This is a guest post by Ricard Torres, who used to be an engineer with a promising career. He realized that his 9-5 lifestyle was not making him happy, so decided to reach financial independence by building online businesses, spending to maximise happiness, and investing. You can follow his journey at Escaping to Freedom. Let me know if you would like to guest post on RFI.
Being on the road towards financial independence puts you ahead of most people you know. You need to master skills such as persistence, patience, money management and investing – definitely way above your average Jane or Joe. One skill that may not be obvious at first – but will soon become apparent – is resilience; the ability to bounce back from adversity.
I know this is a hard pill to swallow, but everyone experiences setbacks…and so will you. Our human brains tend to oversimplify patterns, so we often assume that a positive trend will continue upwards and upwards. That sadly isn’t the case – but that’s okay.
Knowing that things will go wrong at some points gives you a head start and allows you to prepare for the inevitable – both mentally and financially. In this article, I’ll show you ways to be ready, so that you can get through any hiccups along your journey and come out unscathed.
Losing Your Job – The Nightmare Scenario
I, like most people who work 9-5 jobs, took my paycheck for granted. I had a job that required specialised skills in computer design, and that made me feel indispensable to my employer. Although I didn’t always enjoy my job, I assumed that the skills I brought to the table were too valuable to let go, meaning I would have this job for as long as I wanted it.
The pay was pretty good, and I had many graphs and charts predicting how much I’d save each month, and how my passive income would grow. It was great – the graphs all showed a nice, constant upwards trend towards the day I’d finally be able to become financially independent and never have to work again – unless I wanted to.
Then one day I was called into my manager’s office and told that they were letting me go. My services were no longer required.
The first reaction when you’re given bad news is overwhelming anxiety. You feel it in your stomach and your chest – it’s one of the worst feelings in the world. You feel hurt, betrayed, unwanted and like a failure.
The worst bit, however, is when you suddenly realise that you won’t be getting paid anymore. Then stuff starts getting really scary and your mind is filled with anxious thoughts. What are you going to do?! How are you going to be able to feed yourself? And your family? The bills aren’t going to pay themselves! And worst of all: does this mean that my dream of achieving financial independence is over?
First Line of Defence – Emergency Fund
Like everywhere in life, it pays to be prepared. You may think that your job is perfectly safe – and it probably is – but you need an alternate plan in place at all times if you don’t want to fall off the financial independence bandwagon.
The first line of defence that I had, and that I urge you to set up (if you haven’t done so already) is a nice, juicy emergency fund. This will be a lifesaver if you ever need it. It’ll be the difference between, “I’m doomed! This will end me! Panic!” and, “Oh well, at least I have time to set something else up”.
Here’s how I built mine:
- I tried to live on as little money as possible for one month. This showed me how little I’d be able to spend if things went sour from one day to the next. I’m gonna state the obvious here: if you suddenly lose your earning ability, you’d better drastically cut your spending.
- I worked out how much a year’s worth of mega-low spending would cost.
- I spent much less than I earned for several months until I reached the magic number.
The beauty of this is that your emergency-mode, bare-bones spending is going to be much lower than your normal spending. In fact, it could be a smaller figure than you might have thought (if you were basing your calculations on your current spending). The only way to find out is to give it a try!
Should I Stay or Should I Go?
If you wish to continue in the same field as the one you just got dismissed from, you’re gonna need an up-to-date CV. From experience, it’s a lot easier to write one when you have a job and are fairly happy in it, than when you are unemployed and really, really need a job – like, right now.
Every 6 months or so, set aside an hour (do this now – get your calendar and arrange this one-hour session) to spring clean your CV. Think about the skills that you’ve improved lately, any projects that you’ve worked on that would add prestige to your employment history. Remove any obsolete information or anything redundant that just takes up valuable space.
Alternatively, getting laid off might be an amazing chance to take a step back, re-evaluate your life and your career, and decide that you’d like to make a change. Common wisdom says that it takes around 10 years to become an expert at something. If your career has lasted that long, what you may need is a change of career to learn a new skill set, get out of your comfort zone and grow as a person.
Building Up the Plan B
Another way to soften the blow of losing your job is to create alternative income sources. If you have 8 income sources and you lose one, the world isn’t going to end! You’re probably diversifying your assets and investments, so why not diversify your income too?
This is what I started to do months before my lay-off. I created small side-businesses that gave me some extra cash flow every month. They only took about an hour after work, Monday to Friday, to get some pretty encouraging results. Here are 8 online business models that just work – pick one and get started now.
One of the best ideas is to start a blog. It will allow you to express yourself about something you’re passionate about, reach thousands of people and help them with your expertise. It can also be a great source of income if you choose to monetize it down the line. For example, if you had a blog already set up, with a loyal following, you could work on it full-time and start making money while your emergency fund covered your expenses.
It’s a Bumpy Road to Financial Independence
The most important point to understand here is that life is a bumpy road. Things go wrong all the time, but that doesn’t mean everything is lost! Yes, it’s very discouraging to lose your job and see your savings rate go from 50%+ to zero. It feels like you’ve lost your stride and you’ll never get it back. But nothing could be further from the truth.
Think of adversity as part of the journey. You need to go through the tough times to get to the good ones. There isn’t a straight, direct road. Just like in any stock market graph, there are always massive dips, which send people into panic mode. But then they always rise again – things work out in the end.
The same goes for your journey towards financial independence. It’s never going to be an easy road, and there will be difficult times. There will be months when you won’t be able to save as much money as normal, or none at all, and maybe even periods without any income. You just have to keep your eye on the prize at the end of the road and keep going.
If you set up an emergency fund and build some more streams of income through side businesses, there is nothing that will be able to stop you from reaching your goal of reaching financial independence to live life on your terms.
Thank you so much for reading!