When I first started learning about how to manage my money, I heard mystical rumors of something called financial independence (FI). In my naiveté, I thought this meant something like being able to pay your bills on time or breaking out of the paycheck-to-paycheck cycle.
Sure, sign me up for that! I thought.
Then I found out that financial independence was a synonym for early retirement: i.e., people retiring before traditional retirement ages.
I hesitated. That still sounded pretty good, but not as achievable as I’d hoped. I figured I’d be working to age 67 along with everyone else.
Then I found out a good chunk of FIers are young people—as in, people “retiring” while they were still in their 30s or 40s. Well goddamn, I thought. I doubt I could do that—but maybe it’s possible?
It got worse. I found out that many—if not most—FIers make a HUGE salary (compared to me, at least). In fact, it seems like a significant number of them are actually doctors or software engineers.
And here I am over here, making $38,000/year two years after finishing grad school, with over $80,000 of debt. Holy f$#k, I now thought. Suspicions confirmed: this is for other, fancy-pants people. Not me.
Except, I’ve decided to take another look. If I deny the possibility outright, then of course it won’t happen.
I had to find out if there might be a way…
- 0.1 The Numbers
- 1 Am I F%$#^d If I Chose A Low-Paying Career?
- 1.1 What Did I Learn From All Of This (Besides How Modeling Investment Returns Is Different From Modeling Wildlife Populations)?
- 1.2 If You’re Still Not Convinced…
- 1.3 So…Does This Mean I’m Trying To Reach FI?
I graduated from high school 11 years ago. There were a range of options in front of me, and ultimately I chose to study wildlife biology. I could have chose to be a doctor or a software engineer, but I didn’t.
I decided to play around with some numbers to see what would’ve happened if I chose another path.
Annual Gross Income
Everyone will make different amounts of money in their careers depending on a bazillion factors. Let’s simplify it and just look at the 2015 median annual incomes for these three careers:
Wildlife Biologist – $59,680
Software Engineer – $100,690
Doctor – $187,200
Not off to a great start. My median salary as a wildlife biologist is probably what I’d be making right out of college if I had chose to be a software engineer or a doctor.
Related post: The Financial Reality Of Being A Broke Biologist
Annual Net Income
Bennie Franklin once said that two things are certain in life: death and taxes. Fortunately the government has decided not to tax income underperformers like me as high as the fancy-pants high-earners.
So, let’s see what I’d have to play with after taxes. I used this tax calculator, assuming married-filing-jointly status (with a stay-at-home spouse – another income would be a whole ‘nother can of worms, and Zach has professed his interest in being a househusband), and zero kids:
Wildlife Biologist – $54,760
Software Engineer – $89,150
Doctor – $153,594
One of the tenets of FIism is to reduce your expenses as low as possible without sacrificing the things that make you truly happy. As such, FIers are known for consistently saving huge chunks of their income.
But that’s subjective to each person. Again, let’s simplify it and assume we can all save 20% of our annual net income, a commonly recommended budgeting percentage for normal people. (I hear all you FIers with your fingers revving up right now—settle down)
If I saved 20% of my net annual income and broke it down by month, this is what I would have to save given each choice of career:
Wildlife Biologist – $912.67/month
Software Engineer – $1,069.17/month
Doctor – $2,259.90/month
Here’s a neat little chart that summarizes everything, including how much I’d have to spend on other things like essentials (rent/mortgage, bills, debt payments, etc…) and personal stuff (entertainment, dining out, etc…):
How Much We’ll Have Over Time
It’s time to put it to the test. Let’s see how much I would have been able to save in the long run depending on what path I chose to go down.
I decided to run these models out to my full retirement age of 67 (which will happen in 2054), just to see the theoretical maximum we could all save.
ARE YOU READY?
Here’s how much I’ll have if I invest $912.67 every month in the stock market, with an average return of 7%:
Ultimately, I’ll end up with $1,901,832.25.
Here’s how it would have turned out if I chose to be a software engineer:
Actually, we come out pretty close. I’d end up with $2,227,948.76—just $326k more than me as a wildlife biologist.
Let’s see what would have happened if I chose to be a doctor:
A doctor saving only 20% of their income would end up with a mind-blowing $4,709,205.64.
If my sole goal was to be rich, I’d build a time machine and go tell Young Lindsay to get over her aversion of dealing with human fluids.
Just for shits and giggles, I decided to run the model using my current salary of $38,728 per year. I’d have $36,925 after taxes, and if I saved 20% of that I could squirrel away $615.42 per month.
Here’s where I would end up if I never got a pay raise for 38 years:
I’d end up with $1,282,419.28.
Now, I realize I’m glossing over a lot of things.
I’m living proof that you don’t make the median income for your career just starting out of the gate (or even when I’m ready to retire, hopefully). People get raises or pay cuts at different rates. For Federal employees like me, we’re paid according to the whims of the government and who’s in office (*cough cough*).
People can also boost or dial back their saving rate depending on their wants and needs. The stock market doesn’t return 7% every year—you could be hampered or hurt by market conditions in a given year. People also don’t usually keep all of their savings invested in the stock market.
People’s spouses (spousi?) may or may not work, and that throws another big monkey wrench into the equation. People have kids, or weird newborn doll addictions, or no kids at all. FIers are also notorious for figuring out ways to play the tax system to their advantage.
There’s a billion and one ways that these scenarios could play out differently. You could write an entire blog about ways to game the system to retire even earlier (and people have!).
But, if you remove all that clutter, this is the base pattern.
Am I F%$#^d If I Chose A Low-Paying Career?
It seems pretty dire when you compare it with the high-falutin’ high-earners, but in a word, no.
A quick back-of-the-envelope calculation shows that you need 25X your annual income to be able to live off the returns from the investments in your nest egg indefinitely.
A wildlife biologist who wanted to live off of $59,680 per year would need a $1,492,000-nest-egg, and would have it by 2051.
A software engineer who wanted to live off of $100,690 per year would need a $2,517,250-nest-egg, and would have it by 2054.
A doctor who wanted to live off of $187,200 per year would need a $4,680,000-nest-egg, and would also have it by 2054.
Another tenet of FIism is scaling back how much you need to live on, so you don’t need to save up as much. But if we look at how much we’d need to maintain our current living styles, I’d have my fully-stocked nest egg three years sooner as a wildlife biologist.
Of course, on the slip side, if a doctor was able to scale his lifestyle down to that of a wildlife biologist (complete with a $59,680 price tag and all), he’d be able to achieve that much sooner that I would—by 2040, to be exact.
If I’m able to achieve FI three years before typical retirement age in this model by simply saving 20% of my income, then what would happen if I reduced my living expenses even more, and brought home more income? How many years early would I be able to retire?
That’s a spreadsheet for another day…
What Did I Learn From All Of This (Besides How Modeling Investment Returns Is Different From Modeling Wildlife Populations)?
Lesson #1: Accept It: People With Higher Salaries Will Always Have An Advantage
It’s true: they’ll always make more money than you.
There’s no use throwing your hands up at the sky in a fit of rage. You made your choice. It is what it is, and it’s time to either choose to start over in a higher-paying profession, or figure out how to move on and take over the world despite your handicap.
Related: Overcoming Underearning: A Five-Step Plan To A Richer Life by Barbara Stanny
Lesson #2: We Need To Learn How To Be Money Management Badasses
Even though we might not be able to make as much as the big guys, we still have the potential to make big money. $1,901,832.25 ain’t chump change.
I’ve shown you so far that it’ll be possible for me to retire on-time, at age 67.
But maybe I don’t just want to retire on-time. Maybe I want to retire early.
Thus, there’s no two ways about it: we need to become money-management badasses.
If you’re starting off right out of the gate hamstrung with a low income and a huge amount of debt like me, you need to do three things: 1) learn to make more money, 2) get your ass out of debt, and 3) save like the wind.
The good news is these things will turn you into a lean, mean, FI-achieving machine once you’re able to make it out of debt.
People with a high salary might be able to reach FI by accident (on the flip side, if they take out more debt, they could end up worse than us).
But, if someone with a low salary gets to FI, make no mistake about it: it will be no accident.
Related: The Simple Path To Wealth: Your Road Map To Financial Independence And A Rich, Free Life by JL Collins
Lesson #3: You Will Probably Have To Find Another Way To Make Money
The numbers I showed you above were based on the median incomes from each of the professions. When you’re just starting out like me, you will mostly definitely not be making that much money, and you’ll likely be hampered by more debt than any other point in your life, excluding a mortgage.
I brought home $500 a week with my first job out of college. My living expenses were $1,287.43 per week for me and my husband, who is now in school. It just wasn’t adding up; I might as well have been lobbing pebbles at Goliath.
So, I needed to find another way to make money. I started freelance writing and blogging. Zach picked up a job as a Construction intern and a pub trivia host, and now he’s getting ready to launch into the freelance world too. We just need to figure out a way to get our cats involved now.
Lesson #4: Make Damn Sure You’re Happy In Your Career
If you’re going to put yourself at a comparative financial disadvantage by accepting a lower income than what you could otherwise get, you’d better be damn sure you’re happy doing your job.
I’m not a wildlife biologist. In fact, I can’t disclose to you what exactly it is that I do (I could tell you but I’d have to kill you..haha. But no, it’s to avoid a perceived “conflict of interest”). So, I’ll tell you about what I did when I still lived in Alaska.
My first wildlife job involved raising a herd of caribou for a nutrition research project—a bunch of ‘boos which I later worked with for my master’s degree. I flew around the hinterlands of interior Alaska in a small plane and a helicopter, helped collect a bunch of baby caribou from their moms, and brought them back to the research station. Note: in the wild, these calves were quite likely to be eaten alive, as predation rates on newborn caribou can reach 70% or more in these herds.
From there, I helped raise them and train them to be good scientific subjects. They’re somewhere in Canada today working with other international researchers to identify prime areas for Canadian caribou conservation (say that 10 times fast). Woodland caribou in Canada are threatened and declining fast due to habitat loss from agriculture and logging, and they’re using the caribou to identify prime locations and methods for conserving habitat to potentially save the entire subspecies from going extinct.
I’m one of the only people in the history of people ever to do that kind of work. I don’t know too many software engineers who have gotten to do that, and it’s an experience that you can’t buy.
If You’re Still Not Convinced…
Lest you think this is still something you can’t achieve, here’s a list of FI bloggers who are not software engineers or doctors who’ve successfully retired early, or are on track to do so:
Julie at Millennial Boss started out -$89,000 in debt too.
Miss Mazuma is a kick-ass flight attendant.
Gwen at Fiery Millennial works in IT (but is not a software engineer).
Susan at Thrifty Livin is a teacher supporting a household of three people.
Seth at Creating FI makes $55k/year currently.
Jim at Route To Retire is an IT manager.
Joe and Ali at Adventuring Along are two teachers in their thirties who have already retired.
Vicki at Make Smarter Decisions is a retired educator.
Money Wizard has saved up $150,000 so far despite only being 26 years old.
DIYMoneyStuff supports 5 (almost 6) people on a $150,000/year salary.
All of the bloggers in this post.
So…Does This Mean I’m Trying To Reach FI?
As for myself, this was just a thought exercise to see if it’s even possible. And honestly, I think I could do it if I hustled my butt more.
There are a whole host of other factors that’d have to come first, though. I’d need to convince Zach this is a worthy goal. He’s not a personal finance nerd like me, and while he’s totes on board with reducing our expenses, getting out of debt and saving up for our goals, this is a whole new ballgame.
Right now I’m going to focus on getting myself onto stable financial ground by saving up a proper emergency fund and blasting away my debt. Coincidentally, those are the first steps toward FI for someone in my situation.
After that, we’ll see.
Are you reaching for FI? Why or why not? Leave a comment below!