Changing career: what about the money question?

The main reason people stay in jobs they don’t enjoy is money. This is a pretty good reason. When you have debts to pay, mortgages to service, and a whole variety of other monthly outgoings it is hard to consider taking any form of career risk at all.

When you are planning an escape or career transition, you will think about the money question A LOT. It will be one of your main decision criteria. If you’re determined to make an escape then don’t let it become one of your mental blockers. Here are some common thoughts…

• “I don’t have lots of savings so I can’t risk escaping.”
• “I can’t possibly ever earn less than what I earn today.”

If building a fulfilling career on your own terms AND earning pots of cash were easy then everyone would be doing it. There is an amount of money that everyone needs to afford a certain standard of living.

Above that it is down to your values and preferences (once you have covered off your ‘needs’ it comes down to your ‘wants’). There is no value judgement here. You may equate security and success with a certain amount of money in the bank. That’s fine. This is not a rant on the evils of money. It comes down to the question of ‘what do you want?’.

As long as it is stuff that you genuinely know you want (rather than stuff you have inherited from other peoples’ value systems) then great… pursue it… it’s what you want. Your costs will increase as you get older. And they don’t increase incrementally.

They increase in jumps. BUYING A HOUSE – big jump. GETTING MARRIED – big jump. HAVING KIDS – massive jump!

This means two things:

1) Every year that you leave it before you make a big career change is likely a year closer to your next financial jump;

2) Even if you have no particular ‘responsibilities’ today you already have one eye on the next financial jump.

So it’s not as simple as saying ‘you’re free today’… act as if you’ll always be free! You’re a responsible person (probably more conservative than you realise) and you’re planning for the future. Is it possible to plan for the future and live a life of your choosing in the present?

This is not a choice between being poor and happy or rich and unhappy. Any corporate escape has to be viable otherwise it won’t last. Don’t fall into the trap of thinking you have to sacrifice financial security for a life of meaning.

Whatever your escape, you need to do the sums between what finances you’ve got at your disposal for the transition and what amount of money you want (not just need) to have to feel secure through this time.

Then you can make a personal judgement regarding the levels of risk you’re willing to face. In The Escape Manifesto we refer to ‘The Hit’. This is the number of months' worth of living costs you need to cover between turning off your salary and the eventual thing you are escaping to (your new job or business once it is established).

The number you are aiming at is the amount you need to bridge this period – your Escape Fund. We expand on these ideas in the following pages. This essay contains some challenges for thinking about money differently. There are, of course, trade-offs (especially in the short-term). The main traits required for a successful answer to the money question are planning and discipline. Manage this and you will be successfully addressing the biggest reason why most escapes fail.

“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.”  - Will Rogers, cowboy, vaudeville performer, humorist.

“Busy yourself with the routine of the money wheel, pretend it’s the fix-all, and you artfully create a constant distraction that prevents you from seeing just how pointless it is. Deep down, you know it’s all an illusion, but with everyone participating in the same game of make-believe, it’s easy to forget. The problem is more than money.” - Tim Ferriss, The 4-Hour Work Week.

The Golden Handcuffs.

Having more money should lead to greater freedom but paradoxically often leads to greater entrapment. Broadly speaking, the more money we have, the more options we have. Money can allow us to take risks, explore new opportunities, start businesses, fund projects, or retrain in other sectors.

However, all too often unfortunately, money seems to trap us. This is what Rousseau meant when he said “the money you have can give you freedom; the money you pursue enslaves you”. If you are anything like us, your expenses will keep track with your income.

The more we earned the more we spent. In doing so, we were getting ourselves further and further away from a place where we had flexibility and options. The golden handcuffs are real – both in terms of your expenses rising with your income and the mental barriers that you develop against ever earning less than your current salary.

We spent a lot of time in and around our jobs spending our salaries distracting ourselves from the growing sense of emptiness and dissatisfaction that our jobs were giving us. The higher our salaries rose, the more we were able to spend (rather than save!) and the more we went into debt.

Money is an enabler – it should allow you to do things you want to do rather than being an end in itself. It’s up to you to decide what you want it to enable you to do. Save and you buy yourself choices. Spend and you can become trapped.

"Money is multiplied in practical value depending on the number of W’s you control in your life: what you do, when you do it, where you do it, and with whom you do it. I call this the freedom multiplier."  - Tim Ferris, The 4-Hour Work Week.

Money and Happiness.

Being poor is no one’s idea of fun. So, how much money buys happiness? Does money buy happiness?? Research suggests the ‘happiness’ number is approximately forty thousand dollars a year in the US. Daniel Gilbert is a professor of psychology at Harvard University who delivered a TED talk on ‘The surprising science of happiness’.

He claims that once you have enough money to meet your basic needs (food, shelter, but not necessarily satellite TV) incremental increases have little effect on your happiness. Richard Easterlin, professor of economics at University of Southern California, says that our desires adjust to our income.

“At all levels of income, the typical response is that one needs 20% more to be happy.” Once you have basic needs covered (which is going to be a different financial threshold depending where you live), the generalisation seems to be true - increasing your wealth alone does not increase your happiness.

In ‘Would You Be Happier If You Were Richer?’, Daniel Kahneman, Nobel prize-winning psychologist, suggests there has to be more than a salary for you to really care about your job. It's not that wealth is bad. It's that the single-minded pursuit of wealth above other values leads many people to feel rather empty. The lesson is clear – ‘don’t worship money’.

Obviously it is impossible to be happy if you can’t take care of your basic needs at the bottom of Maslow’s pyramid. However, it seems that having enough money to meet all your needs and more does not make you happy. You probably already know this. However, does your career behaviour reflect that knowledge?

When we worked in the corporate world we had more money than we ever had before. When we worked bootstrapping entrepreneurs we had even less money than we did at university.

Working on something that really matters to you can outweigh not having as much money as you did previously. You have to choose a process that you enjoy (building a business that you love, finding a job that makes you tick) because the end goal (wealth, retirement, power, status, massive house) - if you ever reach it – is so often an anti-climax.

We have been brought up in a society surrounded by people striving for more – more money, more possessions, more status, and more power. This size-matters attitude reminds us of Seth Godin’s quote: “Bigger doesn’t equal better, better equals better.” How much is enough? How much is enough for you?

“Nearly every financial situation reflects one of three general patterns: seeing oneself as having less than enough, just enough, or more than enough money. The term “enough” is relative and highly individualised. For some people, having basic needs met is sufficient, engendering a sense of satisfaction and security; among others, no matter how much money they accumulate, the perception persists that they need more.”  - Pamela Slim, Escape from Cubicle Nation.

The Cycle of Consumption.

A common criticism of today’s developed world is that we are all addicted to buying things. The anti-consumerist argument is that we are being conditioned by hundreds of advertising messages to meet our emotional needs through consumption and, as a result, we are less happy (or certainly no happier). We under-appreciate truly valuable things in pursuit of more money in order to buy more stuff.

Firstly, is this a fair analysis? And, secondly, why is this relevant if you want to escape your job? Firstly, lets return briefly to the question of happiness. David Myers (another psychologist!) calculated that although the real, inflation-adjusted income of Americans doubled between 1960 and 1990, the proportion of Americans describing themselves as “very happy” remained at 30%. 

Psychologists call the phenomenon of chasing after rewards that don’t provide lasting satisfaction the “hedonic treadmill”. Now we’re not complaining about being materially better off but what is going on if this hasn’t been matched by corresponding increases in emotional and mental wellbeing? It turns out that the chemical dopamine might provide some explanation.

Dopamine is a core part of the brain’s reward mechanism and, as a result, a key component in our consumerist desires. When something ‘good’ happens (we get a new job, we read a nice email, or we buy some new shoes) dopamine is secreted in our brains. This makes us feel good. The brain associates this good feeling with the behaviour, which in turn reinforces the initial activity (be it shopping, checking email or having sex).

Habits (good and bad) form in this way. Peter Whybrow, head of the Semel Institute for Neuroscience and Behaviour at UCLA, has written a book called ‘American Mania: When More Is Not Enough’. In it he defends dopamine as being an extremely important reason why humans have survived and prospered. “We’re primed for doing things immediately,” he tells us, “We’re poor at planning for the future.”

The drive for instant gratification was evolutionarily extremely useful when trying to survive from day-to-day in the savannah 10,000 years ago. However, it seems it is slightly less helpful in environments where we are already surrounded by abundance. University of Michigan professor of psychology Kent Berridge has proposed that the brain can become sensitised to the cycle of desire behind a particular reward.

So we become increasingly driven to a particular behaviour at the same time as the reward becomes less rewarding. This basic overview of brain chemistry goes some way to explaining why our short-term desires can be so powerful, why addictions are so hard to beat, and why we can never get enough of buying stuff.

The economist Victor Lebow stated how “our enormously productive economy demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfaction and our ego satisfaction in consumption.” And he said that in 1955!! You don’t have to be a psychologist to realise that excessive focus on money and consumption might not be great for our mental health.

A large survey of randomly selected adults, sponsored by the National Institute of Mental Health (NIMH) and conducted between 2001 and 2003, found that an astonishing 46 percent met criteria established by the American Psychiatric Association (APA) for having had at least one mental illness within four broad categories at some time in their lives.

The controversial Kalle Lasn, founder of AdBusters, has some strong views on the links between advertising and mental illness, citing a study by Myra Whiteman at Columbia University and one by the WorldHealth Organization: “Young people are 300% more likely to suffer from depression, or mood disorders, or panic attacks than my generation. There’s been a terrible degradation of our mental environment […] People are making this connection between their stress levels […] and the ads...” It is a compelling, if depressing, narrative and one that we lived ourselves.

As we have mentioned, this is particularly relevant within the context of career dissatisfaction. Our own experiences of over-spending in order to alleviate job unhappiness (before we decided to start saving) delayed our escapes by at least 12 months. The quick fix for feeling miserable is often to spend money on yourself (ironically making you even more dependent on the job that is making you unhappy).

Now of course money isn’t bad, of course shopping isn’t evil. Don’t look for blanket extremism where there is none. However, the more aware we can be of our own behaviour and the more we can understand how our minds work, the more we can actively decide what we spend our money on. Just as spending money on worthless or short-term gratification is unsatisfying, spending money on things of genuine value can lead to a much more rewarding existence.

Wants and needs.

Do you need all the things you think you need? And, once you really challenge yourself, do you even truly want them either? And finally (if you’re feeling a little overwhelmed) why not watch George Carlin’s sketch about ‘Stuff’ for some light-hearted relief!

“The human race has had long experience and a fine tradition in surviving adversity. But we now face a task for which we have little experience, the task of surviving prosperity.”  - Alan Gregg, Canadian Political Advisor.

Escape Begins with Definition.

Charles Givens, the American personal finance guru, gives this advice in ‘Wealth Without Risk’: “Ask yourself: ‘If I had unlimited, time, talent, money, ability, self-confidence and support from my family, what would I do?’ Then, list the steps necessary to achieve these goals.”

OK, so you don’t have unlimited time and money… but what he wants you to do is develop goals beyond the constraints of your current situation. This is hard but not impossible. It’s amazing what can be achieved by breaking big objectives into step-by-step activities.

One of the first things you should do when planning a career escape is define your needs and wants. What is your 100% non-negotiable minimum annual income? Or not even minimum… what is the figure you want to be earning after you’ve successfully escaped? Realise that there may be a period of transition when you don’t earn this amount (‘The Hit’).

It’s up to you how long this period is. Just as it is up to you to reject situations where the period is longer than you are prepared to accept or can afford. This is a very personal and subjective part of your career transition. If escape begins with definition you need to be clear on two things:

• That you know how much money you need for the life you want.
• That you have been really honest that this genuinely is the life you want (and not the life that you think you want).

Money has no value without context. In the bank it may provide you with a feeling of security. But the pre-requisite is that you value that feeling of security... otherwise it is just a number. In order to have congruence between your financial goals and your objectives in life, you need to set goals for what your money will ENABLE you to do.

Therefore it can’t just be a number, it should be a number plus an objective (it could be a house, it could be private school for your kids, or it could be owning a hotel on the beach in Africa). The objective is entirely up to you – just make sure it is yours and no one else’s).

“Money itself isn’t the primary factor in what one does. A person does things for the sake of accomplishing something. Money generally follows.”  - Colonel Henry Crown.

Redefine Personal Finance.

Soul Patel (www.soulpatel.com) is a successful corporate escapee who is building an independent property portfolio (yes, without being rich in the first place). He is also a personal finance expert. He recently ran a workshop for Escape the City members where he talked about how your salary is your most valuable asset.

Consistent, recurring, predictable income is hugely valuable when planning an escape. The key idea was that if something is not paying you a return then it should be defined as a liability, not an asset. Why? If you lose your job these liabilities will continue to take more and more money from you until you are bankrupt. So your house, your car - these are all liabilities, often mistaken for assets.

Examples of assets include shares, bonds, investment properties, and businesses, however education and skill is needed to manage these, otherwise they can become liabilities too. If you’re reading this from the security of a decently paid corporate job know this: you have one great advantage at the moment – yes, your job!

At our event Soul reminded the room how the main thing a job provides you with is cash flow. He told us how most people squander this and he challenged us about getting trapped in the cycle of consumption, by allowing our expenses to stay high, taking on debt, and by investing our money in liabilities thinking they are assets.

“We go to school to learn to work hard for money. I […] teach people how to have money work hard for them.”  - Robert Kiyosaki, Rich Dad, Poor Dad.

This essay originally appeared in The Escape Manifesto.

“My own startup journey has shown me that there is no 'secret recipe' for starting a business that will work. However there are a hell of a lot of things you can do to give yourself the best chance whilst minimising your risk as much as is possible. If I can do it, you can do it."

– Rob Symington, Escape the City co-founder.