The nursing workforce consists of 3+ million nurses. Nursing jobs are expected to increase above average in the future. Nurses make an average salary of $73,000 per year or $35.24 per hour.
Is financial independence possible for a nurse? The simple answer is YES! Nurses are a broad, diverse group, so the long answer is that it’s going to take planning and commitment.
What is Financial Independence?
Financial Independent Retire Early, also termed “FIRE“, is the concept of never needing to work again because you are living off your saved money and investment. A large, passionate FIRE community of people have formed around these ideas with the common goal of financial independence.
Healthcare and Financial Independence
Anecdotally, most people who pursue financial independence are tech workers such as software engineers and IT professionals. Healthcare generally seems to have fewer people pursuing FIRE. There are certain communities of physicians who are passionate about FIRE and personal finance, but few nurses who talk about personal finance much less financial independence.
Financial Independence Numbers
Figuring out if you’re financially independent is shockingly simple. It only takes 2 steps:
1). Calculate your yearly expenses.
This is the hardest part. I recommend budgeting to track your expenses. Both Mint and Personal Capital are free ways to track your expenses.
For example, we spend an average of $60,000 per year.
2). Multiple your yearly expenses by 25
The Rule of 25 is the amount of money you will need to save to consider yourself financially independent.
For example, we will need $1.5 million ($60,000 x 25) to consider ourselves financially independent.
Rule of 25
How does the rule of 25 work? The “multiply by 25” rule assumes your nest egg will only grow by 4% per year after adjusted for inflation.
If you only spend 4% of your nest egg, then you should always have enough money to live off of because your gain cancels out your withdrawals.
The rule of 25 is a rule of thumb and represents a perfect case scenario. Realistically, you will probably need a smaller nest egg to consider yourself financially independent. Why a smaller nest egg? Most people who FIRE don’t actually stop generating some income.
Financial Independence Retire Optional
Most nurses love their jobs. Patient care is very rewarding. Often though, nurses get pushed to do a thousand different tasks, all in a grueling 12 hour shift. Burnout is real for healthcare professionals. Most nurses don’t want to quit entirely. They just want a better work-life balance, but they’re stuck in the healthcare grind because of the much needed income.
Financial independence offers freedom to nurses who achieve it. Imagine if you could work the days and shifts you wanted. What if you could get a 12 week travel nurse contract in an interesting part of the country and then spend the other 40 weeks pursuing your passions?
Pursuing financial independence does not mean you have to retire early. Most FIRE types don’t seem to actually retire. After 6 months lounging at the beach, they usually start up a small business or some other side hustle.
Nurses are in an awesome position to do this as there’s an abundance of part-time, per diem, or travel nurse opportunities. Personally, we are pursuing the “FI” of FIRE and plan on generating some income.
Power of Compounding Interest
Compounding interest is the secret sauce of financial independence. Compounding interest means your total money grows exponentially over time depending on how much interest your money is earning.
For example, if my money market savings account is $10,000 and earns 2% per year, then I will make $200 in 1 year from interest. This $200 will be added to my 10k now totaling $10,200.
Compounding interest really shines with stocks and other investments that have an average annual return of 9% before inflation. Your $10,000 would grow to $23,673 in 10 years!
Now imagine if you added $10,000 every year for 9 years to your initial $10k. After 10 years, your money would have grown to $151,929. You only contributed $100,000 over a 10 year period with a gain of $51,929 due to the power of compounding. This is the financial independence secret sauce, and it’s not really a secret or complicated. You can see for yourself with the Compound Interest Calculator.
Can a Nurse Reach Financial Independence?
With an annual median salary of $73,000 dollars, can a nurse reasonably achieve financial independence? I think many nurses can achieve financial independence, but they will need to intentionally work towards this financial goal.
Many barriers prevent nurses from reaching financial independence. Two major barriers to nurse reaching financial independence include cost of living and lifestyle inflation.
Cost of Living Barriers
The annual cost of living versus a nurse’s annual salary is much narrower than it is for a typical FIRE tech worker or doctor. Meaning doctors and techies have much more income to use in comparison to average cost of living. This can make financial independence more difficult for nurses. The Family Budget Calculator will help give you the average annual expenses for your area and household size.
For example, an RN in the Phoenix area makes an average salary of $76,140. The annual estimated cost of living in the Phoenix area for a single nurse is $37,715. This only gives this nurse the ability to save $19,741 per year after taxes. This nurse’s financial independence number is $942k ($37,715 x 25), and they will have limited ability to pursue FIRE at this savings rate.
Most nurses get married and have families though. The Phoenix RN with a working spouse making $40k and 1 child will make a gross income of $116,140.00, but with an annual budget of $60,307. This now gives the opportunity to save $32,795 per year after state and federal taxes. This married nurse’s financial independence number is $1.5 million (60,307 x 25), and they still continue to have limited ability to pursue FIRE at this savings rate.
Pursuing FIRE for a nurse will require cost of living hacks and cuts or increasing your available income whether through side-hustles, job promotions, or pay scale hacking.
Lifestyle inflation destroys financial independence goals. Lifestyle inflation is expanding your lifestyle choices based on your perceived increase in income. Nurses are probably more devastated by lifestyle inflation in comparison to high-income professionals like doctors or lawyers. This is due to the narrower gap between a nurse’s annual salary and the middle class threshold.
A single RN in Phoenix with an extra $20k after taxes and cost of living can easily spend that money on getting a new car and fun vacations with friends. All great things but potential savings lost. The Phoenix RN with a family can easily decide to buy a larger house with a new car and camper negating the extra $33k they make. Lifestyle inflation is real and difficult to resist.
How to Pursue Financial Independence?
You’re interested in getting out of the 12 hour shift grind as a nurse and ready to start pursuing financial independence. Here are some actions points to get you started down your path to FIRE.
1). Track your spending
You have to know how much money you spend each year. Find a way to track your spending. Tons of apps and websites will do this for you. The easiest option is a free Mint account or a free Personal Capital account.
2). Calculate your FIRE number
Use the rule of 25 to calculate how much money you will need to have saved in your nest egg. The rule of 25 is just your annual expense times 25.
3). Set a target FIRE date
This is the year you want to retire. Use an early retirement calculator to answer the question, “When can you retire as a nurse?” Enter your after-tax income, annual expenses, and estimated annual savings. This will show you your annual savings and estimated retirement in years.
4). Estimate your monthly savings goal
Use the Savings Goal Calculator to figure out how much you need to save each month to reach your goal. Use 7-9% as the estimated interest rate. The results should match the early retirement calculator above.
Include both your work retirement accounts as well as savings outside of work. Ideally this will be greater than 30-50% of your annual income. Building wealth for FIRE is a commitment to saving and investing.
5). Create a Reasonable Budget to Trim Expenses
Budgeting doesn’t have to be painful. Rather, budgeting should be freeing and fun. Creating a budget will help you trim expenses and prioritize what matters most to you. This also helps keep you on track on your path to financial independence.
Start with trimming the easy expenses such as saving on your cell phone bill or cancelling unused subscriptions.
Here are 8 Tips to Start Budgeting and info about dealing with nursing student loan debt.
6). Decide on your investment asset allocation
Asset allocation determines how much money you put in stocks, bonds, real estate, or savings accounts. Generally the stock market and real estate grows an average of 4-9% per year, bonds 1-3%, and savings 0-1%. Play around with Portfolio Visualizer to determine your asset allocation.
I recommend keeping it simple with the US Stock Market and either Total US Bond Market or Intermediate-Term Treasury funds. It’s easy to find quality, low-cost index funds in your work retirement account in these categories. They also give you the best no-hassle diversification. You can also include a Global Stock Market or International Stock Market asset class as a 3rd category to further increase your diversification.
For more info, I’ve also created a free DIY stock and bonds investing guide for nurses.
7). Write an Investment Savings Plan
Sit down and write out how you plan on investing the money you’re saving towards financial independence. This will not only help you remember the larger plan, but also help you stick to your plan when the stock market goes down. Your investment savings plan should include:
- Your overall goal – Financial Independence in 10 years!!
- Your savings goal – $1.5 million ($60,000 x 25)
- Your target monthly savings goal – $5000
- Your target annual return rate – 8.6% compound interest needed per year with $250k already saved
- Your investment asset allocation to achieve the above – 90% stocks and 10% bonds rebalanced annually
8). Invest Savings in Tax-Advantaged Accounts first
These accounts save you tax money in the long run. Generally these are your work retirement accounts such as 401k, 403b, and 457. You can also create an Individual Retirement Account or “IRA” in addition to your work accounts. These are the traditional IRAs and Roth IRAs you may have heard about. You create and manage an IRA yourself with an investment company such as Vanguard or Fidelity.
For 2020, you can invest a total of $19,500 per year in your 401k or 403b. You can also invest another $6,000 in a Roth IRA or traditional IRA for 2020. If you’re lucky to also have a 457b, you can invest another $19,500 for 2020.
Your work retirement plan usually has a limited number of investment options for your asset allocation. Usually there’s a bunch of horrible or poor quality mutual funds to choose from in addition to the preferable S&P 500 index fund. Bond fund options are a mixed bag. Investigate everything carefully and use the Fund Analyzer tool.
9). Invest the rest in a taxable investment account
If you max out your retirement tax-advantaged accounts, then open a taxable investment account with a reputable investment firm. Often this will be the same firm you have your tax-advantaged IRA with.
I recommend Vanguard. Fidelity and Charles Schwab are also solid choices. You’re looking to buy 1 or 2 index funds and then hold on to them for several years while reinvesting and buying more of the same.
You’re not getting into stock trading, so you don’t need a fancy trading platform. Another simpler option might be to get a Betterment or Wealthfront taxable account if you want to set it up and forget it.
For more info on investing, see 7 Steps to Help Nurses Start Investing and DIY Investing for Nurses.
10). Automate your savings
Automate as much of your savings as possible. Have your employer automatically take out 30% of your paycheck and invest it into your tax-advantaged retirement account. It’s too easy to experience lifestyle inflation or spend the extra money sitting around in your bank account.
11). Increase your income
Cutting expenses only increases your ability to save to a limited extent. Increasing your annual income is a powerful boost to your ability to save for FIRE. As a nurse, you can probably increase your income by $20,000 by hacking the nurse pay scale more easily than cutting $20,000 from your annual expenses. You need to do both but investing your time in increasing your income will pay off much more than cutting out the $5 Starbucks.
Nurses have so many career options available. Not all these options pay equally. Travel nurses make significantly more than most younger nurses. Per diem and float nurses also make more for similar work. Becoming a nurse manager or educator is also an option available to most motivated nurses.
Nurses also have the option to go back to school and become a nurse practitioner or CRNA. Both options dramatically increase your income and ability to pursue financial independence. I decided to become a nurse practitioner partially due to the ability to increase my income.
The Financially Independent Nurse
Is financial independence possible for the average nurse? “YES”, but it’s going to require a plan and a lot of commitment. Nurse FIRE depends a lot on how much you’re willing to work at it. Since a nurse’s income is significantly less than a typical techie FIRE type, the path to nurse FIRE will take a little more creativity and planning. Nursing FIRE will require cost of living hacks and budget cuts or increasing your available income whether through side-hustles, promotions, or pay scale hacking.
For example, I am a nurse who hacked the nursing pay scale for several years increasing my average annual salary to $90,000 per year with only a couple years of nursing experience. I then went back to nurse practitioner school further increasing my salary to over $125,000 per year. My spouse also has worked hard to increase their annual salary, giving us a significant opportunity to invest in our financial independence journey.
After tracking and trimming our expenses, I created a reasonable budget of $60,000 per year for us. Using the rule of 25, we will need $1.5 million to consider ourselves financially independent.
With our savings rate and investments, we should reach FI in about 10 years. I envision we’ll probably won’t retire once we become financially independent. We’ll likely continue to generate income, but we’ll be free to decide. We’re official 1.5 years into our FI journey, and so far we’re on track!
Nurse FIRE Freedom
It’s never too late to start on the journey towards financial independence whether you’re a new grad nurse or a seasoned nurse or somewhere in between. You can always improve your financial situation even if you don’t want to pursue the “Retire Early” in FIRE. Most of the action points for how to pursue financial independence are good financial ideas for every nurse to implement.
Financial independence is possible for the average nurse. Pursuing financial independence as a nurse can free you of the aimless drudgery of a seemingly endless 12 hour shift routine. Most of us became nurses because we love helping people. Often, though, nurses feel trapped in the endless cycle of making a paycheck. Nurse FIRE gives you a larger goal to pursue with the promise of freeing you to pursue your passions in life including nursing.
I hope my journey as a nurse and now as a nurse practitioner towards financial independence can help inspire and maybe educate you on your journey towards nursing FIRE.