. You have minimized your housing, transportation, food, and living expenses to the point where you have achieved maximum frugality without depriving yourself and your family.
You have reached the upper limit of your savings rate. Once you reach this point, your time to financial independence (or whatever your financial goal is) simply becomes a waiting game. Or does it?
Once you hit the upper limit of your savings rate, I see three options you can take:
1. Accept the Waiting Game
This is the most obvious choice. Simply be patient, maintain your savings rate, and wait for financial freedom to roll around.
This option is most reasonable for people who are fairly close to their financial freedom date. If you only have 1-2 years until you achieve F.I., earning more or spending less will have very little effect. You might be able to reduce your mandatory working life by a couple months, but rarely more.
This option is less appealing for people who have more like 7 – 12 years until F.I. For some people, the thought of working another decade at a dead-end job they can’t stand just to achieve F.I. sounds like a nightmare. For those people, this option doesn’t make much sense.
2. Earn More
This option is also obvious. If you have cut all the fat out of your expenses, the only way to reach F.I. faster is by increasing your income. There’s a few ways you can do so:
- Pick up side hustles in the evenings and the weekends. A great resource for side hustle ideas is Financial Panther. Check out the interview I did with him on how to master the art of side hustles.
- Start your own side business. Personally I tutor students in statistics and it’s a great way to earn some extra money. What skills do you possess? Do you have any niche knowledge of photography, sewing, making jewelry, tutoring, social media marketing, foreign languages, etc? You might be surprised to find that people are willing to pay you for your knowledge and skills.
- Pick up a part-time job. For a while during my first corporate job I was a tutor at a math learning center on the weekends. Every Saturday morning I would tutor students and earn an extra $60 per week. Just because you have a traditional 9-5 job through the week doesn’t mean you can’t work a weekend job.
- Job-hop to earn a higher salary. Depending on your family situation, this option might make sense. I personally changed jobs over the summer and increased my salary from $52k to $80k.
3. Only Pursue Partial F.I.
This option is so overlooked and underrated in my opinion. You don’t have to be financially independent to have an amazing life.
If you have maximized your savings rate and you find that you’re still 15 years away from F.I., this option could be screaming your name. What if you only work another 3-5 years and reach a financial launching point where you can quit your job and pursue work you enjoy, even if it pays less?
Keep in mind, the whole point of personal finance is to maximize happiness. It’s not about never working again. Doing the right type of work can actually be deeply satisfying and fulfilling. In fact, mixing passive income and active income can potentially be the best way to maximize happiness.
If you’re distraught about how many years you have left until financial independence, this option might make the most sense. If your F.I. number is $1 million, consider the possibility of only saving $100k – $200k and simply working part-time to cover your expenses. Achieving partial F.I. takes drastically less time than full F.I.
There’s No “Right” Answer
There’s no universal “right” answer to this dilemma. It all depends on your unique family situation, your age, and your interests.
If you enjoy your day job and you’re content with how long you have until financial independence, just chill out and enjoy the ride.
If you just can’t stand the thought of working for 8 more years or however long, then consider options 2 and 3. To achieve complete F.I. faster, you’ll need to increase your income.
Are you someone who likes working? Do you dream of owning your own business and working for yourself? Consider option 3. Save up enough money to reach a financial launching point where you have the ability to quit your day job and pursue work you love.
I’d love to hear your thoughts on this issue. Which option is best for you? Is there another possible option I haven’t considered here?
My favorite free financial tool I use is Personal Capital. I use it to track my net worth, manage my spending, and keep an eye on my monthly cash flow. It only takes a few minutes to set up and it makes tracking your finances simple and easy. I recommend trying it out.
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