My ultimate financial goal is to be financially independent in 5 years – I’m building multiple income streams for the future and am looking to leave my 9 to 5 and fully scratch the entrepreneurial itch. Until then, I will continue to slave away at a 9 to 5, accumulating assets and spending my free time on my side hustles. One thought has crossed my mind however: what if I found a job that I loved, but paid less? Would switching jobs be worth it if my goals are dependent on a high income? In this post, I’ll share with you my thoughts on taking a pay cut before reaching financial independence.
My Current Job Situation
Currently, I’m working as a statistician at a large regional bank. In late June, I received a promotion and with it came a 16% raise. My total cash compensation (salary + bonus) is roughly $97,000 per year. In my department, I’m the youngest person, and the least experience, so there is definitely room to grow to a total cash compensation of $120 to $150k in the next 3-5 years. Financially speaking, I’m doing very well for 25 and there’s a lot of potential to grow and learn.
Here’s the thing: I loathe going to this job.
For the past 2 weeks, I’ve woken up and laid in bed for 15-30 minutes, hit the snooze button repeatedly, and then finally stumbling out of bed before rushing to shower up and get dressed. I get to work, and all I think about is my side hustles and what I plan on doing after I leave at 5 PM.
More Details on My Job
My job as a statistician includes manipulating data, ensuring it is clean and easily to work with, analyzing the data to develop intuition around the trends of the bank’s commercial portfolio, and then ultimately building predictive default models to estimate a portfolio level probability of default. Then, once complete, I produce a 150 page document for model validation and the regulators to scrutinize and question.
I enjoy some of these tasks: the modeling is interesting and I love programming. If I could wake up every day and only work on coding, I’d be very happy. My current job is about 40% coding and 60% other stuff. The documentation piece is what kills me – while documentation is important, I’m sick of getting raked over the coals over insignificant details by these reviewing bodies. (Side note: the regulatory and compliance activities in the banking industry are absurd. I built a model and there are 4-6 people who review my work – does this sound a little backwards?)
It’s Okay but Could be Better
With exciting things going on outside of work, I’m trying my best to stay excited at my 9 to 5, but it’s very difficult to care about some of the things we talk about. I just don’t care on certain topics, and my boss is quick to tell me that these are critical pieces to the process and I need to take extra care on these topics. In terms of work/life balance, it’s usually a 40-45 hour a week job and I love that, but I feel my time could be better spent elsewhere.
Why Waste Time Doing Something You Don’t Like?
One of the primary motivations for financial independence is to get to a level financially where you don’t need to put up with the horrible and incompetent middle management of Corporate America. That being said, the steps needed to get there involves putting up with those middle managers and putting on a good face each and every day to make sure they think you are a solid employee.
The accumulation phase of financial independence is so critical, that having a higher income while in your young twenties will set you up for great success down the road. For example, take Gwen, who blogs over at Fiery Millennials. She has been earning over $60k for the past 4 years and already has $100k in her 401k at 26 years old. That’s unbelievable and unheard of for someone in their mid-twenties. Now, she is working on her real estate empire and seeing the benefits of accumulating so much, so early.
The Importance of the Accumulation Phase
To display the importance of the accumulation phase, consider the following example. For simplicity’s sake, let’s say I’m 25 and I invest a one time balance of $10,000 in the market and the market earns 7% a year. Let’s say my friend is 35 and invests a one time balance of $10,000 as well the same year. Let’s see the result when we both are 60 years old:
The extra 10 years of investing results in nearly double the balance after 35 years. Can you believe that? It’s the power of compounding and displays the importance of starting early. The example above was a huge simplification, but if we think for a second abut investing $10,000 every year in your twenties, you can just imagine how large the balance will be after 35 years!
Balancing Finances and Happiness
At a certain point though, shouldn’t we try to balance current happiness and long term happiness? Why put up with misery in the short term if you could be doing something similar and enjoying it – while still continuing to reach your goals?
I’ve been pondering these thoughts lately, and have started looking around at other jobs. I’ve interviewed at a few places, and want to get your opinion on my search. First, let me give some context on the current job I’m looking at.
My First Corporate Job Search
When I was still in school, doing my Master’s degree, I started searching during the first semester of my final year. I interviewed at a few places, and one of them got me very excited: a portfolio analyst for an asset management firm. This asset management firm has billions of assets under management and are one of the key players in the mutual fund management world. While I’d never invest in these mutual funds, because of the 1-1.5% fees, I’d definitely work for them because 1% on a few billion isn’t a bad payday for the firm and the portfolio managers 🙂
I interviewed with them in mid-December and was pleased with how it went. Then Christmas and New Year’s came and I hadn’t heard anything from them. I kept interviewing and received a job offer from the bank I’m working at now. Being young, naive, and a little trigger happy, I accepted the offer on the spot. $63k and a 8% bonus? That’s quite a bit for a 22 year old who had never made over $16 an hour before!
The next day, I received a call from the asset management firm and they were making an offer for $55k and a $10k bonus. Again, being young and naive, I said, “hey, I’ve already accepted another offer, thank you but no thank you”, when I should have negotiated with both firms and figured out the best result.
I’m kicking myself now for my actions, but it’s okay. I’ve done well in my current work in terms of career progression, but think I’d be doing very well at the asset management firm. This story is relevant for my current job search.
My Current Job Search
As mentioned above, I’m currently looking for different jobs. I’ve stayed in touch with some of my friends who work at the asset management firm and found out the same team is hiring for the same position. Given the tremendous opportunity, I submitted my job application and waited.
The job is more at an entry level, than a senior analyst level – I might be a little over-qualified, but I’m still young, and flexible and eager to learn and grow in a position.
I received an email from the hiring team to chat. Since I had already received an offer from them in the past, it didn’t seem the hiring managers needed to interview me and wanted to have more of a casual chat.
Meeting with the Hiring Team over Coffee
I met with the hiring managers and we discussed the role and the possibility of me coming to work with them. They were trying to sell the firm and the role, and I assured them they didn’t need to do that – I think this would be a tremendous and awesome opportunity. They were concerned with my current compensation and didn’t know if I would be happy coming to work with them, especially if I had to take a pay cut. After our meeting, they said they would work on the compensation piece with their managers and HR and would get back to me.
I haven’t heard back from them yet, but think it would be reasonable to take a salary in the $70k range, with total cash compensation around $80k. That being said, I would have to re-allocate my time to pursue the Certified Financial Analyst (CFA) certification, which I’m not too enthused about.
All in all, I left the coffee meeting with positive vibes, and I’m excited to hear back from them.
Pros and Cons of this New Job
The pros of working with the asset management firm include a tremendous learning opportunity, a potential for a large (150-250k) salary in 5-7 years, and a fun and intense environment. The cons include a reduction in free time to pursue side hustles,
Given that I value my time so much, I’m a little worried about giving it up to study for the CFA, and to essentially give up some chances to leave the work force in the next few years.
That being said, I think it would be an awesome opportunity and as mentioned, if I really enjoy it, in 5-7 years, I’d be crushing it salary wise. I love choices and possibilities, but also realize I only have 1 life and the decisions of today affect my future.
Would You Take A Pay Cut Before Reaching Financial Independence?
Here’s where it gets tricky: if I were to take this job, and take a pay cut, how does this affect my goals? Would I be comfortable potentially giving up my side hustles? Since the accumulation phase is so critical, would a pay cut bring harm to my financial future? I’m throwing these questions around, but don’t have the answers.
I love this blog because I can reach out to my readers and get their opinion on these sorts of things. I’m don’t really know where to go, because I feel that there are plenty of good options that I won’t regret doing when I look back in the future.
I don’t think I’ll ever stop working, but the content of my work needs to change. I’m not sure where to go, so any advice or pointers are welcome 🙂 I’m trying to figure out life and how to best go about it. Life is great, but it can always be better!
Readers: would you leave work and take a pay cut for more enjoyable work before reaching financial independence? When you look back on the accumulation phase, do you feel a higher income would have helped you? Once reaching financial independence, would you take a lower paying job if it made you extremely happy?
Thank you for reading.