We’d all like to work in a job we enjoy. So why is it that so many highly qualified people find themselves chained to a desk from 9-5 in a job they despise? Often with little time to spend on the things they really care about. Whether you’re a student or a graduate, financial freedom could be the answer to avoiding such a fate. Read on to discover how it could be the best habit you start this year.
What is financial freedom?
Financial freedom means many things to many people, but I see financial freedom as having the ability to choose how to spend your time without money being the main consideration. This freedom is achieved by spending less money than you earn and using the difference to build up savings, providing a safety net and giving you the ability to take risks. A bonus is that being content with a more modest lifestyle also means that you aren’t potentially unnecessarily turning down jobs that you may enjoy just because of the salary. You gain a small amount of financial freedom as soon as you have saved up one month’s expenses and a great deal more when you have saved up several years’.
This freedom allows for you to strive for whichever career path you find most fulfilling rather than feeling pressured to choose the job with the highest salary. Financial freedom is all about having options to find a career you love. It gives you the option to take risks, to start your own business, to work part-time, to not take the first job which comes your way. It certainly doesn’t mean you shouldn’t aim for highly paid jobs, it just means that you have a wider range of career options available to you. In fact because you’re able to take more risks I would argue that you’re more likely to progress faster and thus earn more money if that’s what motivates you.
If you won the lottery would you still turn up to work?
The answer for most people is a resounding no! Having savings and financial freedom means being able to afford to work less, take career breaks or find a job you are passionate about.
Getting in to the mindset of spending less than you earn does two things:
- It means that you’re able to build up savings as a safety net should you lose your job or want to invest in yourself, take a career break or maybe put a deposit down on a house.
- Because your expenses become lower (and thus require less income,) you open up the possibility of unusual career moves such as: founding a startup (and earning very little for some time), working in a job you may find more satisfying but is perhaps lower paid, taking a career break to go travelling or pursue turning a hobby into a profession.
Many people dislike their jobs but don’t leave
It’s saddening to see bright friends in their 20s or early 30s who don’t enjoy their careers but are not trying to improve their situation or don’t feel able to. It’s easy to fall into the mindset that working in a job you dislike is a fact of life that’s necessary to pay the bills. For many, no matter how much they may hate the work, the idea of quitting a job (and especially a highly paid one) is not simple if you’re used to the lifestyle it affords you.
Don’t get me wrong, there is nothing wrong with enjoying the money you earn through your career, yet justifying being miserable at your desk for 40, 50 or more hours a week for 45 years by saying it pays for your lifestyle makes little sense in my opinion. If you feel I’ve got this wrong by all means let me know! The point being, if someone simply spent 95% of their income instead of 100% (or worse, more than they earn) it would give them a lot more power to change careers. Even if you love your job and aren’t looking to leave, what’s to say things won’t turn sour? I’m yet to hear a compelling reason to not start saving to build up a safety net.
Financial freedom gives you the power to not feel constrained by your current job and find one you love. It gives you the power to switch positions and even careers without the worry of not being able to afford it.
Allowing risky or unusual career moves
Perhaps you’re very happy with the career you’re in, but many of us feel a yearning to try something new which may be down an unconventional path.
Examples may include:
- Founding your own company
- Completely changing careers (and requiring a period at lower pay)
- Moving to part time hours and exploring other passions or making money from a hobby
- Charity / non-profit, community project or similar socially conscious work
Many people may not even consider these types of career changes because they won’t immediately provide the necessary income to match their spending habits. Having some savings means you can take these unusual moves which are off limits to people with too much financial pressure.
Arguably you can start a company and try making money from a hobby whilst still employed full-time, but at some point you need to take the leap and having savings provides this freedom.
“The fact that [you’re highly qualified] is exactly why you can afford to try to start something now, not a reason why you have to take the most prestigious job you can get“
Matt Clifford – Don’t be a badge collector
An article well worth reading is this piece by Matt Clifford of Entrepreneur First. It lays out why high achievers shouldn’t be put off taking risks. Although not explicitly stated in the post it does infer the need for financial support to keep you sustained.
How much should you save?
The amount you need to save depends on your current situation and aspirations. Generally the more you’re able to get into the saving mindset the more options it opens up.
For example if you’re currently in debt or living paycheck to paycheck, it probably means you’re under some pressure to stay in your current job – even if you don’t enjoy it. At best you could only consider moving to a subset of other positions with start dates which align perfectly with your notice period and that pay the same (or better) as what you currently earn.
A study by YouGov and Shelter found that a third of UK households have no savings and are one paycheck from homelessness. It’s easy to see how someone in this situation could feel trapped in their current job. If this is currently you, be aware that earning more money may help but won’t necessarily get you out of the situation. Many high earners still live the same way and would be equally screwed if payday was delayed. I find this crazy. Likewise even winning the lottery probably won’t help long-term unless you’re savvy. Essentially savings are important regardless of the size of your pay packet. For many people having one month’s living expenses saved up would be a great starting point.
Notice how quickly you buy yourself career freedom with just a small amount of savings:
Now considering the career moves we’ve discussed above, saving could help as follows:
- For companies who offer the option to buy extra annual leave (which is common in corporate jobs), having a small amount of savings could allow you to purchase some leave to research career options, apply for jobs, go to conferences or attend interviews;
- Pay for training or courses to help you in your new career;
- If you’re considering switching industries to a job which may be lower paid than your current one. Rather than having a certain amount saved up for this scenario, I’d instead suggest that by virtue of having built up savings you’ll have lowered your expenses which means you can consider lower paid jobs;
- Provide a period to quit your job and not seek immediate reemployment either as a runway for starting a company, or to take a temporary career break. This one of course requires more savings!
Currently a student? Be sure to consider more than just the salary associated with roles you’ll be applying for after graduation. As covered elsewhere, due to taxes and student loan repayments, there may not be as much of a difference between salaries as first appears so please don’t overlook jobs you may find more fulfilling just because they don’t immediately pay quite so well. Several people I’ve worked with during my PhD have now graduated to go off and work corporate jobs for which they stated salary as the number one reason. There is nothing intrinsically wrong with going for these jobs, and many people do find them very satisfying, but I’d suggest considering more than just the salary when looking at jobs, especially for highly qualified and ambitious individuals.
Finally, worth a mention is the most extreme version of financial freedom which occupies the far right of the above graph: financial independence which is often branded as FIRE (Financial Independence Retire Early). The aim for these people is to save up a large enough sum of money to permanently live off the interest and never work again. A ballpark figure for the amount required is 25 times your outgoings which for me would be something like £250,000. Although this is much lower than you might expect, it is of course a somewhat unrealistic goal for the majority of the population. Saving one month’s expenses on the other hand should be achievable for most and from there you can start to grow your funds.
I’m sure we all know someone who wants to aim for a high paying job with the goal of earning loads then quitting after a few years. Indeed this is how some in the FIRE community have achieved their success. Yet most people working highly paid jobs don’t actually leave these jobs in their 30s and instead inflate their outgoings to match their income. Not only does this mean making no headway to living the idyllic life they have in mind, but it puts them in an undeniably worse situation because now you’re dependent on the high salary no matter how much you dislike the job.
Personal finance habits
In my experience speaking to friends who work full-time it seems there are two camps of people when it comes to personal finances:
- Person A: Living month to month desperate for pay day to come around with no long term budgeting;
- Person B: Comfortably saving money and working towards saving goals. They’ll typically put away hundreds of pounds a month if not more.
Do you recognise yourself in either of these? From what I’ve seen there are very few people in-between these distinct camps. This suggests to me it’s less to do with actually being able to afford to save, and more the mindset.
Getting in the saving mindset
The main argument I see against saving money is that it’s boring and that people have earned their money so why shouldn’t they enjoy it? These points are easily addressed:
- Saving money doesn’t have to deprive yourself of enjoyment and happiness in the slightest. This piece by the fantastic MrMoneyMustache illustrates it perfectly. I get a lot of joy from being thrifty and it goes hand in hand with living a more sustainable lifestyle. This in fact actually means that I feel able to spend more than most people likely do on recurring donations to charities I care about.
- I’ll repeat what I said earlier: If you won the lottery would you still turn up to work? The answer for most people is no! Having savings means being able to afford to work less, take career breaks or find a job you actually like. In comparison staying in a job you dislike does sound boring.
Essentially taking ownership of your finances is empowering. There is the constant temptation to spend money everywhere you look and it is an amazing feeling to build the self control to save money every month. Once you start seeing the amount in your savings increasing every month it actually becomes fun and really quite addictive.
My own future plans
Financial freedom doesn’t need to mean sitting on the beach doing nothing. To me it means career choices not being driven by salary. I personally want to find a career I don’t feel the need to escape from whilst also providing scope to pursue other passions at the same time.
After my PhD I plan to go travelling. This seems like an obvious time to take such a break and I’m not getting any younger. No doubt some of this time will in fact consist of me sitting on the beach but it also means I can pursue other passions. Including spending more time on this blog! Thankfully I can afford to do this and I’d suggest that many people can with a bit of forethought.
After my travels I’m looking to either work in academia or some kind of non-profit: I’m not expecting to be earning megabucks, thus saving now while I’m able to means keeping as many options open as possible.
How much I saved in 2019
I’m happy to say that I saved over £10,000 in 2019 with my PhD stipend as my largest source of income. You can find more details on the breakdown here. I’ve also previously written abut my monthly expenses with tips on how you could potentially cut your costs.
How to start saving
If you’re not already putting away any money each month, it’s never too late to start. As mentioned, even if you currently enjoy your job, it’s sensible to have a safety net just in case. And if you don’t enjoy your job, this could be the trick to quitting and find a job you do love.
Without a sensible goal, it can difficult to get started. Just like with diets you’ll sometimes find people setting unachievable goals then binning the whole idea at the first bump in the road. Building up a habit by saving little and often is much more effective. Start with a small amount you feel comfortable with and that you won’t immediately notice: how about £10 a week? If you have the self control to not spend that money during the month you’re already well ahead. Manage to keep it up and you’ll have saved over £500 throughout the year!
Success is addictive, you’ll soon find yourself setting larger goals which are now achievable with your new found habit. I’ve found it can quickly become a rewarding game to find new ways to save money. For example I have a Jack Wolfskin jacket I picked up from a charity shop for under £10 and you can be sure I feel better about it than if I’d spent the RRP!
My top tips for working towards financial freedom:
- Pay yourself first – Set up an automated direct debit to move money from your current account to a savings account straight after payday. This removes the temptation to spend it. Linked savings account provide a good safety net, after which LISAs are a fantastic option providing a 25% boost in your savings.
- Start small – It’s much better to create a positive habit you can stick with than set lofty goals which crash and burn. If you manage to save £10 a month you’re well on your way.
- Cook your own meals – It is crazy how quickly you can save money compared to regularly eating out. Make big portions of food to make dinners and lunches at the same time.
- Don’t inflate your lifestyle in line with your earnings – As you earn more your lifestyle and outgoings will typically inflate to match it. A common suggestion is that if you get a promotion, consider putting half of your new earnings in to a savings account. You’ll see a pay increase whilst also saving for your future.
- Still go out and enjoy yourself!
You can also read my related post: How to Save Money as a Student: Smart Strategies to Stay Financially Secure.
Financial freedom puts you back in charge of your future with the power to invest in yourself.
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