Thinking of quitting your day job and enjoy the YOLO Economy to the max? Let me help you be better prepared before you do. I will share with you five things I should have done before quitting my job so you don't make the same mistakes.
For background, in 2012, I retired early from investment banking. Since then I've been focused on growing Financial Samurai, traveling, and being a parent.
The Early Retirement Lifestyle
For the most part, early retirement has been everything I had hoped for. Being able to wake up whenever I want and do whatever I want is priceless.
I do not miss the terrible commute, the endless meetings, and the office politics. However, despite being retired since 2012, I still do not take my freedom for granted.
No situation is ever perfect. If I could rewind back to when I was 34 years old and looking to leave work, I'd do several things differently to improve my current situation.
Oh, and to be clear, I didn't quit my job. I engineered my layoff and negotiated a severance package. Negotiating a severance package was the best thing I could have ever done before quitting my job because the severance paid for five years worth of normal living expenses.
But enough about the positives. If you're looking to escape the trappings of work, I think it's worth first reading the five things I should have done before quitting.
5 Things I Should Have Done Before Quitting My Job
1) Not quit so young!
I left work at 34 years old. Now that I'm 42 years old, I look back and think how absurdly young that was to retire. Some would say it was irresponsible and reckless given I was entering my peak earning years.
Working until 40 would have given me more time to prepare for my post-work future. I would have lived extremely frugally during these additional years and saved another $500,000+ for retirement. Assuming a 4% annual return, this extra money could, in turn, generate an additional $20,000+ a year in passive income.
If I had stayed at least one more year, I would have tried aggressively to find a new role within the firm and in a different office. If I did, I think my interest in work would have been rejuvenated and I could have worked for at least another three years. Since I grew up and lived overseas for 13 years, it was always a dream of mine to work overseas. However, now I may never get that chance.
Finally, I only came up with the concept of negotiating a severance in November 2011, five months before I ultimately did. Therefore, I made some mistakes like burning valuable vacation days before my departure. Although at the time I thought I was being very methodical, today I realize I rushed my departure.
Quitting my job cost me $2 million from 2012 until 2021. If I stayed at my job, I would have been a 401(k) millionaire by 2017 at age 40!
2) Tried to have children while working.
One of my biggest regrets was waiting until 37 to try having children. My wife was 34 at the time and had just negotiated her severance.
We waited so long mainly because I was overly focused on my career. I rationalized that I couldn't be a dad without first saving at least a million dollars. I also felt that having children would interfere with my early retirement goal. Further, having children is expensive. If I wanted to raise them in an expensive city like San Francisco, each child could easily boost our expenses by $30,000 – $50,000 a year.
Thus, plans for having children were delayed.
In retrospect, I would have preferred to be a first-time dad in my early 30s rather than at 39 years old. Yes, I wouldn't have been able to spend as much time with him as I do now since I'd be thick into work. But being able to spend a greater percentage of my overall life with him would be priceless. Now I just hope I can live long enough to see him grow up and become an independent adult.
Having our son while I was still working would have likely made me better appreciate work and all of its benefits more. For example, my wife could have taken three months of paid maternity leave. I could have taken one month of paid paternity leave as well.
Instead, we not only missed out on tens of thousands of dollars of parental leave compensation, but we also had to pay over $1,700 a month in healthcare premiums ourselves.
Lots Of Lost Benefits
We now have two children because we had a daughter at the end of 2019. Our health care premiums now cost $2,380 a month and neither of us still have jobs.
My wife also insists we continue to spend $9,000 – $10,000 a month on a night doula after four months of spending $9,000 – $10,000 a month! This combination of losing money in the stock market and spending more on child care is really difficult to handle.
If we both had jobs, we'd both have paid paternity leave during the lockdown. Getting paid three months of full salary to take care of our baby would have been amazing! We'd also get subsidized health care and not have to pay so much for a night doula because we'd both have more time and energy.
Quitting my job cost us over $100,000 in healthcare benefits. Therefore, please consider having your child while working. Take advantage of paid parental leave, then negotiate a severance if you don't want to go back.
3) Worked on my side hustles sooner.
After the stock market started melting down in 2008, I realized that no matter how well I performed, I would no longer get paid or continue to be promoted at my former pace. Instead, my career would stagnate and I'd actually get paid less because the industry was in a structural decline.
Up until 2008, the good times had made me too lazy to start my side hustle, Financial Samurai. If I had started Financial Samurai in 2006 when I first came up with the idea, I probably would have felt much more confident than I did in 2012 when I left work. The site would have been larger and I would have been more certain about what I wanted to do after work.
With greater financial certainty, more confidence, and a clearer purpose, I probably would have had the guts to try having children sooner as well. However, the desire for money and the reality of living in an expensive city became all-consuming.
I'm thankful that I finally did start Financial Samurai in July 2009, at the bottom of the previous financial crisis. Financial Samurai has given me something to do every day. It also generates enough online income to provide for our living expenses.
If the lockdowns of 2020 have shown anything, it's that starting a business that cannot be shut down is a very valuable asset. Lear how to start your own website today in just 30 minutes with my step-by-step tutorial.
4) Should have invested more aggressively in 2012.
Because I was so focused on engineering my layoff in 2012, the last thing on my mind was leveraging up to buy more property or more stocks. In fact, I tried to sell my primary residence in 2012 but couldn't because the market was so soft. Thank goodness! I sold the property in 2017 for $1 million more.
If I had planned on working until 40 years old, I would have had the financial confidence to buy real estate at close to the bottom of the existing cycle. A $900K San Francisco rental property I would have bought in 2012 would today be worth roughly $1.6 million today. Quitting my job caused me to lose out on at least $500,000 in investment gains.
The S&P 500 is up over 120% since early 2012. If I had continued working through the bull market, I probably would have made more than $250,000 in returns based on my existing investment cadence at the time.
Retiring early made me excessively risk-averse and I paid the price.
New Investments Today
I'm trying to make up for my mistakes by aggressively investing in the stock market during the 1Q2020 sell-off. I've invested over $500,000 so far and I'm now looking for new real estate to buy.
One of the easiest ways to invest in real estate is through Fundrise and CrowdStreet. These are my favorite real estate crowdfunding platforms that allow you to invest in a diversified eREIT or specific commercial real estate investments in 18-hour cities where growth is faster and valuations are much cheaper. Both are free to sign up and explore.
I have personally invested $810,000 in real estate crowdfunding to diversify. See my investment dashboard below with cumulate returns.
5) Didn't fully capitalize on my position as an early retiree.
Despite being one of the modern day pioneers of the Financial Independent Retire Early (FIRE) movement since 2009, Financial Samurai is often left out of the mainstream conversation because I write about so many other topics in addition to early retirement.
If I was able to capitalize on being one of the FIRE pioneers, I would have received many more link backs to the site and much more traffic. With more traffic would come more revenue and more opportunities to do new things.
I was too focused on stealth wealth and the joy being a nobody. Instead, I should have done more self-promotion to grow Financial Samurai. It's just not part of personality to constantly market myself to others. The main reason why I like to blog is because I'm not selling anything and all my writing is free. People can come and go as they please. It doesn't matter to me.
BONUS! Refinance Your Mortgage Before Quitting
Once you quit your job, you become dead to banks. If you own a home, definitely try and refinance your mortgage before quitting. If you don't, it's impossible to take advantage of lower rates without at least two years of high-enough 1099 freelance income.
In addition to negotiating a severance, the other thing I did do right was refinance my primary mortgage before quitting. I tried to refinance again several years after quitting and got denied!
To get the best mortgage rates, check out Credible. They have pre-vetted, qualified lenders who will compete for your business. Mortgage rates are at all-time lows, so it's time to take advantage.
Think Twice Before Quitting Your Job
Quitting your job is a scary move. I always recommend trying to negotiate a severance first. If you fail, that's fine since you were going to quit anyway. But if you successfully negotiate a severance, not only can you get great unemployment benefits, you can also get a nice severance check that buys you time before going off on your new adventure!
You might discover after quitting work that you love your life so much that you never want to return to the grind. I haven't gone back to the corporate world since 2012 and don't intend to. Instead, I plan to continue living free for the rest of my life.
During bad times, I'll simply cut my expenses. If necessary, I'll draw from principal. And if absolutely necessary, I'll look for part-time consulting work. But for now, my main focus is writing on Financial Samurai and taking care of my kids.
Good luck everyone! If you want to quit your job you should try and negotiate a severance instead.
Please check out, How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye. The book is in its 5th edition and is packed with ways in which you can negotiate a severance and be free.
My wife was a high-performing employee and was able to negotiate a severance as well. Together, we both felt like we won the lottery leaving jobs we no longer enjoyed. Now we are full-time parents and really appreciate our freedom!