Financial security is something we all crave, especially in uncertain times like a pandemic. The best way to achieve this is by creating financial buffers—the more you have, the better protected you are against any financial downturns. Let me walk you through some ways to build these buffers and secure your financial freedom.
The Catalyst to Leave My Job
Deciding to leave my job in the spring of 2012 was tough. Even when everything seems aligned, quitting your job feels like a leap of faith—hoping for a soft landing rather than a crash. My decision was largely influenced by the financial security I had built up, especially through negotiating a severance package, which I detail in my book. This severance was crucial, giving me the courage to step away from a steady income.
Financial Security Through Income and Savings
Living in San Francisco, with its high cost of living, I knew I couldn’t rely on just my passive income of $78,000 a year from rentals, which under best-case scenarios could potentially reach $118,000. These numbers might sound sufficient, but in a city where a single-family home averages around $1.6 million, expenses can spiral quickly. This drove home the importance of having multiple financial buffers.
Key Financial Buffers for Security
1. Severance as a Buffer
Planning my exit took a year, during which I ensured my team was ready to continue without me and maintained a strong relationship with HR. Successfully negotiating a severance provided me with six years’ worth of living expenses, which included WARN pay, deferred compensation, healthcare, and bonuses. This buffer significantly softened my transition out of corporate life.
2. Optimizing Passive Income
After leaving my job, I focused on increasing my passive income. I refinanced mortgages and increased rents, which boosted my passive income by $18,000 annually to $96,000. This optimization was crucial for maintaining my lifestyle without depleting my savings.
3. Building Online Income
The challenge of building a sustainable online income is immense, requiring both traffic and engaging content without overwhelming readers with ads. Despite the hurdles, this has slowly become a viable income stream.
4. Business Ventures
I launched a network for personal finance bloggers and attempted to establish a finance advertising network, which taught me valuable lessons about the complexities of running an online business. These experiences have been instrumental in shaping my approach to online entrepreneurship.
5. Investing
The stock market has been favorable since 2009, and while it’s easy to assume success in such conditions, the true test of investment strategy comes during market downturns. I aim for a conservative 4-5% return, focusing on protecting the capital rather than aggressive growth.
6. Physical and Mental Labor
I’m prepared to switch gears if necessary, whether that means flipping burgers for a living or teaching tennis, which I’ve done successfully in the past. These jobs not only provide additional income but also keep me grounded and prepared for any financial downturns.
7. Consulting
Leveraging my experience, I’ve consulted for fintech companies, adding a significant cushion to my finances. Consulting allows me to use my skills while focusing on building Financial Samurai, my main project.
8. Family Support and Community
In times of dire need, I wouldn’t hesitate to lean on family or community support. These are vital buffers that can provide not just financial but also emotional support.
9. Government Assistance and Odd Jobs
If things take a drastic turn, I’m open to exploring government assistance or taking on any job necessary to make ends meet. Pride doesn’t have a place when survival is at stake.
10. Diverse Skills and Backup Plans
My diverse skill set and the ability to adapt to different jobs, like teaching tennis or consulting on financial strategies, provide a robust safety net.
The Bottom Line
Creating financial buffers is essential for reducing stress and giving you the freedom to pursue your dreams without financial worries. Whether it’s through savings, strategic investments, or starting a new business venture, the goal is always to enhance your financial security and independence.
Wealth Building Recommendation
A solid approach to managing and tracking your financial situation is using a comprehensive online platform like Empower. This tool helps you see all your financial accounts in one place, making it easier to manage investments, check expenditures, and plan for the future. Tools like these are invaluable for anyone serious about building and maintaining their financial health.
