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. What we want is to sleep well, and to actually make money while we sleep. The bittersweet feelings of quitting a job 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, I’ll share 3 steps toward making the leap from your 9-5 through real estate investing so you can spend less time behind a desk and more time doing things you love.
Why Leave Your Job
Unlike generations prior, it's rare for anyone these days to remain with a single company or
industry throughout their career. There's a massive work-from-home, remote position, freelancer, and slight business shift happening simultaneously.
Many professionals (you included) want to take the leap. They are aware of the freedom they desire but feel the guilt and fear associated with abandoning a career path, reducing their income, and still being able to afford a life they love. Whether it be the need to support a family, or just the high cost of living, the fear is legitimate.
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 I'm 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 toward quitting your full-time job with
confidence in 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.
This 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.
As an example, let's say 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 is how much you need to establish in
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 streams of income that will equal that total.
Some ways to generate passive income include writing a book, creating online courses, or
designing products to sell online. Perhaps the most straightforward one that requires much less time and effort is real estate investing.
More people become millionaires through investing in real estate than through any other path?
This is due to the cash flow, appreciation, principal pay-down (by your tenants), and incredible tax advantages.
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.
So, as an example, you could invest $100,000 and earn about $9,000 in passive income per
year while doing very little work. The wealth begins to pick up after, say, a three-year hold, when the asset is refinanced and your capital is returned. You can now redeploy that capital into another investment, and your holdings just multiplied. This is similar to the Brrrr (buy, renovate, rent, refi, repeat) method in single-family real estate.
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 personal 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 income stream, it's gratifying to track your progress and see the
e passive income numbers increase over time. Whether you're an excel nerd or not, you'll want to establish a method so you can 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. According to 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 thing to worry about.
Each additional passive income stream you add covers another current living expense and acts as one more tile to your freedom number mosaic. One day soon, you'll reach the tipping point
where you will feel comfortable reducing your work hours or quitting your job altogether without
experiencing an actual reduction in income.
Recap
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. However, the most significant thing to remember 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
wanting to build passive income, following the three steps above will help you make the financial assurance you need to quit your job with confidence.