A lot of personal finance writers talk about FIRE, or the Financial Independence Retire Early movement. I get it. There is a LOT of appeal to building your financial reserves to the point where your passive investment income makes more than your expenses, allowing you to retire early. It’s a great goal, and who doesn’t want more time…the one thing you really can’t get back.

Because of the wonder of compound interest with investments, a fairly reasonable outlook if you are pursuing this path would be to look for the highest income, lowest risk opportunity in the near-term to maximize your net worth within the decade, stick it all in income generating investments, and try and retire as soon as possible living off your investment returns. There is a lot of downside from not having a job / stable income for even a year, so best to avoid that if possible. It makes sense, and follows good financial logic.

However, as someone in my mid-20s, going through my entire career in pursuit of retirement just doesn’t sit well with me. Seems kind of depressing, right?

How to sell time

Instead of focusing so much on retirement, I’d rather concentrate on how I am investing my time, develop valuable skills, and pursue a few long-shot ventures / side-hustles that may give me more control about my time investment in the future. As a caveat, I try and optimize a lot of additional things when planning my career (impact, happiness, interest, etc.), but for now let’s just look at time and income.

My dad often tells me that if my job is ‘selling time’ I will always feel trapped in a cycle of work. I *think* he means that if your income is based on how much time you put in, you’ll always feel like the only way to make more is to work more. I haven’t quite figured out how to avoid this short of living purely off investment income, however, I have taken this to mean that I should think a lot about how I can better invest my time to both increase the value of my time and my control over how / when it is spent. I’ll walk you through how I think about career planning as a result:

For your first job, put yourself on that middle line (baseline). You may have limited flexibility in how much you work, you probably have no investments that are generating income for you (maybe you have lots of debt instead), and 1 additional hour of work translates into 1 additional unit of income (maybe you are paid hourly).

Optimizing your time-income ratio

Pure FIRE: Increase passive income so your investments make money even when you aren’t working

This is often the one that people focus on in financial independence writing, and it has the potential to be your greatest source of income. At the end of the day, this comes down to making more than you spend and smartly investing your money. One thing to be aware of is that not all investments are truly passive. Rental income from houses has been an extremely popular way to achieve financial independence early (especially in economic environment after the ’08 recession), however, being a landlord is by no means a walk in the park.

My primary strategy here is that despite increases in my income, I have maintained or even lowered my level of expenses, allowing me to quickly add to my portfolio. Check out my post on expense tracking for strategies on how I have kept my expenses at a reasonable level.

For many people, your 20s / early 30s are your peak time to build wealth / pay down debt. You have tons of energy to generate income, you are used to living like a college kid so you can keep your expenses low, and (for most people) you don’t have that many dependents, so you can really save (or aggressively pay down student debt). Once you get older, it becomes harder to keep your expenses down (you have kids / bougier friends). Not to mention the higher value of savings in your 20s vs. 40s due to compound interest.

Another reason this strategy is so valuable is that your long-term capital gains / dividends are taxed at a lower rate than your income from your primary job (15% LT capital gains / dividend tax rate up to ~$470K of income vs. up to an ~40% marginal tax rate for that much W-2 income).

Let’s look at an example of why this matters (play around with NerdWallet’s free calculator):

In both scenarios, this person has $100K of pre-tax income, but there is a $4K difference in taxes depending on the makeup of that income. That is $4K in after-tax savings or ~5% of their after-tax salary just from changing the composition of their income.

Pretty great incentive to try and maximize your investment income. Not to mention if you set up your investing system to be fully passive, your investment income can make increasing amounts of money for you without additional work on your part. This can quickly become a meaningful part of your income. Let’s look at another example to illustrate how quickly these returns can compound.

Related post on how I invest: Automating Your Investing

In this example, you would start to add more to your portfolio annually from capital gains in your investment income than from your job by age 44. And even if you start liquidating your capital gains (I am making a simplistic assumption that you have no dividends in your investment growth), you would be paying a lower tax rate than on your income from your job, so your investment income could overtake your W-2 income by age ~50. This scenario also assumes your salary grows at 5% / year. If that growth levels off over time, your investment income will actually become a larger portion of your income even sooner.

Point being, this is an attractive pillar of creating a healthy financial system. Let’s go on to the next one.

Career improvement: Increase the value of the time you do invest by working hard, taking risks, making sure you are being compensated fairly, and pursuing side hustles

Before you have had had many years to develop your investment portfolio, your income from your primary job is likely your main source of income (e.g., in your 20s-30s). As a result, there is really no substitute for pushing yourself to perform as well as you can and grabbing those early promotions / build out those side hustles. You’ll probably find yourself enjoying your career more as a result.

Risk taking

Similar to an investment portfolio, there is a place for taking risks in your career. These can come in many forms: Starting your own company, switching industries, etc. If you are trying to decide whether to give up your income, don’t forget to factor in the opportunity cost of both the income you could be getting as well as the compounded effects of those savings over the years.

While that may sound like an insurmountable barrier, I really don’t think it is. Couple reasons – If you are early in your career, the value of the skills you develop regardless of the outcome of your risk (e.g., starting your own company) can help meaningfully accelerate your career in that field. For example, if you start a company that is not a slam dunk success in the insure-tech space and then go join an insurance company, odds are you will be able to come in at a higher level and do better than if you hadn’t.

As you get farther into your career, the pros and cons don’t change, however, you will want to be more certain of the range of outcomes of the risk and have more certainty about how you could leverage the skills you are getting in future endeavors. For example, if you leave your stable job to start your own company later in your career, you will likely have higher odds of success due to the network / experiences you have, but would have less time to utilize those skills if your venture doesn’t succeed (and may have dependents and cash flow obligations making this a harder decision to justify).

This decision isn’t unique to those looking to start their own company; it also comes up when you are thinking about switching careers. While it is usually more comforting to stay in the same industry / with the same company, depending on your long-term goals, there can be major benefits to switching industries and giving yourself a more differentiated set of experiences.

Fair compensation

Social media has made the world a much more transparent place, and that is true with compensation practices as much as anything else (e.g., Glassdoor / Fishbowl). Keep tabs on your own market value every few years (check social media, ask friends, maybe even check job openings for your level) to make sure you are being compensated reasonably for your skills. If you don’t think you are, figure out why and see if there is room to negotiate. Many firms are hiring aggressively at the moment as things reopen and your market value is probably higher than you think. As a caveat, there is often more value to staying at your current workplace because of your network / promotion cycle, so I would only act on this if there is a significant discrepancy.

Time flexibility: Increase the amount of flexibility you have over the time you invest

For most jobs (especially at the most junior level), you probably have limited flexibility on the lower end with how much time you invest. However, as you are career planning for the future, think of how you can claw this flexibility back over the years. Whether it is starting a side hustle where you decide how many clients to take on at any point in time / how much to invest, finding a workplace that has more flexibility built in (allows you to work at 80% time or take sabbaticals), working out a permanent ‘remote work’ agreement, etc.. There are many ways to increase your ownership over your time and being the decision maker over how / when you invest it is very freeing (or so I am told haha).

Side hustles

These are usually low-risk ways to start earning incremental income where you have a lot of flexibility in when / how you invest. Work the gig economy (check out the blog Financial Panther for ideas), start a side business, start a blog (taking my own advice here) / YouTube channel, etc. Depending on which you decide to pursue, your odds of major success could be low, but you’ll learn from the attempt, you can start to gain incremental income, and you will probably enjoy the process. These are usually very low risk as they can be purely incremental to your existing job. I would focus on side-hustles that can complement things you are doing (e.g., help your primary career / mesh with your existing lifestyle) or that just give you energy regardless of if it gets monetized (e.g., me and blogging).

How have you thought through major career planning decisions from a time perspective? Comment your stories below!

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