In some circles (perhaps especially among younger people), being an employee has a stigma attached. When asked to think of ‘an employee’, many people will conjure up images of people working soulless jobs in little cubicles under artificial lights.
They might think of working long hours for a boss that you hate. They could think of sacrificing all of the fun in life just to run on the corporate hamster wheel. They could think of (heaven forbid) living to work.
Indeed, there are many employees doing those types of jobs right now. If that is you, my only advice would be to get out as fast as you can!
Life is too short for you to do work you hate for people you don’t like.
There are now companies that offer employees great benefits packages, inspiring working environments and incredibly rewarding positions.
For some people, employment will be the destination, for others, it is just a stop on the journey.
The simple answer is, in my view, not really. You can however leverage your employment to help you reach Financial Freedom.
My view is that you will never achieve Financial Freedom by being an employee alone. If you are employed, no matter how good your employer, your fate is always reliant to some extent on factors outside of your control.
What happens if your employer goes bust? How about if you are made redundant, or you get sick?
In most cases, no matter how fulfilling your work, employment will always carry these risks.
With all of this said, if you currently love your job (note that I use the work love and not just ‘like’ – I believe that there is a job out there that everyone can love), you can use your employment income to create your Financial Freedom.
Whenever I hear someone say that ‘I can’t wait until 5pm’ or ‘how long is it until I can get out of here?’ that just tells me that they are in the wrong job.
I am fortunate to LOVE what I do. When I get to the end of my work day, I am sitting there wishing there was another 4 hours in the day so I can continue working on whatever exciting project I have on the go.
Some people might call that sad, but if the alternative it getting up every day dreading the next 8 hours and wishing my life away, I know which option I would choose every time.
If you don’t feel the love in your current job, you are in the wrong job. Period.
We all have the occasional bad day – every so often I just want to go home and curl up in bed like everyone else. But if those days are anything more than the occasional exception – then you need to find a new job – plain and simple.
Who is he to tell me to get another job. It’s just not that easy you might be thinking. I am not that employable or I have a disability that makes it difficult for me to get a job. Or perhaps, I am too old to get a new job or what I enjoy could never be turned into a job.
These are all very, very common reasons people give why they simply ‘can’t’ do what they love.
I am perhaps going to be harsh here and say what many people call ‘reasons’, I call excuses.
We live in a world where the limits of the human race are being pushed every single day. We live in a world where people who were paralysed learn to walk again. We live in a world where individual people, not governments (think Elon Musk and Jeff Bezos) are sending rockets into space. We live in a world where the impossible is possible.
The internet is now awash with people who have said goodbye to their dreaded 9-5 jobs to follow their dreams, some of whom have done so against incredible adversity.
Quitting your job to do something you love can be really, really scary. Sometimes it feels like it shouldn’t be allowed. ‘Work is meant to be dull and soul destroying, right?’ Wrong!
If you type FIRE (which stands for Financial Independence, Retire Early) into Google, you will come across hundreds of blogs with people who have done just what we are describing here (and you may also find my blog too).
If it is possible for us to send a man to the moon. If it is possible for people who were once blind to start to see again. If it is possible for veterans who have lost two limbs in Iraq to break Olympic records, then it is surely possible for you to walk away from a job you hate to follow your dreams.
It may not be easy. Your friends will probably think you are crazy, your family will wonder if you have a screw loose. It will be as scary as hell. But by gosh, surely you owe it to yourself to spend what little time on this earth doing what you enjoy?
So, from this point onwards, I am going to assume that you do work that you love. If not – start there.
When passion combines with skill and expertise, your earnings will skyrocket way beyond what I can teach you how to do.
In order to be truly Free, you will need to use your employment income to invest or create a passive income business. These are both topics for another post.
Believe it or not there are loads of things you can do to optimise your employment to make your job work as hard for you as you do for it.
So, let’s look now at some of the ways you can get on the path to Financial Freedom as an employee.
As an employee, you will need to really focus on your savings rate. Read this post if you need a refresher.
In many cases, your capacity to increase your earnings as an employee will be limited (although I have a couple of suggestions for you below).
In the first instance, you should aim to increase your savings rate as high as possible by reducing your expenses. Focus on basic expenses first so that you don’t sacrifice too much of your lifestyle.
Once you have done this, there are a few other things that you can do to increase your savings rate really fast.
This sounds so obvious and so simple, yet so few people actually do this on a regular basis.
Asking for a pay increase can be a really scary thing. There is the fear of rejection, the fear of your boss saying ‘no’ or worse and always the possibility that you will lose favour with the management of your firm because you are ‘being a pain’.
In reality however, most of these things tend to be in our own heads.
Especially in smaller companies (where the pay structure tends to be based on the owner’s decisions, rather than a more bureaucratic structure), just asking for a raise can be enough to make it happen.
There are many strategies that you can use to ask for a raise, but I prefer to use plain old logic and justification.
I covered how to get a raise at work in this post in detail.
OK, so if you have asked for a raise and maximised your earnings as far as possible, but you still want more what can you do?
Well, you could look for a role in the value economy, where you are rewarded based on the value you add, rather than based on the number of hours you work.
To be clear, roles in the value economy that can be manipulated in this way tend to be in smaller or at least more entrepreneurially minded organisations. If you are working for a rigid multi-national (and really enjoy it), then you might want to skip some of this section.
The most common example of this is in sales roles, where sales people generally get paid in part or in full based on commissions.
Of course, not everyone can or should be in sales. It simply doesn’t suit some people, but there are other ways to create a role in the value economy.
Perhaps you could agree with your boss some sort of additional payment based on production ‘over and above’ the expected norm. This generally works very well if you are already a good performer in your current role.
Let’s say that your job involves generating reports for clients. If we assume that you are really good at this job (better than 90% of other people) and you already produce 110% of the reports that you are expected to produce. I would call this a pretty good employee!
At this point, you approach your boss and say that you could produce additional reports for a fixed payment each time. This additional payment should be a portion of the value the company derives from the report and not just an extension to your hourly rate.
Let’s say the company charges £1,000 for the report to a client and each one costs £250 to produce. At the end of your day, you could just go home (having already done 110% of your target), but instead you offer to do one additional report a day for a payment of £250.
The company now makes £500 from that report (which they would not had had otherwise) and you make an extra £250. Sounds like a win-win situation to me.
Now again, this is likely to work better in smaller, more entrepreneurial organisations. Larger companies won’t generally have the flexibility to offer such a deal.
OK, so now that we have optimised your earnings in the first place, how can we leverage your employment to get even better results for you?
I find it astounding how many people opt-out of their company pension plans. I know Einstein has his own definition of madness (doing the same thing over and over but expecting a different result), but this is mine.
How does this sound – if you pay $50 into a bank account, I will give you another $50 as well.
Sound like a good deal? Thought so!
This is exactly what a pension plan can do for you. When you join a company pension scheme, normally there is some sort of matching contribution from your employer. Let’s use a simple example – say that you earn $20,000 a year.
Your employer might offer a 3% + 3% pension deal. This means that if you put 3% of your salary into a pension, the company will match that with an extra 3% on top.
That means that you pay in $600 per year, but your employer also puts an additional $600 in for you – this is an immediate 100% return on your investment – where else can you find that?
What’s more, the government will then usually add further money in the form of tax deductions as well!
Many employers will also offer a matching contribution over and above the basic levels. So with the above 3% + 3% example, the company might say, you can pay in an extra 2% in top and we will match it, which could make a total of 5% + 5%.
Again, so long as you can afford to do so, you should snap the deal up like no tomorrow!
Finally, many big companies then have some sort of bonus contribution on top of that as well.
When I used to work for a big bank, we had a 5% + 8% pension deal (I paid in 5% and the company paid in 8%), but then you could add a further sum of money and the company would match that as well!
Using these matching contributions is also a great way to get a leg up on your savings rate. Let’s say you are aiming for a 50% savings rate, but you can only afford to save 10% of your income today. If your employer has a 5% + 5% matching pension contribution, you can take full advantage.
This means that you pay 5% of your salary, your employer pays in another 5% and you still have 5% left to save in another vehicle, giving you a total savings rate of 15% (even though you can only afford 10%!).
Add in the effect of tax deductions and your total savings rate is probably close to 16% or 17% in this example. Not bad going.
Now pensions are generally going to take care of your longer term savings, but what about the short term? What if you want to retire or reach Financial Freedom super early?
Well then you need:
Some employers offer additional help beyond the pension scheme. They offer an employee share scheme.
These are generally only offered by larger companies but some smaller ones are beginning to follow suit.
Employee share plans come in all shapes and sizes, but all of them are generally a good idea as they usually involve the purchase of subsidised shares in your company and they can often have some generous tax advantages as well.
You will need to review the rules of the scheme on offer (if your employer has one) carefully, as they will all be different, but assuming that there is some sort of discount or matching shares offered by the employer, this is another great way to leverage your earnings.
Basically, the way they work is that you may be able to pay in a certain amount each month to buy shares in your employer.
Then, you should receive some sort of discount on the share price (say 10%) or you might get so-called ‘matching shares’, where you might get, say, 1 free share for every 3 that you buy.
Usually you will need to be employed by your company for a certain period of time after the shares are purchased to qualify for the matching shares if they are awarded, so you should think carefully how long you are likely to remain with your company before going into the scheme.
Typically, the required time is three years. So if you start share plan 1 in year 1, these shares will be released to you (and available to sell in year 4), the plan started in year 2 will be released in year 5 and so on.
This is another way of effectively getting ‘free money’ from your employer. If you buy 3 shares and you get 1 for free, that’s a 33% bonus on your money on day one! I can’t think of many other investments with that type of return!
My one piece of advice with employee share plans is that although you should take advantage of them as much as possible, you should also try to sell the shares soon after they get released to you.
If you don’t, you risk building up a large portion of your total wealth in shares in the company that you work for. That’s the company that you also rely on for your income.
This is very risky as if your company gets into trouble (if the last few years have shown us anything it is that no company is too big to fail) then not only do you risk losing your job, but you also lose a big part of your wealth as well.
I saw this happen to a number of colleagues when I was working in the bank.
Two guys in particular come to mind. Neither of them were big earners, but they had been diligently saving into every share scheme since they started work at the bank aged 16.
Now aged 63 and on the verge of retirement, by most estimations, they were comfortably millionaires. The trouble was that all of their wealth lay in the shares of the bank that employed them.
When the financial crisis hit, their millionaire fortunes were reduced to closer to $25,000. Their retirements were ruined and even in the 10 years that have passed since the financial crisis, the share price of the bank has never really recovered.
This shows first hand the risk of concentrating too much of your wealth (and your job) into one company.
By all means keep a few of the shares, but once you are able to sell them, I would recommend you sell most of the shares in your employer and diversify your investments elsewhere.
Most start-up companies wont have the advanced benefits packages, pension plans and other perks that come with larger employers. They simply can’t afford them.
They might also not be able to pay salaries that are as decent as the larger employers.
What they can often offer though, is shares in the company as a reward for your hard work and dedication.
While these shares may often be worthless to begin with, if the company grows very large then the shares could end up being worth millions.
Just ask the early staff of Facebook how they feel about those worthless shares they received 10 years ago that have now made them multi-millionaires!
The other great thing about a start-up business is the working environment and the culture. There is something that is inherently exciting about working on something that is new and growing.
Yes, there are some challenges as well, but if you have not done so before, I would recommend that everyone does some work in a start-up environment at some point in their life.
Some of the larger employers (and often smaller ones as well now because of improving technology) offer a so-called ‘flexible benefits package’.
These come in all shapes and sizes, but the general idea is that you can often buy discounted products and services by having deductions taken from your pay each month.
The different options available vary dramatically. Some employers will allow you to buy or sell your holiday days. Either losing or gaining some salary in return for an increase or decrease in your holiday allowance.
Others will allow you to purchase discounted insurance or shopping vouchers. When I worked at the bank, you could buy supermarket vouchers at a 7% discount, meaning you got an automatic 7% off your weekly grocery shop.
That’s 7% more money to save or invest for your future Financial Freedom!
If your employer offers a flexible benefits scheme, I highly recommend that you look over the details and figure out how it might work for you.
That’s not to say that every component of the scheme will be a good deal. When I used to work at the bank, you could buy home insurance through the scheme at a ‘discount’ to the standard rates, but if you looked online, you could get a far better deal via a comparison website or by going direct to the insurer.
Do your homework and flexible benefits schemes can be another great way to leverage your employment income.
So there we have it. There are so many ways that you can use your employment to help you on the journey to Financial Freedom.
For some people on this quest, their job is all they need. Perhaps they have a great income and love their job. Perhaps they have a great employer who offers complete autonomy and unlimited holiday.
Other people might want to work for themselves or start a business, that that is a post for another day!