No matter how many jobs you've had or how far down the career path you are, facing any workplace transition brings up emotions, fears, and possibly, some sleepless nights. The bittersweet feelings of quitting a job even for retirement include guilt, worry, anxiety, excitement, adrenaline, and gratefulness.
It only seems sensible that a cushion of cash in the bank might make any transition less worrisome. In this article, we'll share 3 steps toward leaping from the 9-5 through real estate investing so you can spend less time worrying and more time doing things you love.
Want to Retire But Feeling Stuck
Unlike generations prior, it's rare for anyone these days to remain with a single company or industry throughout their career. Furthermore, few companies still have pension plans. We are each individually responsible for our retirement.
Many professionals (you included) want to take the leap. They are afraid of reducing their income and still being able to afford a life they love. Some of these fears can be because they have not been able to save enough and think they may run out of money.
The simple solution to all of the above is passive income. The income you earn without actually having to step foot in an office or head to work even a few hours a day seems like a dream, but we're here to share with you how you can make this your reality.
Step 1 – Find Your Freedom Number
The first step toward building a robust financial plan and quitting your full-time job with confidence is finding your freedom number. This number is the amount of money that would more-than-cover your regular monthly expenses based on your current lifestyle.
Your freedom number is the amount of income you need to earn passively to quit working and still cover all your bills worry-free. You can easily find this value by looking at your expenses from the past six months.
Let's pretend your expenses for the last six months look like this:
Month 1 - $ 9,500
Month 2 - $ 12,300
Month 3 - $ 8,700
Month 4 - $ 10,800
Month 5 - $ 9,100
Month 6 - $ 9,600
The average of these expenses is $10,000. Now, add a 10% buffer.
Your freedom number, in this case, is $11,000. This amount is how much you need to establish consistent, passive income so you can leave your nine-to-five with confidence.
Step 2 – Build Passive Income
Now that you have your target freedom number calculated, you can get to work building multiple income streams that will equal that total.
Some ways to generate passive income include writing a book, creating online courses, or designing products to sell online. My favorite though, the one that requires much less time and effort, is real estate investing.
Actually, did you know more people become millionaires through investing in real estate than through any other path?
It's true! This phenomenon is because you don't need to know how to write, design websites, or create products and market them. With some capital and dedication to research, you can invest in cash-flowing real estate and build your streams of income, one deal at a time.
Passive investments in real estate syndications can earn between 8 - 10% annual cash-on-cash returns, plus additional income upon the asset's sale after an average of 5 years.
For example, you could invest $100,000 and earn about $9,000 in passive income per year while doing very little work.
Get a few of these going, and you build, brick-by-brick toward your income goal /freedom number ($11,000 per month in the example above). Even just an extra one or two thousand a month relieves some financial pressure and allows for more flexibility in your schedule.
No matter how you choose to build your financial cushion - through real estate or online products or both, the main goal is to create multiple streams of passive income to reach your freedom number.
Step 3 – Track Your Progress
As you build each stream of income, it's quite fun to track your progress and see that passive income number increase over time.
Whether you're an excel nerd or not, you'll want to establish a way to quickly see how much passive income you're earning each month and which investments are out-performing others.
If you were to choose real estate syndications, for example, you could see that for every $50,000 investment, you'll earn about $350 per month in passive income. By this math, you might consider moving the $200,000 you have in the stock market over to syndications and begin generating $1,400 per month.
While $1,400 is quite far from $11,000, it's a building block. Plus, it will probably more than cover your groceries for the month - one less worry.
Each additional passive income stream you add covers another current living expense and acts as one more piece to your freedom number puzzle. One day soon, you'll reach the time where streams you feel comfortable reducing your work hours or quitting your job altogether, without experiencing an actual reduction in income.
Drastic changes and quick transitions can quickly stir up fear or worry in any responsible adult, but even more so if you feel the weight of providing for a family or achieving steep lifestyle/income goals. The biggest thing to remember, though, is that countless others have built passive income, as we discussed here, and you can too.
The steps outlined herein will help you identify your personal, passive income goals, create a path toward creating that passive income, and track your progress. No matter your reasons for building passive income, following the three steps above will help you build the financial assurance you need to quit your job with confidence.