Glowing neon side that says "Do Something Great" in all capital letters. Motivation for a side hustle.
Mind Money

The Mathematical Side Effects of a Side Hustle

$1,250,000. That’s my family’s FI (Financial Independence) number. That number allows us to live on $50,000 per year (increasing to account for inflation) for the rest of our lives, according to the well known 4% rule.

That number is pretty daunting, isn’t it? Especially for a couple of 31 year olds who are looking to retire in just 9 years. It’s even scarier for someone in their 40s or 50s who is just starting to think about retirement and whether they can make it by 65.

Just over five years ago Gina and I had a net worth in the negative. Three years ago we hit a net worth of zero. It took us another eight months to save up an emergency fund that will never truly be invested or contribute to our retirement goals.

So at that point we were 29 years old with a goal of retiring in 11 short years. On top of that, little did we know, we were a year away from having our first child.

Could We Do It?

Sure. We could make it to $1,250,000 in 11 years. With our income at that time, it would have taken closer to 15 years instead of 11. However, we would obviously get raises over the years, increase our savings, and continue to find ways to decrease our expenses.

Nowadays, we are 9 years from our retirement goal and I’m 100% certain that we will retire by 40, if not earlier. Here’s why.

Side Hustles

The power of the side hustle is an incredible thing that should not be underestimated. Side hustles improve both sides of the FIRE equation, increasing the amount that you’re able to save while decreasing the amount that you’ll need invested in order to retire. Let’s take a closer look.

Neon sign that says HUSTLE in all capital letters from the website Four Walls of FIRE.

Increasing Savings

Gina and I have side hustle income of approximately $1,000 per month. We don’t need any of that money to live on, so that money is sent directly to our investment accounts.

Earning 7% compound interest over the next 9 years, we will have $150,000 more than if we didn’t have any side hustle income at all.

Increase that number to $1,500 and we’ll have $225,000. $2,000 Per month turns into $300,000 over 9 years.

Seeing how our side hustles have consistently grown over the past few years, it’s not hard to imagine earning $2,000 in monthly side hustle income.

Decreasing Money Needed to Retire

The 4% Rule claims that if you have 25x your annual expenses invested, then you’ll almost certainly never have to work again. By withdrawing 4% of your nest egg annually, your investments will grow enough to cover your lifestyle indefinitely while accounting for inflation.

What most people do here is simply calculate their annual expenses ($50,000 in our case) and multiply by 25. This is where we came up with $1,250,000.

While following that rule will make you Financially Independent, it doesn’t lock you in to never earning another dollar for the rest of your life. There are some people who want to reach FIRE and never have another income stream, but almost everyone I’ve met in this community is different.

The FIRE Movement is full of Go-Getters, Motivators, and opportunity-seeking Side Hustlers.

This is where the math changes. Gina and I both agree that we can and will easily maintain an income of $1,000 per month after retirement. Additionally, we believe we can double that income upon retirement, since quitting our jobs frees up 40 hours per week for both of us.

The Not-So-Confusing Mathematical Side Effects of a Side Hustle

Here’s where some people get lost, or they simply don’t understand how to account for their side hustle income when calculating their FI Number.

For every dollar you earn annually in retirement, you should subtract $25 from your FI Number.

Our side hustles earn $1,000 per month. So, we multiply that by 12, showing that we earn $12,000 in annual side hustle income.

Next, we multiply $12,000 by 25. The answer here, which is $300,000, can be subtracted from our FI Number, providing us with a new FI Number of $950,000.

Remember earlier when I mentioned that we could double our side income upon retirement due to the additional free time? By earning $2,000 per month, our new FI Number is just $650,000.

One Important Note

It should be understood that this should only be considered your new FI Number if you’re fairly certain that you can maintain and improve your side hustle indefinitely.

The actual goal in our example would be to earn more than $2,000 per month. By doing this, we would be able to live on less than 4% of our nest egg, allowing it to continue growing.

In a better scenario, our side hustles would earn enough income to cover all of our expenses. This would allow our money-making machine investment portfolio to compound and grow exponentially faster than if we were withdrawing 4% annually.

Perfect Community for Side Hustling

The FIRE Movement couldn’t be more perfect for side hustling. We are focused, driven, and we know how to manage our finances. There are thousands of side-hustling machines sprinkled throughout the FIRE Community who are ready and willing to teach and mentor.

On top of that, the FIRE Movement is full of people who are itching to do more. We live modestly. We cut back all the unnecessary junk from our lives that others are blowing money on.

However, we eventually hit a wall. It feels like we’ve done everything we can do to reach FI sooner. No car payments. Low mortgage or rent payment. We’re crushing the grocery budget. We cut the cord. What else is there to do?

So many members of the FIRE Community hit this wall, and the solution is simple. Start a side hustle. Rather than spending hours working to increase your savings rate from 50% to 55% by cutting back, reach that same exact goal by increasing your income with a side hustle.

It’s much easier than you think. You’ll likely have fun and you can stop depriving yourself of things you truly enjoy in order to scrape up a few extra dollars to increase your savings rate by a few percent.

Not sure where to begin? Check out the Facebook pages SH Nation or Choose FI. Who knows, maybe you’ll come up with the next Million Dollar Hustle!

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4 Comments

  • Reply
    Audrey Hodge
    June 26, 2019 at 12:31 pm

    Thanks for doing the math! Now I need to figure out how much I can consistently bring in from my side hustle to offset my FI number…(runs off to calculate)

    • Reply
      Matthew
      June 29, 2019 at 11:24 pm

      Audrey,

      Do you have a side hustle? If so, great job! Side hustles can also give a fun purpose to early retirement for those who are unsure of what they want to do!

  • Reply
    tiedieseniorfi
    June 29, 2019 at 12:54 pm

    Great article – having multiple income streams also provides protection/insurance against the potholes of life we all hit sometime. If for any reason one loses a job or must walk away, the side hustle cushions the blow.

    Another take on this here: https://tiedyeseniorfi.com/2018/01/13/the-bathtub-metaphor-for-cashflow-and-net-worth/

    • Reply
      Matthew
      June 29, 2019 at 11:27 pm

      Glen,

      I couldn’t agree more. Had this article not been relatively long to begin with, I had intentions of covering the “safety net” aspect of additions income streams! Thanks for the comment!

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