pay cut before reaching financial independence

Would You Take A Pay Cut Before Reaching Financial Independence?

Erik Basics, Financial Education, Thoughts of a Mastermind 20 Comments

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 Situationpay cut before reaching financial independence

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:

importance of accumulation phase chart

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 πŸ™‚

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 πŸ™‚ 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.






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Comments 20

  1. Sounds like you have a nice setup at your current job compensation wise, but if you hate it then there’s no point continuing it. That being said, I’m generally more concerned with the hours required for the job. If you could truly make $250K in 5-7 years, then it might be worth the extra work. As your salary increases, simply put more into investments and they become your side hustle of sorts. I’d run some scenarios to figure out the long-term impact of the choice financially, then weigh that against the emotional side of having a new job you potentially like better. Best of luck!

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      Thanks Lance for your comment.

      Life is all about decisions and the impact of those choices. I completely agree with you regarding the salary and investment side of things. I’m loving life right now outside of the 9 to 5, but if my 9 to 5 becomes a 7 to 6, then is it worth it?

      Have a good one πŸ™‚

  2. Oooh, I can see how this is a tough call. Honestly, I think it’d be worth taking a hard look at the new job that pays less. It may not be the right call, but here are some thoughts:

    1) You spend 40-60 hours/week at your job… why be miserable for a few extra bucks (or even $17k/yr)? It’s a huge chunk of your time to spend being unhappy!

    2) If you enjoy your job, you will be more likely to put more effort in, leading to pay increases, promotions, etc.

    3) One of the benefits of FI is not needing to do what makes you miserable. Since you are not FI yet, I’d take an extra year or two of work that I love (and might stick with post-FI!) vs. spend 5-10 years in a job that takes a toll on my mental health (and subsequently, my physical/emotional/etc health)

    Basically, I have seen that if someone is happy in their career, they are more likely to be energized in the mornings, evenings and weekends to embrace creativity and pursue other passions (hobbies, side hustles, etc). But if someone is constantly downcast and counting the minutes to the weekend, they are not as productive in “off hours” either due to the overall stress and frustration in life or due to exhaustion in general.

    So, I’m leaning towards taking the job you enjoy, but definitely weigh the pros and cons to do what is best for you and your situation! And once you make the decision, go all in and don’t look back or tempt yourself to regret it πŸ™‚

    Good luck!

  3. I took a substantial pay cut for my most recent job. I knew it would give me my early mornings and nights back and that is what made it worth it for me. I would have been FI in 3 yrs if I stayed at the old job most likely. Or I would have had a heart attack from stress at 30. That being said, I had already jumped around a few times so I got my salary and comp up to a point that a haircut is no biggie. I think jumping jobs in your twenties is great but also don’t jump at the first opportunity either.

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      Hey MB. Getting to a level where your side hustles allow you to fall back to something with less stress is great. I’m going to be patient, but also be open to a great opportunity!

  4. Life’s too short to do shit you don’t like. If you’re miserable, time for a change – even if that means a slightly lower salary.

    But also look out for what that means from a work-life balance perspective, and what it does to your FIRE goals. Does it put off retirement for another year? Another 5?

    Also, as they say, the grass is always greener. Just because it SEEMS like it might be a more enjoyable opportunity doesn’t mean that it will be in every way. There will be things you come to dislike about every job, most likely. The key is finding the best balance for you.

    Personally I am at a job I don’t love, but it pays well and has a good work-life balance. I could find “better” work (more in-line with what I want to do) but not likely at similar pay, and definitely not with this work life balance. I’m just a contractor, so when my contract is up I may have the option to stay, or could pursue something else. Sometimes it’s difficult to figure out what the best path is…

  5. I would definitely (and have in the past) take a pay cut before FI.

    It’s really hard to fight the “one more year / month / day / whatever” factor, but once the model says you’re good to go (or will be, even on a slower trajectory), you should pull the trigger. Life’s too short, and it’s really hard to fight at the margin unless you take a step back and see the big picture.

    Plus your side gigs sound a lot more interesting than your main job πŸ™‚

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      Yeah I agree with you on the side gigs being more interesting than my main job! πŸ™‚

      What’s interesting is I don’t have a number… I forecast every day at work, and it’s near impossible to hit the mark given past data.

  6. I’m in the pay cut camp. Ultimately the goal of FI is to live a happier life. We want to save and invest so that we can get to a spot where we have full control over our time, but we want to do it because we think it will make us happier. If you have a way to become happier here and now, take it.

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      Hey Matt, I appreciate your thoughts and perspective. A pay cut wouldn’t be the worst, as I have some income streams both developing and in place to help mitigate any loss of income. For the most part, I think taking a pay cut wouldn’t be the worst thing πŸ™‚

  7. I’d switch to the new job without hesitation. There are no guarantees Fi will ever come so you need to balance happiness with planning. Being unhappy means that’s out of whack. Pay also can increase later in other ways. It’s doubtful your job at twenty five will be anywhere near your pay at thirty. Life is a journey and a marathon

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      Thanks FTF. I really appreciate your feedback. I needed to hear that – FI is not guaranteed, so why be unhappy when you can be happy?

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      Hey Gwen, thanks for the comment. The best of both worlds would be great… happy at work, happy at play, happy at home πŸ™‚

  8. We should get together soon, Erik. I have been in a similar situation myself, but I’ve been afraid to talk to some of my friends about it because of my current compensation level. For me, I’m on a path where the upside could be significant ($250k+) in the next 3-5 years. However, part of me wants to go back into design engineering where I have a little more passion. The pay would still be excellent, but no where near the path I’m currently on.

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      Let’s do it πŸ™‚ I’m definitely open to getting together to chat.

      We live in very interesting times – lots of opportunity πŸ™‚ I’ll message you

  9. I’d consider a pay cut if I was switching to something that was more ideal. But I’m not convinced that’s the case for you in this situation due to the increased hours. Knowing you may start a family in the future, those extra hours may become something you dread even more than your current position.

    Think further down the road if you can. Consider all the life changes you’ll under go and which situation may be best for them.

    I’d advise you to keep looking as there may be an even better position out there for you. But if the company you’ve been speaking with does make an offer, use a decision matrix to help you with the decision. Vicki, from Make Smarter Decisions, recommends them and I’m sure she’d be happy to help.

    Good luck, Erik!

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      I’m not convinced either. Honestly, I’d love to just leave my 9 to 5 completely and experience life for a little while, and work on my side hustles and try to turn those into my full-time gigs!

      It comes down to learning and growing. I’ve been throwing around the concept of spending 5 years on something to get really good at it, but at the same time, if you dedicate 1 year of complete focus, you’ll be at a very good spot.

      I’ll check out Vicki’s decision matrix. I’m probably going to hear something from the firm this week, I’ll keep everyone posted!

      Thanks for stopping by Amy

  10. In my opinion, it’s not very common to find a job that you love doing, it pays well and it’s fulfilling. Because you are still single and have not started a family yet, there are still a lot of flexibility to make choices.

    A while back, I was not happy with people that I work with and I really wanted out and to pursue another career that’s more fulfilling, but with two young kids, bills to pay and a family to support, making that decision was not easy and giving up that pay cheque was not easy.

    At the end of the day, you need to balance your happiness, health, personal grow and wealth. Gotta have a bit of everything.

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