I recently read The 4-Hour Work Week by Timothy Ferriss. Apart from some temporary inspiration to seek financial freedom, I came away from the book thinking that while I’d helped Ferriss achieve a 4-hour work week by buying his book, I was no closer to such an elusive goal. And I would guess that 99.9% of those that read the book, don’t implement its suggestions. If you followed the advice in the book and achieved a 4-hour work week, by all means let us know. But having spent some time considering what Ferriss had to say, I’ve concluded that a 24-hour work week is more realistic (although still difficult to achieve) and would free up a lot of time to do the things I enjoy. Like so much in personal finance, our choices are not all or nothing. Balance and compromise are good choices. So here are my 5 steps to achieving a 24-hour work week:
- Step 1: Calculate How Much Take-Home Pay You’d Lose
- Step 2: Calculate Savings From Working 3 Days a Week
- Step 3: Identify Areas to Reduce Spending
- Step 4: Identify Ways to Increase Passive (or nearly passive) Income
- Step 5: Make Yourself Indispensable at Work
Reducing your weekly working hours from 40 to 24 and your gross income by 40% doesn’t mean you’d lose 40% of your take-home pay. Federal income taxes are calculated using marginal rates, which generally means you pay more taxes on the last dollar you make than you paid on the first dollar. Also, depending on your income, you may have lost the benefit of some of your tax deductions because they were phased-out or because of the Alternative Minimum Tax. Having prepared my taxes with TurboTax, it was fairly simple to plug in a different income amount to determine my taxes, and then recalculate my take-home pay assuming I took a 40% salary reduction. Here is a federal income tax calculator that I used for this step. Of course, you’ll have to factor in state income tax, too. The result for me was that while I reduced my gross pay by 40%, my take-home went down by only about 22%. Still significant, but a lot less than 40%.
Savings from working less may or may not be significant, depending on your situation. For me, the cost of public transportation, clothing and lunch are not significant, but every dollar counts. You may have to commute long distances to work at significant cost. Working 3 days a week may allow you to do away with a second (or third) car, saving not only on the cost of the car, but also on insurance and repairs.
This is where I examine just how important all the “stuff” in my life is. If it means having a 5-day weekend every week, what would you give up? If you need to offset $1,500 in take-home pay, for example, how important is $125 a month for cable, $75 a month in books you could have borrowed from the library, or $300 a month eating out? I’ve looked hard and long at my expenses and believe that I can dramatically reduce them, particularly over the coming year. This step also helps put into perspective the true cost of what we purchase because we begin to see our spending in terms of the work needed to earn the money (before taxes) to pay for all our stuff.
There are many things I’d like to do to earn alternative streams of income. Blogging and real estate investing are the two main income streams for me. Depending on your financial situation, generating even $1,000 a month in income from alternative sources might be enough to enable you to reduce your work week. I’m not suggesting this is easy, but it’s not impossible, either. And depending on how you generate the income, you may pay significantly less in taxes. Real estate investing is a good example of this. Lazy Man and Money writes a lot about alternative streams of income and here is his July 2007 Progress Report.
This step is critical. If you have a job that you believe would enable you to work part-time, you must demonstrate that you are valuable enough to the organization to be effective part-time. Of course, some jobs may lend themselves to part-time work, but for most of us, raising this with our boss will be a delicate matter. One step in that direction is to begin working one or two days a week from home. This conditions your boss and co-workers to not seeing you everyday. Again, the ability to telecommute will also vary from one job to another, but is a good first step toward a 24-hour work week. If your current employment is just not conducive to part-time work, you may have to look for another job. Ultimately, you may find that you can make more money part-time at another job than you can with your current work.
One final thought. Working less can take many different forms. You may begin working 4 days a week, or working full time but telecommuting one or two days per week. The ultimate goal, in my mind, is to take back more control in your life to do the things you want to do when you want to do them.