Hi, Reader!

In November 2018, it became clear to me that quitting my teaching job to pursue real estate full-time was my only way forward. There was no other option. I was in the midst of an awful school year, and I was beginning to understand that a teaching salary would simply not meet the goals that my wife and I had. I had to make a change.

I know you have big goals. And maybe, like me, you're realizing that your W-2 job might just be standing in the way of reaching those goals.

You've probably thought about quitting your job (most people have).

I talk to people all the time that are unhappy with their work, would like to quit, but just don't know how to pull it off. There are so many questions.

What will I do for money until my real estate (or whatever) is paying the bills?

What about insurance?

What will I do for retirement?

What if I fail?

It would take a book to thoroughly answer all of those questions. But there is one simple tactic that was integral for me to confidently deliver that resignation letter to my boss (without knowing the answers to all those questions).

Let's get into it.

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The tactic that gave me the confidence to quit is the runway fund.

This tactic is borrowed from Scott Trench's book Set for Life. It's a worthwhile read if you have any desire to quit your W-2 and pursue financial freedom on your own terms.

The Basics of the Runway Fund

1. Calculate your living expenses for 12 months.
2. Set aside that amount of money - or more - in an account (the runway fund) that will only be used to pay your living expenses for the next 12 months.
3. Quit your job and pursue real estate (or whatever) as your full-time job.
4. Use your runway fund to pay your day-to-day bills.

That's it. It's simple but not easy.

Your runway fund is not a vacation fund. It's not a golfing fund. It's not a buy-a-truck fund. It's not even an emergency fund. Your runway fund is only for your anticipated living expenses, which you calculated way back before you quit your job. Your runway fund is completely untouchable for all other expenses.

The premise of this concept is that your W-2 is holding you back from what you really want to be doing. How can you possibly flip houses, buy rental properties, raise capital, do whatever else AND have a full-time W-2? It's nearly impossible to execute well. We only have so much time.

So eliminate your W-2 and focus all of your attention on your new endeavor.

Having 12 months of expenses set aside should also reduce or eliminate the stress and pressure to produce income immediately. When you're starting from scratch, there is basically zero chance that your real estate will be producing income on Day 1 after you quit your job.

You'll Have Options

The runway fund gives you 12 months to give it all ya got. After 12 months, you should have a pretty good idea if your new endeavor is going to be sustainable. You may not have completely replaced your W-2 income after 12 months, but you should at least see your trajectory.

Hopefully, the arrow is pointing up and you'll never look back at your W-2. You got this.

Maybe it's iffy. Maybe you've made some money, but your runway fund is running low. This might be the time to put some more money in the runway fund, live more frugally, or get a part-time job in order to continue with your endeavor.

If you've given it all ya got, and after 12 months, your new endeavor just doesn't seem like it's going to be financially viable, you have a choice to make. You could keep at it and live frugally, or simply go back to your W-2. If you choose to go back to a W-2, it could be an opportunity to pursue something with better hours, more flexibility, or more fulfilling,

Having to return to a W-2 job is not a failure. You will have learned tons of lessons over the last 12 months.

Let's be honest, when you're at the end of your life looking back, you'll be thankful and proud that you at least tried, instead of standing at the end of life wondering what if.

Other Things to Consider

• A Running Start. When I quit my W-2, I had a running start on my real estate portfolio. I was already successfully flipping houses and had some cash-flowing rental properties, so I was not starting at zero income on Day 1. If you are especially nervous about finances, having a running start on your new endeavor - where it's already producing some income before you quit your W-2 - might help.
• Business Expenses. Starting a new endeavor will probably require some start-up capital. Marketing, materials, down payments, etc. This stuff all takes money. You'll want to have a plan to cover these expenses (and it doesn't come from your runway fund).
• Frugal Living. The year of saving for or using your runway fund is probably not the year for that fancy trip to Hawaii, the jaunt around Europe, or buying a new truck. What you're trying to do is hard, and you're going to be grinding. Starting a new business and replacing your W-2 income is going to take work and sacrifice. You'll be working long hours, so get mentally prepared. This is not the time for extravagant personal spending. That will come later - after you've put in the hard work.
• Financing. Something that's rarely talked about in the real estate world is that financing properties will become incredibly difficult with no W-2 and no experience. Be ready for this. Some suggestions to combat this: gain experience and establish local banking relationships before you quit, partner with others to get deals done (even a spouse with a W-2), or find a key principal willing to co-sign on your loans.

To be clear, I'm not trying to convince you that you need to quit your W-2 to invest in real estate full-time. You need to come to that decision on your own. If and when you do, the runway fund might the right tool for you to confidently deliver that resignation letter.

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Curious about commercial real estate? Read The Top 6 Reasons to Invest in Non-Residential Commercial Real Estate. ​