Have you ever found yourself daydreaming about a life with more time, money and freedom or wondered what it would take to quit your job and become your own boss?
Let me guess– you’ve reached the point in your life where it’s difficult to stomach the idea of continuing to trade your precious, limited time for money.
You don’t want someone else to decide the value of your hard day’s work.
You’re tired of getting out of bed, driving to work and dedicating your energy to someone else’s bottom line 40 hours per week until you are at least 65.
Before you lose your sanity or call your boss and demand a raise you likely won’t get, let me reassure you.
It doesn’t have to be this way.
Let’s map out your exit strategy together and start putting your dreams into motion in a way that gets results!
But before we dive in, I want to be transparent about a few things.
I am speaking as someone who has quit my job. It took us just under 3 years to replace my full-time, 70K/year income.
While we have managed to make this transition in a fairly seamless and painless way, there is a learning curve. This guide is designed to help you navigate your way through this process without having to reinvent the wheel.
It is absolutely 100% possible to leave the rat race behind and build the life of your dreams. And, to be honest, you’re probably much closer to that reality than you realize!
That being said, I will by no means claim this is an easy process or something you should jump into without thorough planning, due diligence & a healthy dose of grit.
The process is simple (yes, I said simple– not “easy”) and I guarantee you the results are worth it!
Let’s get started…
#1- Set a realistic budget & put it into action
While not all of these steps must be completed in order, I HIGHLY recommend this as your first step. If you aren’t already budgeting and tracking expenses– start now!
I can’t stress this enough. Quitting stable, full-time employment without knowing how much you spend each month is like guessing how many marbles are in a jar at the state fair. It is very likely you will be wrong. Are you willing to bet your future on guesswork & instincts?
I think this also needs to be said: there’s a monumental difference between having a budget and sticking to a budget. Be honest with yourself.
Budgeting basics (skip to next section if you already budget like a boss)
- Make a detailed list of all your static monthly expenses (i.e.- mortgage, internet, subscription services, school loans, car payment, etc.). It may be helpful to look at your bank and/or credit card statements from the last couple months to identify things on auto-pay that you may be overlooking.
- List out your variable, monthly-recurring expenses (i.e.- utilities bills based on monthly consumption, gas for your car, groceries, etc.). Either look back over the last 6-12 months of bills & bank/credit card statements or begin tracking now and diligently log these expenses over the next several months.
- Identify all other variable ways you can think of that you regularly spend money (i.e.- purchasing gifts, shopping, entertainment, car/home repairs, medical bills, etc.). Try to set a target for a reasonable monthly limit.
- Now that you know roughly what you spend, identify what type of budget you want to create. Next decide how you are going to track expenses. This could involve use of software like Quicken, an app like Mint, a spreadsheet, or even gold-old-fashioned pen & paper. (For the record, I don’t recommend pen & paper.)
While Michael & I have a method to our budgeting madness, we don’t claim by any means that there is a one-size-fits-all solution or a “best” approach.
Reviewing your existing budget
Even if you already have a set budget and are tracking expenses, I recommend asking yourself these 3 questions before you check this step off your list:
- Am I being diligent about tracking expenses & sticking to the budget?
- What lifestyle do I realistically expect to live while I make this transition to self-employment– do I need to adjust my budget categories up or down to accommodate that lifestyle?
- Am I happy with my current budget methodology & systematization? (If the answer is no, we have you covered with alternative budgeting options).
#2- Set a monthly income goal that will support yourself/your family
Once you have established your budget for current expenses and spending, it’s time to get out your crystal ball.
You will need to spend some time trying to identify any expenses or spending categories that will likely change when you quit your job and become your own boss.
Paint a detailed picture of what your new lifestyle will involve:
- What types of new monthly expenses will you have? Mortgage payment on rental properties? Web hosting for your website or blog? Rent for an office space? Marketing for your graphic design business?
- What spending categories will decrease? Saving on gas because you work from home? No longer needing to pay for professional licenses or continuing education?
- Is your business idea something that will continue to put money in your pocket while you’re on vacation? Will you only have income when you’re actively working? If the later is the case, make sure you factor in time time off when you run the numbers.
This is not a comprehensive list of all things you should factor in– rather an exercise in critical thinking.
Every entrepreneur’s considerations are different, so really spend some time and energy thinking about likely changes in your future financial needs.
Everything will look much clearer once you identify your master plan for generating income and…..
#3- Get started with your replacement revenue stream(s)
You may be a little confused as to why I’m recommending you add MORE work onto your busy schedule when the goal here is to quit your job.
It is HUGELY helpful to have a steady & reliable cash flow source established before you cut ties with your employer.
For us, this journey started by purchasing & leasing a 3-unit long term rental property while simultaneously starting an AirBnb in our basement.
We then purchased two additional small houses (each new property acquisition was spaced 1 year apart) that we use for short-term rental income.
About half-way through this journey I transitioned to part-time employment while we optimized those income streams.
I have since quit my job and am managing our short-term rental business, working on this blog and also “staying home” with our toddler.
Get clever & show some hustle!
Regardless of your goals and plans, there are lots of ways to start generating income and building revenue streams while still working full-time.
Want to get into real estate investing? Perfect! That’s a great thing to work on “after hours”. Realtors show property outside working hours every day of the week.
Want to own a dropshipping business? Fantastic! How many orders can you process over lunch, on weekends or before/after work?
Want to open a restaurant? See if you can open a food truck or cater for weekend parties & events or schedule vacation time around your side-hustle. You’ll get feedback on your cuisine and get your name out there before you ever open your doors for business.
The point is, take some action and see what kind of results are possible. This will largely rest on the work & dedication you are willing to invest but also on the quality of the questions you ask yourself in the process.
If you’re totally at a loss for a cash flow generator that speaks to you, we have a comprehensive list of ways to make money outside of your job.
#4- Make a game plan for health insurance
If you are fortunate enough to have health insurance options through a spouse or domestic partner who can add you to their employer-provided plan– air five!! I’m right there with you. That being said, you will still need to plan for in an increase in their monthly premium when they add you as a beneficiary.
If you are not quite as fortunate, this should DEFINITELY be something you factor into your master plan. Health insurance can be a costly expense but is also hugely risky to go without– Yes, even if you are “young & healthy”. Accidents are just that– accidents.
Some states charge fines for being uninsured, so it can also cost you on the back-end to take that risk. As it stands in 2020, there are no longer federally-imposed penalties for choosing to go uninsured.
#5- Figure out how you will invest/save for retirement
Wait– putting aside money in a 401K or Roth IRA isn’t my only option for building a retirement fund???
ABSOLUTELY not. In fact, at Unbound Investor, we would argue it may not even be your best option.
- Real estate investment is a great vehicle for your retirement savings. This is our personal preference as we get great tax benefits, appreciation & monthly cash flow today as well as in retirement.
- Stock portfolios that you actively manage (assuming you learn what you need to know to succeed). We have an investor friend who has been averaging 15-25% returns from his stock portfolio for the past several years. If you buy dividend paying stock you can actually get paid now as well as in retirement.
- Purchasing or starting a business can be a great opportunity for retirement cash flow if you are able to remove yourself from the day-to-day operation. Did you know you can get a loan from the bank to purchase an existing, profitable business that is well-established?
- Write a book or develop a product that’s timeless– think Robert Kiyosaki’s book Rich Dad Poor Dad or a popular game like Phase 10. Licensing products or educational materials can pay dividends long after you complete the work. Kiyosaki has been collecting paychecks from his publisher since 1997. Ken Johnson created the game Phase 10 over 30 years ago while hunkered down in his apartment and it’s still being sold all over the world.
Again, this is by no means a comprehensive list of all the potential investment strategies that can set you up for a comfortable retirement. The takeaway here is to actively plan your retirement instead of blindly trusting dated advice.
#6- Pad your emergency fund (or at least have an “all-hell-breaks-loose” plan)
If I’m 100% honest with you, Michael and I did not have an appropriately sized emergency fund before I quit my job. Turns out we had a solid plan and were fortunate to never have reason to regret that decision.
We did have an “all-hell-breaks-loose” plan but, after COVID-19 threatened to disrupt our real estate business, you better believe we take this topic more seriously now!
Since Michael also plans to quit his job within the next 3-5 years, we are working towards having 3 months of expenses (including mortgages on our rentals) in readily accessible accounts.
In addition to a traditional savings account, we have also dog-eared Michael’s employer-funded retirement account as part of our emergency plan.
We wrote a comprehensive article on borrowing from your 401(k) that gives a fantastic overview of the process. It’s definitely not as intimidating as it sounds!
#7- Pay down your “bad debt” to a manageable level
I certainly won’t argue that you should pay down all “bad debt” before you invest in cash flow-generators. I can hear Dave Ramsey stamping his foot in dissent…
There is a healthy way to carry what some people consider “bad debt” and a risky way. What we are looking to do in this step is identify what falls into those categories and find a balance that decreases your risk of failure.
Robert Kiyosaki says it plainly– “good debt makes you rich while bad debt makes you poor”.
Leveraging a private lender’s money by taking on a loan for an investment property that puts money in your pocket every month while paying back your initial investment is an example of what I consider to be a healthy way to carry debt.
This type of debt is making you richer.
Car payments on your new Mercedes or shelling out thousands of dollars per month to pay the mortgage on your McMansion is, in fact, making you poorer. The same can be said about carrying a statement balance on your credit card.
Finding your debt “comfort zone”
As I said, I will be the last person to tell you that it’s critical you pay off your car or your student loans before you quit your day job. I do, however, propose that it’s best to establish a “comfort zone” for the amount of debt you can manage without the security of traditional employment.
When I quit my job, I still had a student loan payment of just over $500 per month but I was actually making larger payments (to the tune of about $1,000/month) to get out from under that debt faster.
Your comfort zone may be different from ours, but here’s our general guideline:
Your “bad debt” payments should not exceed 15% of your personal monthly expenses.
#8- Assemble your “dream team”
The saying “no man is an island” could never be more true in the context of self-employment or living on passive income. You will need help.
This may come in the form of a realtor to show you properties, a business partner or cash investor, an accountant to keep your books or do your taxes, a mentor in your field of interest, a life coach to support your personal growth, a friend who holds you accountable to your goals, the list goes on.
Speaking as someone who is a self-proclaimed DIY queen, I believe I am fully qualified to say this: YOU CAN’T DO IT ALL. Nor will you want to.
As the African Proverb goes, If you want to run fast, run alone. If you want to run far, go together”.
#9- Practice discipline — period.
Even if you’re only ready to take a couple of free & non-invasive steps forward, you can lay some serious ground work by getting disciplined.
As I mentioned before, the first place I recommend starting is with your monthly budget. It is likely not a good idea to quit your job and seek out self-employment if you can’t be disciplined with your spending habits.
A next great place to practice discipline is with your daily routines. After all, it’s consistent & persistent action that drives success in any endeavor. What are some simple, daily habits you can foster that will propel you toward your goals?
Try waking up an hour earlier to exercise or spending that time acquiring the knowledge and tools you need to get your side hustle off the ground.
If you need a more structured regimen to follow, I recommend reading Miracle Morning. Hal Elrod gives some great insight into starting your day with intention and focus to maximize your results.
#10- Keep tabs on your progress and watch for signs to pull the trigger!
To clarify, I don’t mean quit your job if get a fortune cookie that reads something like “It is a good time to start something new” or “You are soon going to change your present line of work”.
Here are some key signs to look out for:
- Scalability – You already know how to significantly increase the profitability of your current investments. You have a good sense of what the correlation between the additional time you will dedicate to your endeavor and your income potential looks like.
- Good Financials – If your investments can already support your lifestyle, that’s perfect! If they’re close to supporting your lifestyle and you have some savings to keep you afloat for a while, you can probably take the leap.
- Limiting Factors – If you’ve reached a point where you don’t have the time or the focus to further grow your investments, then it’s definitely time to try and drop full time employment. Investigate your options for working part-time if you think you still need a bridge to span the gap.
- Effective Systems – When you’ve managed to automate or outsource much of the unskilled work.
- Support System – You’ll need some measures in place to keep your schedule regular and consistent once you leave your full time job. Make sure your sleep, eating, socializing and work habits will remain healthy.
And the most important sign is this:
You can visualize how to survive the next 6 months.
There’s no way to know every expense that will come your way, but if you can see how you’ll cover your expenses without your paycheck, then you’re ready.
Putting it all together…
While there’s no one-size-fits-all solution to this equation, you can only do so much planning and number crunching before you get stuck in the desert wasteland we like to call “analysis paralysis”.
Assuming you read through all 10 steps, what’s your gut telling you right now?
Are you feeling a little anxious, excited and perhaps slightly nauseated?
That means you are not only seriously considering the possibilities in your own life, you are also ready to start taking action!