To be clear, we’re making no change to our original recommendations. For a summary of why you need to start a Company or business at some point (ideally now) you can see our post on the Company man.
That said, we got into a quick Twitter back and forth about the perils of traveling abroad and attempting to live the nomadic lifestyle. The push-back was that “everyone knows someone living on $100K tax free due to specific hurdles if you spend 330 days out of the year outside of the USA”. First of all these are clear exceptions to the rule as most are not in this situation and even then it’s interesting because we’d rather earn $300K at a company in the USA instead. We’ll explain why here.
Frugal vs. Earning: We’ve read those frugality blogs already. If you save 50% of your income you can retire in 17 years so it’s not about how much you make it is about your percentage savings rate. Great. No one asks the most important question (Elephant in the room), do you actually want to live like that forever? If you’re earning $100K a year and spend $50,000 a year… You’re never going to be rich. It’s simply false. You’re better off earning $200K a year, and saving $100K a year since the option of “living abroad” is always there!
It’s interesting as this seems to be a foreign concept to many people who never got a chance to earn high amounts of money. Sure earning $250K a year in NYC or California is taxed heavily. That said… That person likely has a lot more income mobility than the person living off of Air BnB income of $80K a year living out of a suitcase. No matter what he does, he can’t really gain leverage out of his income without either starting a business or going back to higher cost of living city.
Before we move on, we know there are exceptions to the rule. There is always someone who has “pulled it off”. That said, for every guy that has pulled it off there are 99 guys who are living off of just $60,000 a year at age 35. An ugly ugly ugly sight to see. Now if someone has successfully scaled a business that’s a different story as your earnings are not tied to your location. We’re simply attempting to compare the high-end corporate employee to the nomadic suitcase traveler making $80K or so. In 99.99% of cases, we’d rather be in the corporate position as your skills are likely improving at a rapid rate.
How to Evaluate Your Options: To keep it simple we have a few rules when evaluating the corporate position with the “leave for good” scenario. The first one is obvious, you never quit any career based income without something else lined up already. We don’t care how much you hate your Company or how much your Boss hates you. You always hang out till the very last day to collect severance, a healthcare package and a few extra paychecks as they get the paperwork ready to lay you off.
The second one is also severe, when you start your business/side income… You need to earn at least 2x what you’re making in your career before you quit. If you attempt to quit when your business is making the same as your career income (after tax numbers), you’ve made a terrible mistake. Any business is going to have volatility so you exchanged higher volatility income for lower volatility income for no good reason. The one exception is if you’re forced to quit in order to unlock time for higher revenues. This makes logical sense as you’ve hit a wall in terms of juggling two items at once: your career and your side business.
With the two biggest items out of the way we strongly suggest looking at your “true total comp”. While you can hang out on the Blind app all day to find total comp for every Company, it doesn’t really tell you the “true total comp” since high paying positions have many perks. Here are a few just to get you started: 1) how many days do you travel?, 2) how much are you spending on food on a daily basis as you can easily expense food up to $100/day at many companies – when traveling, 3) how much leverage are you getting out of your healthcare benefits?, 4) is there a benefit to your Company’s 401K/retirement income match – while unimportant if you become rich it is important if you’re not rich yet as a match can easily add $15,000+ more per year and 5) what other services do you get for free from the Company?
While the above may seem like a bunch of fake questions, if you’ve entered into any of the careers we mentioned in Efficiency you know that they are real questions to ask. If you’re still climbing the ladder, we would bet all of these benefits add up to well over $30-40K or so in a year. Not paying for food 100 days out of the year is already a large number after tax (not to mention pre-tax) and the points you accrue if a frequent flyer will not be laughable (easy to accrue enough for a international business class flight – vacation – and free hotels for the trip as well).
Thinking About Switching – Think Slowly: While the above just refers to the perks, if you get another career offer we would recommend thinking extremely slowly about the switch. For example, jumping to a new Company for 10-15% more income is likely a foolish move. Why? If you’re in great standing at your Company, the fact that you’re not on the “lay off list” is worth more than 10%. While we’re currently in a bullish economy, knowing that you’ll be safe in a downturn is definitely worth a lot more than 10% as the cash flows for a full year are quite substantial. As a starting number we’d say you need to move up at least 25% for the switch to be worth it for you.
Speaking of switching, if you’re considering the remote work job for less pay, we suggest you run the math extremely closely. Again, if you have a successful business you run (100% ownership) none of this matters. Instead… If you’re in a position where you’re deciding between “remote work for less pay” and “higher pay at expensive corporate headquarters”… The answer is to go to the headquarters. You’re only fooling yourself if you believe that the CEO of the organization will take the remote worker seriously. Imagine yourself as the CEO. You get to choose between two people, one you see every day and you know is fully committed to the organization or the second person who is working remotely from Hawaii. You’re going to choose the first guy. Oh and by the way? One of the reasons why Companies are allowing people to work remotely is so they can’t move, get paid less and they know they are stuck and can’t do much about it!
That final sentence is brutal for most people as they have never been in a hiring position. The reason why you allow for remote work is you know the employee gets stuck in his cushy lifestyle and is now unemployable and unattractive to all competitors.
Now the Math: When you become a millionaire, the game is a lot less about savings “rate” as it is about “dollars saved”. This is another distinction that needs to be flushed out. If you’re a millionaire and you can somehow generate $100K a year tax free by living abroad, you have to ask yourself “How many dollars can i save and invest with this set up”. The answer is likely no more than around $50,000 a year.
This “sounds fine” you say… Until you put it into excel for 10 years. If you could have worked in a high earning corporate position earning say $200K after taxes… You’re way better off staying in the high cost of living area. Why? Well even if you spend $100,000 a year and save $100,000 that is 2x better than calling it quits today. Don’t laugh at an extra $50K since it’s a huge number over the course of ten years. You both saved the same “percentage” but the result in the future is not even close to the same.
Naturally, the past few paragraphs are going to upset people. The “remote work” trend is not something that is benefiting employees it is actually benefiting the Employer. It is extremely naive to believe that a Company is looking out for your best interests by allowing you to work remotely. They know that when you pull the trigger and get accustomed to being at the “top of the food chain” in a lower cost of living city, you’re never going to downgrade your lifestyle. By the time the employee realizes what has happened, it is too late for him to suddenly go back and climb the ladder again.
Compounding is honestly nuts when you add up how much this impacts your net worth (working remotely vs. sucking it up until you get a real high profile business running). Remote work is likely costing you at least 20% per year since you’re going to be paid less and promoted slower (if at all). Since this is a compounding effect just put the numbers into a calculator and assume 10 years of “living the remote life” and you’ll get an ugly number of 6.2x (1.20^10 = 6.1917).
Interesting Corporate Angles: One other corporate angle we’d recommend is the “consultant” or “token” employee. If you move up high enough you can actually negotiate a high paid position with minimal work hours without the upside. This is only for people who are successful (many of you will fall into this camp). If you do succeed with your side business and it earns 2x what you’re making at your Company (career) you should seriously ask yourself “am i indispensable”. While 99.99% of people are replaceable, if you’re generating enough value there may be a way for you to become an adviser/face of some sort. Extremely similar to being a board member.
As an example, if you’re a sales person who simply has high quality relationships with major customers. You can go ahead and negotiate a high base salary (no bonus) and you’ll simply “monitor the major accounts”. This is actually good for the Company as they get to pay you way less and they have zero disruption. They will no longer include you as part of their “leadership model” and things like that and your hours will drop to the 15 hours per week range. In exchange you can go ahead and move to Miami Beach and focus the majority of your time on your business while collecting a nice salary for showing up and shaking hands 5-10 days out of the month.
The above scenario is actually quite common it just isn’t advertised. If you want to find the people who are doing this, simply look for senior people in your organization who live in “strange places”. Then see if their numbers are “flat” year after year. These are the people who likely negotiated a set-up similar to the above. The other interesting part is that you’re pretty difficult to fire. Since you are accepting numbers well below market rate and they don’t want to disturb their major payers, you are left alone with minimal micro management. Also. As an item of warning, similar to the idea of quitting, if you pull this trigger realize that your career is officially over. You’re trading in an annuity that should last a decent amount of time for the freedom to work on something else.
Concluding Remarks: There are a few items in here that should be taken seriously. The first is asking yourself “what bridge am I burning”. We don’t mean a personal relationship, we’re referring to a general path. If you begin working remotely for example don’t expect promotions or raises anymore.
The second item to think about is the concept of dollars versus percentages once you get past the age of thirty or so. The reality is that “low cost of living areas” are always going to be there. If they aren’t there in the future then those same people benefiting from it now will be in a world of pain if the cost goes up.
The third item we want to emphasize is that it *is* possible to have both location independent income and high earnings. That said, it won’t be coming from a career, it will be coming from an online based business you run. Headquarters = where real decisions are made and where you want to be until you’re “The Boss”.
The fourth item is that true compensation is difficult to calculate. Your personal standing within a firm is valuable, your perks are valuable, the way you are treated is valuable etc. The worst thing you can do is simply leave for 10-15% more only to find out your hours went up 25% and your side business dies due to the increased stress.
The fifth and final item? Always look at Compounding. This relates to your earnings, your relationships and your investments. Most individuals only look at their portfolio when they think of compounding but this ignores reality. By way of example, we doubt you view your friends of 10-20 years in the same light as people you’ve known for 5 years. The people who have known you for more than a decade have seen you go through a lot more and you also got to see their reactions to success and failure.
