Note: This post was first published in June 2020 and updated in October 2021
Another horrible commute.
A highly unpleasant interaction with a passive-aggressive colleague.
A manager that seems to pile on more work every day – and yet isn’t nearly so generous with the recognition.
And the work itself. What (hopefully) seemed exciting early on has now completely lost its lustre.
“Get me out of here”, you whisper to yourself, staring blankly ahead.
You picture yourself, rising from the ashes like the proverbial phoenix. Reclaiming your right to a fulfilling and enjoyable life as you leave your job behind.
For an activity that is supposed to give so much meaning to our lives, work can certainly seem like a dud. There are a variety of reasons for it which I won’t get into today.
Instead, let’s try to answer a key question: just what would it take to make it happen?
Plotting Your Escape
The beauty of personal finance is that you can boil pretty much any question (other than existential ones) down to a mathematical formula.
The starting point, of course, is figuring out how much money you need to leave your job behind.
In the immortal words of The Escape Artist, this is the length of the tunnel you need to dig to get out of the prison camp.
You, the moment you escape that prison camp
Is it 20k a year? Double that? Or some other number?
Everyone will have a different answer. While 20k sounds low in a US context, it can certainly go a long way here in the UK. And as this blog has a very international audience, I am intentionally leaving currencies out of the equation.
Once you’ve figured out the magic number, you’ve got to multiply it by 25. This is why.
The figure you get is the “stash” you need to amass to leave your job behind. The rest is pure math.
Historically, the stock market has delivered a c.8% return over long periods of time. Thus, there is a simple formula that determines how much money you’ve got to put aside every year to achieve your goal.
Have a look at the table below:
If 20k a year is enough to wish your boss goodbye, you need a stash of 500k to make it happen. If you want to get there in 10 years, that means setting aside about 35k a year.
Solving for a much more comfortable lifestyle? To guarantee yourself an income of 60k a year, you need a stash of 1.5 million. That will be just over 100k in annual contributions please.
Now, I do know 35k sounds punchy. 100k even more so. But as ever, remember:
Context Is Everything
The figures above are meaningless if you don’t put them in the context of your annual earnings.
So instead of focusing on absolute numbers, let’s instead have a look at the kind of savings rate they imply for people on various incomes:
If you are solving for 20k a year on a 60k income and want to get there in 10 years, you will need to save 58% of your income.
Clearly, the lower your aspirations and the higher your income, the easier the task at hand.
At the other end of the spectrum, however, is a situation where you are currently on a low income – but would like a reasonably high standard of living in retirement.
While some individuals manage to eke out savings rates north of 60%, it’s probably out of reach for most people. These are represented by the amber and red cells in the table above.
I’ve also crossed out savings rates of 90%+ for obvious reasons.
As you can see, quitting your job in 10 years can be done – but it can also be impossible for people with low incomes and high spending needs.
But what if you were to extend the horizon? After all, Andy Dufresne did take 19 years to dig his way out…
Let’s say you were to give yourself another 5 years. Guess what? It simplifies the task immensely:
In the vast majority of situations, you can get there with a sub-50% savings rate. And there are just a few scenarios where the task at hand is impossible to achieve.
Willing to take 20 years to get there? The path is clear:
Once again, it’s less straightforward for those who find themselves in the top left-hand side of the chart above.
But in the vast majority of situations, victory is assured – and the path to get there is lined with some frankly undemanding savings rates.
Let’s go back to the initial premise of the post for a moment.
If you hate your job so much that you can’t bear to be there another day, you’ve got to find a way out ASAP.
Life is too short to spend years and decades in positions that have an adverse impact on your physical and mental health.
Instead, you are much better off finding a more enjoyable pursuit. Time is your friend. The longer you work, the lower the savings rate you need to leave your job one day.
At the same time, do not underestimate the power of a high income. Provided you can keep lifestyle inflation at bay, a high salary is the equivalent of using a power drill instead of a nail file to dig your way out.
Keeping It Simple
A few other important points to note here.
I’ve assumed no taxes here – neither on the way in or out. Taxation differs by country and jurisdiction, so you’ll need to make your own adjustments.
Equally, I’ve not baked in any employer matching or deferral plans, which can help you build wealth much faster. They also come with some bells and whistles, so tread carefully.
The analysis ignores any raises you will get along the way. Remember – the best investment you can make is the one that grows your skills, abilities and earning power.
(As it happens, now may well be the best time to get a raise – this is how.)
Importantly, the analysis assumes you’ve got no debt – but no assets either.
Finally, I am assuming you invest your savings in a 100% stock portfolio with an 8% nominal return. In reality, you would probably want to recalibrate your asset mix as you get closer to retirement.
Your boss, wondering whether you are coming in today…
Remember – as with any prison escape, the most important thing is to figure out the direction of travel and to just start digging.
You can always fine-tune your approach along the way.
P.S: Bonus Feature
In the comments section below, one of the readers (Anni) made a good point about expanding the tables to show what the journey would look like for people on lower incomes.
The revised tables are below.
As expected, it will be much tougher to get there in 10 years. That being said, giving yourself an extra decade of a runway can do wonders in making the impossible possible.
About Banker On Fire
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
Find out more about me and this blog here.
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