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An extra 40 hours a week sound amazing, right? You can do everything you want with that time – spend it with your family, travel, focus on your hobbies, pursue your dreams… But how much money do you need to never work again?
To calculate how much you need in order to never work again, take your current or future debt and multiple it by how many years you don't want to work for. Be sure to throw in any extra cash you want to spend during this time as well.
When I quit my full-time job in March of 2020, I can tell you it certainly wasn’t well-planned. Luckily, I had unknowingly been preparing myself for years by paying off debt and saving a large emergency fund.
Even still, from today’s perspective, I had no idea what I was doing.
But the experience itself taught me a lot — lessons I would’ve otherwise missed in books or courses. Lessons I’m glad to share with you in this article.
So if you’re contemplating quitting your full-time job for good but feel like it’s not even within the realm of possibility, read along.
You may be surprised by how much money do you need to stop working and say sayonara to your boss.
Here’s How Much Money You Need To Never Work Again
Surely it’s a dream come true to stop running the rat race but you need a financial backup.
Otherwise, you’ll soon end up looking for a new job again, or even worse, on the street. But how much money do you need to never work again?
It largely depends on your goals, lifestyle, age, and financial power. Let’s have a look!
Calculate The Cost Of Monthly Essentials
That means considering bills like:
- Housing: Be sure to include mortgage, rent, utilities, taxes, etc.
- Transportation: Consider car payments, gas, maintenance, parking, bus fares, train cards, etc.
- Food: Includes groceries, eating out, maintaining a garden, etc.
- Clothing and toiletries: Consider the basics to keep you and your family clothed and groomed.
- Debt: If you have debt, you’ll probably want to prioritize paying it off before you quit working. Removing debt payments from your monthly essentials will free up cash for other areas.
Add In A Buffer For Variable Costs
Say you come up with a total of $2,500 per month for step one.
Next, you’ll want to add a buffer for the little unpredicted things in life that come up.
Think about things like Christmas gifts, birthday presents for friends, hosting a cookout, a last-minute weekend trip, an emergency of some sort, etc.
Adding in an extra $500 or $1000 each month can help make it so you’re not strapping yourself to only the essentials once your income is gone.
Create A Savings Account To Hold A Year's Worth Of Expenses
The amount you came up with in the first two steps is your average monthly expenses.
Multiply that amount by 12 (or more, depending on your risk tolerance) and work toward saving that amount in a liquid account. Learn why we recommend using a high yield savings account.
Whichever you choose, it’s essential to keep this money out of investments since you’ll likely be pulling from it regularly in the months after quitting.
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Assess Your Investments
There are two distinct paths for looking at your investments, and which you choose depends on whether or not you plan to continue earning income and investing after quitting your full-time job.
You’ll Continue To Earn And Invest
This is the path I chose. I made a loose plan for how much I’d invest in my Roth IRA, solo 401(k), and taxable brokerage account once I got back to a steady income.
And while the amount is definitely less than if I were still earning substantially more, I’m on track for retirement and happy with the amount I’m putting away.
You Don’t Plan To Earn Money Working Ever Again
In this case, you’ll likely plan to live on your existing investments.
And that means you’ll need to take a hard look at what accounts you have, how much money you can withdraw from each account, and if it will be enough to live off.
A rule of thumb that many investors use is the 4% rule.
That means you’d plan to draw down 4% of your portfolio each year, and you wouldn’t need to worry about your cash drying up for at least 30 years.
So, for example, if you need to pull $40,000 out of investments to live, you’d need an overall portfolio of $1,000,000.
This is an excellent rule for those who are a bit older. But younger folks may need to adjust if the anticipated time to draw down the portfolio is 40-50 years or more.
As you look at your investments, remember to review:
Retirement accounts: If you’re over 59.5 (or will be soon), you may be looking at taking money from retirement accounts like an employer-sponsored plan (401(k), 457, etc.) or an individual retirement account (IRA).
Look at the tax implications of making these withdrawals and hone in on any required minimum distributions as you get older.
Real estate: Cash flow from ownership of rental properties is an excellent source of income after quitting full-time work.
Remember to factor in property taxes, HOA fees, and other monthly expenses when you determine how much will actually land in your pocket each month.
Taxable brokerage accounts: Look at how much you have in each taxable brokerage account and be sure to factor in how much you’ll need to pay in taxes on any distributions.
WHEW, that was a lot. But there’s a lot to consider when you think about replacing your income.
Now that you have a rough idea of your monthly expenses, desired savings, and investment portfolio size you’d need to quit your job; let’s focus on how to get there.
How To Ramp Up Your Money To Quit And Never Work Again
Planning to quit your job means you’ll be looking at your financial situation differently than if you were planning to work until retirement.
Instead of putting all of your emphasis on retirement planning, you’ll be balancing setting aside money for what you’ll need over the next few years with having a nice nest egg for later in life.
There are plenty of ways to bulk up your savings and investments in anticipation of your next chapter.
Start A Business
There’s no cap on how much you can earn by starting a business.
There’s always a lucrative business idea sitting around, an untapped business potential to earn you money for life.
Of course, it takes a lot of effort to build a business from scratch but it’s still much more rewarding, financially and emotionally, than working for someone else.
If you don’t want to do it alone, you can find a partner to share the load and profit with.
Or A Side Hustle
I love a good hustle, and these days there are so many ways to start a side hustle with little more than your laptop and a few minutes.
If you have sellable skills, like web design, coding, or writing, people online are willing to pay you for your time.
The market is ever-expanding and there’s no shortage of demand if you know where to look at and how to sell your skills.
Get A Second Job
Yes, I know we’re talking about quitting your full-time job, but temporarily adding a part-time job can get you closer to the goal of quitting faster.
It’ll bring you extra cash to save or invest and prepare for the future when you’ll be free to do whatever you want.
Ask For A Raise
Or better yet, ask for a promotion or a raise at your current job. Chances are, you’re underpaid and deserve more for what you’re bringing to the table.
Fight for yourself and ask for what you deserve. As a backup plan and an incentive to your current boss, you can even look for a new job at a competitor’s company. Remember, you can always get more!
Dive Into Investing
But as you accrue those earnings, where’s the best place to put them? This is where investing comes in.
And specifically, stock market investing gives you a lot of growth opportunities. Or maybe you’re more of a real estate investing person? Or even cryptocurrency?
There are so many ways to invest your money and grow your wealth. You can start investing with as little as $100!
Investing is like planting your very own money tree without having to get your hands dirty.
How Much Money You Need To Stop Working – Final Thoughts
Saying goodbye to 9-5 forever isn’t easy, but now that you know how much money do you need to never work again you can plan accordingly and achieve your goal sooner rather than later.
Look at your number carefully and don’t be naive at calculations. Be smart about your budget, savings and investments.
