Reaching Financial Independence Working In Sales

Photo by rawpixel on Unsplash
His largest single paycheck was more than $35,000!

Most of the people I discuss who have reached Financial Independence has done so while working in a job with a base salary or hourly wage. Having a predictable income makes it a lot easier to create a financial plan. It sets up clear parameters to create your budget. If you know you have $900 coming in next week it’s easier to decide where you want to spend that $900.

I often get a lot of questions about how self-employed or sales professionals can plan for retirement and achieve financial independence. If you are in sales and need some motivation on your journey to financial independence this story is for you.

Meet Mr and Mrs. “Counting our Pennies” or as they refer to themselves Mr. and Mrs. “PoP”. Mr. PoP recently pulled the trigger on Early retirement after a brief but incredibly successful career in sales. Mrs. PoP is still enjoying her job and has no current plans to retire.

They have had quite the financial journey to arrive where they are today where they can easily go from a double income household to a single income household.

Mr. & Mrs. PoP have different viewpoints on what they want out of money and careers. Mrs. PoP’s number one money goal is to never feel financially insecure.

The definition of “financial security” is deeply personal and will vary by our individual circumstances.

Put simply, financial security refers to the peace of mind of not having to worry if you have enough money to pay your bills. Even if unexpected “emergency” expenses pop up like a leaky roof, a financially secure individual will not need to worry about where the money will come from.

In my view, those who desire financial security will be more likely drawn to the FI part of FIRE. Financial Independence (FI) is when you have enough passive income to cover your living expenses. Once you hit FI, you have the comfort of knowing that even if you lose your job you’ll be able to pay the bills. That is the ultimate form of Financial Security.

Mr. PoP had a different goal when it came to money. He dreaded the idea of 40 years working at a 9–5 job. What he desired more than anything was flexibility with his work and his life.

Those who desire flexibility are more likely to be drawn to the RE (Retire Early) part of FIRE. If the idea of working a 9–5 job your whole life depresses the hell out of you, then what could be more appealing than the idea of early retirement?

Mr. & Mrs. PoP financial journey begins in 2009. It was a very busy year for them as they got married, bought a house in South Florida and got a cat.

Honestly, if the story ended right here I’d say it would be a pretty happy ending.

When they got married they had a combined net worth of $50,000. While not exactly wealthy, is a lot more than the average newly married couple who has probably just spent $50,000 on their wedding.

When they first got married Mr. PoP was selling cell phone accessories at a kiosk in the mall. Mrs. Pop had a steady job with a strong salary.

In early 2012 they stumbled across Mr.Money Moustache and learned about the concept of Financial Independence and Early Retirement. They initially had a plan for a “mini-retirement” which would consist of a few years living on a sailboat.

They got really serious about this goal and knew that for it to be a realistic possibility for them, they would need enough money to not only buy the boat but also fund their 401(k) and Roth IRA’s while they were gone. Just because they were on vacation did not mean they were going to stop saving.

These are my kind of people.

They estimated that they would need to save around $300,000 to make this mini-retirement a reality.

This is how you crush a goal, identify what you really want (in this case a sabbatical on a sailboat), figure out what you need to make it happen ($300,000) and then take massive action towards making that dream a reality.

Mrs. PoP has been working at the same company making a good salary for 10 years. Since they were able to live off of Mrs. PoP’s salary, it allowed Mr. PoP to get aggressive and look for more “upside” on his career earnings.

I think this is a really interesting model for a relationship. If one person in the relationship has enough money to cover both of your expenses it provides a financial safety net. The worst case scenario is you need to tighten your belt a little bit.

This safety net can give the other person in the relationship to take more risks with their career. Whether it be entering sales or commission based job or starting a business, these types of oppurtunities are risky but provide unlimited upside when it comes to earning potential.

Mr. PoP ditched his job at the kiosk and picked up a sales job at a tech company. This allowed him to increase his income. How much did he increase his income you ask? His largest single paycheck was more than $35,000!

To give you an idea of how amazing that is, consider the fact that the median annual income in the U.S is less than $32,000. A $35,000 paycheck puts you on pace for a $910,000 annual income

Clearly, he did not make $35,000 every paycheck but this highlights what I just said about the unlimited upside potential in a sales job.

The biggest risk of pursuing Financial Independence while working in a sales role is the possibility that you will not make any money at all. Which is a very real risk when your income is commission based. But since Mrs. Pop’s salary was enough to cover their living expenses, that fear of making no money is removed from the equation.

Investing That Extra Money

Remember earning a ton of money does not guarantee you will reach financial independence. More important than what you make, is what you save.

So how did they invest all that extra money?

They started by taking advantage of the opportunity to buy cheap real estate. Remember, they were living in south Florida in the wake of the financial crisis. They bought their house, which they describe as the “smallest house in the nicest neighborhood for $131,000.

I can’t stress how important this decision was. Many people in their situation would have looked at this as an opportunity to buy the biggest house possible while prices were cheap.

Realizing that their house would not produce any income for them, they bought a modest (but nice) house which freed up more of their capital to invest in income producing assets.

Next, they bought a duplex, which today is mortgage free and provides enough rent to cover their own housing expenses. They also made a bit of a speculative real estate play by purchasing a vacant waterfront lot that was in close proximity to popular fishing areas. They bought the lot for $80,000 and today they estimate it’s worth as more than $200,000.

Personally, I am not a fan of this kind of speculation but it seemed to have worked for them, so what do I know?

As real estate prices started rising quickly, they transitioned to low-cost Index funds.

This I think makes all the sense in the world. When they started investing in real estate it was at the bottom of the market, meaning it was cheap. As it got more expensive they looked for an alternative investment that would generate passive income for them and they got into index funds just as the stock market began to really take off.

Between their increased income and their excellent investments, they hit their $300,000 number in 2014. By this point, they were fully immersed in the “financial independence community” and it dawned on them that if they kept this pace for a few more years, Mr. Pop would be able to pull the trigger on early retirement.

How To Know If You Have Enough to Reite?

Since they were up to date on personal finance blogs, this was a rather simple question to answer. They used the “25 times rule

The 25 times rule states that you need to save 25 times your annual expenses to retire.

If you want to retire today, and you know your expenses moving forward will be $30,000 per year, the 25 times rule tells you that you’ll need $750,000 ($30,000 x 25) to fund your early retirement.

They were also able to use the 4% rule to guide them on how much of their investments they could safely live on during Mr.PoP’s retirement.

The 4% withdrawal rate refers to how much of your retirement portfolio you liquidate in the first year of retirement. This acts as your base year.

In your second year of retirement, you withdraw the same dollar amount you did in the first year plus inflation and from there your annual withdrawals increase by the level of inflation.

One of the underlying assumptions of the 25 times rule and the 4% rule is that your investments will return at least 4% above inflation. So if inflation is 3% you would need to return an average of 7% to ensure you do not run out of money. It is not without its risks.

In Summary

Mr. & Mrs. PoP, by working as a team have been able to find the perfect balance with money. Mrs. PoP is still working at her job which provides her the peace of mind that she has financial security. While Mr. Pop has turned his sales income into passive investment income, allowing him the flexibility of “early retirement”.

It is possible for people working in sales to achieve financial independence. It is the “high risk-high reward” path to financial independence. This story shows that a very good combination within a marriage is for one partner to have a dependable paycheck and the other partner to seek higher earning upside through a sales job.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions