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To reach financial independence and retire early you need approximately 25 times your annual expenditures. This crazy large number comes from the Trinity Study completed by professors at Trinity University and is another way of stating the 4% rule.
If you spend $40,000 per year then you would need $1,000,000 in the bank to be able to quit and never work a day in your life again. That is a very large amount of money and can take a considerable amount of time to amass even with a large savings rate.
However, there is another way!
Side Income as a part of your financial independence portfolio can bring you to your freedom date so much sooner. The same 25 times multiplier that is applied to your savings requirement also applies to any side income you make. If in a typical year, you make $1,000 per month of miscellaneous side income, then you can subtract $300,000 from your total savings required to reach financial independence.Side income is a great way to accelerate towards your freedom date.Click To Tweet
Just take a look at the above chart. Side income is directly proportional to the savings required for retirement and financial independence. For $40,000 worth of expenses each year, you reach the $0 savings required point at $3,333.33 per month. Any amount more than that and you will be profiting in retirement!
Side income may seem like a distant possibility when you are working for the man. I know it seemed that way to me. When you work all day and come home tired, the last thing you want to do is work some more to make side income.
What if you were able to integrate your side income with something you already enjoy?
Everybody has a hobby. At least, everybody should have a hobby. If you do not have a hobby then you have not tried enough different activities to find the one you are most passionate about. There are near infinite activities to choose from with cost for the activities spanning the whole range of possibilities from frugal to super expensive (think yachting).
I was once told:
Every hobby is expensive if done right. ~Anonymous
Certainly, every hobby has the potential to be expensive, but not every hobby has to be expensive if done right. Many hobbies even have the potential to make you some side income if done correctly.
Take my dad for example. He loves to hang out in his woodworking shop and make things. He can make pretty much whatever he wants to out of wood if given enough time.
In the past, instead of buying graduation or Christmas presents he has made wooden pens, turned wooden bowls on the lathe, and made wooden snowmen. By exchanging a gift that he would have to buy, with one that is homemade, he has saved a significant amount of money. The same pens that he makes as gifts for family and friends could be sold on Ebay, Craigslist, Etsy, etc. If he were to make and sell them, then he could generate a decent side income stream to supplement his retirement savings.
My sport and hobby of choice is cycling. I enjoy riding and racing road bikes all around the world. This is traditionally a very expensive sport because today’s carbon fiber wonder bikes are $3,000+ just for the frame. Despite this cost, it is possible to make a side income off of cycling. You can make enough to ride and race for free or you can supplement your financial independence savings with cycling earnings.
Living in China as a foreigner, you can get invited to races where all expenses are paid and you have the chance to race for free. With all expenses paid, the possibility is there to make a good to great income from race winnings. One friend of mine takes home >$4,000 per month from race winnings. I, on the other hand, am very happy to have my weekends of racing paid for because they can be quite expensive otherwise. Not having to rely on the winnings to live does make it more fun.
Of course, there is also blogging. If you enjoy writing you can start a blog and make a killing, or just make some supplemental income to subsidize your retirement. Blogging is hard work, so unless you enjoy it, unless you consider it a fulfilling hobby, I would not recommend it. It is very easy to get started and moving forward. The hard part comes in building up momentum to a self-sustaining platform.
Blogging can be very rewarding. It certainly fits the bill for everyone that wants to make a difference in people’s lives. You can reach an incredible audience and get to know people you would never have met otherwise. Blogging has a near limitless ceiling in terms of income potential. There are many success stories across the internet about how people have quit their jobs because blogging allowed them to be free from the corporate world.
Are you financially independent if you need side income?
Yes, no, maybe? Being financially independent is a personal definition. Usually, it is defined as the point where you can live off of your savings without further income. However, the purpose and the spirit of financial independence is to free yourself from corporations and be free to do what you want, when you want, where you want. With this definition, you are financially independent even if you need side income.
Most of us just want to be free. I know I do. If having a side income stream is what it takes to make the freedom date come around sooner, then I am all for it. Everyone has heard this clique:
If you enjoy your job, you never work a day in your life.
It is simply not true. Every job, every money making adventure will have its downsides. They will all have tasks that you do not enjoy doing, but the benefits of a side income cannot be overstated when trying to pursue a life of freedom.
This is just a short list of what is possible with hobbies. Any hobby can be turned into a profitable venture if you want to retire from your 9-5 even earlier.
The main goal in life is to be happy. Too many of us are unhappy at the jobs we are working, but feel we cannot leave due to the money that we are making and the money that we spend each month. The lofty savings goal of 25 times your annual expenditure is a good target to shoot for to become financially independent, but you can also include post-retirement income in your savings goal. Any amount of income will have a profound effect on the total savings required.
When pursuing financial independence and moving towards the ultimate goal of freedom from the man, remember this quote:
To accomplish great things, we must not only act, but also dream; not only plan, but also believe. ~Anatole France
When we dream of a solution and believe it is possible, anything becomes possible. Turning your hobby into a side income stream can be the answer to many people’s worries about financial independence and early retirement preparation. You will likely not make as much money as you do at your corporate job, but that is okay. You are free to do as much or as little as you desire.
Have you supplemented your financial independence preparation with side income?
Do you consider yourself financially independent if you still need to have some income to be free? Let me know in the comments.