From my point of view Financial Independence is the most important goal! With this blogpost I want to start a series on my blog talking about the DO’s and DON’Ts you have to follow to reach financial independence.
I read a lot of books about it which content I want to wrap up – the most important parts – and tie things together. In the end this series should be like a “How To Built The Base For Financial Independence” for myself – and every reader and listener.
I rarely talk about the topic with friends or family, but when I do the reaction is always the same: Great idea, but that is not possible! Often it feels like they have a laugh at my idea. To be honest there have been some weird ideas in my life and they might be used to it. But looking back I made most of them into my personal reality. Not always in time or exactly the way I wished them to, but I did it.
So why not financial independence? It will not happen tomorrow or the next month, but consistency seems to be the key. The more I get creative about it, the faster it might go. In my eyes it is mostly the way you treat yourself to reach those goals. Again – why not financial independence?
#1 Money Mindset: It is always YOU versus YOU
Mankind was able to fly planes, drive cars, install computers and whatsoever. There are quite a lof of people in this world who were able to have a good outcome before entering their retirement. Just to make things clear: I am talking about financial independence!
That is the point where your expenses are paid by “something else”. This “something” could be a lot, but there is one main character: It does is independent from you and your work and time!
My biggest claim has always been the thrill to work “against myself”. That is not really what I mean, as I am not split into two persons. I guess all of us know the feeling of knowing what is right to do at that moment, but not doing it. This could be simple tasks like switching off the TV. There is no direct consequence when you are not switching it off. You might lose some time, but it is more about the war in yourself.
In Germany we call this the “inner pigdog” – which is very germish. It is the part of us, which says to still sit down and only allow it to yourself only this time. Next time you will stand up and go for a walk or do the task.
Honestly, I really fucked things up during 2020. This is why I was reading so much about it over the last weeks and months as I was trying to find my grit back. I am still struggeling and I guess I will for a long time – dont know if it ever ends. But I need to master those moments in my life and cope with them.
So, there is no one coming to help you. You might pay the best coach for it, but for as long as you do not start, there will be no success. On the other hand: Starting will not make you hitting the goal tomorrow. It is more like consistent work – and a lot of work – to built the base for your goal.
#2 Me first: Financial Independence requires finances first
Last year I spent some time off from work. I had huge plans to run the Alps, but due to Corona those runs were cancelled. Of course I would have been able to do it. But first I am not an experienced alpine runner or hiker and second this was not really suitable to the social situation with the kids.
Therefore I sat down during my free time and re-arranged my financial stuff. I had been doing good until then, but I allowed myself to get off the track somewhen in 2020. It started with small things, which weren’t maybe that bad. More and more of it added up to a completely wrong direction I was heading to.
Financial Independence requires your all-in motivation. It does not help to want it – you need to make it your number one priority. The more moments you allow to get off the track, the longer it will last. And it does not need a lot to make it to eternity to reach your goal.
So what did I do? I built my personal system. A system out of things I want to achieve mentioned as a money amount. And those were my targets I was working for. Knowing it will take time to hit them I calculated when I will be there to have a clear point of it in my life.
The more you master and control you finances, there faster you will be on your track and moving on it. It is not a miracle, but a tough way to stay on. As discipline is a problem for me, I made it somehow a “daily habit” to think about what I am doing it for.
#3 Make a plan: Execute the plan
After I got my mind right and made my budget, it was time to make a plan. You do not need a plan like a business plan, but it should be pretty detailed to remind yourself of your goal at any time.
I am not really into this visualizing-thing, but as I have a Google sheet acting as my daily tracker, I decided to create a nice starting page of this document. It includes pictures of what I want to achieve and working for. For example I took a house in Sweden by the lake and one on a Carribean Beach as I would like to live part-time here and there in my future.
To get there I need to be mentally and physicially in shape, wherefore I took a picture of a sixpack. For me this is the ultimate fitness-goal and sign for a good shape. And this way I took five pictures for any part of my life which matters to me with my final goal.
On the next page of my document I have something like a tracker. It shows me where I am at currently and how much way there is to go. Mostly those are financial goals as I think it is most common to understand it for myself.
As you can see I am quite detailled in my planning. That is great, but the bigger task is to take action. I planned the world for myself and to the moon and back, but I am not there. Therefore it is really important for me track my way on a daily base. Every day there are five tasks to be finished which are created that way to have an impact on my goals. I will get deeper into this when I am showing you my personal tracker.
Whatever your goals might be – it is always possible to cut them into pieces. Take care to always have your big goal in sight, but make the tiny steps your daily duty and commitment to work on. Everything starts with the first step and you will be able to achieve anything when you keep to move forward step by step by step.
#4 Portfolio theory: Invest diversified at low costs and tax-advantaged
Aiming for financial independence is a goal of quite a lot of people. From my point of view a lot of them might be able reach it, but only a few do. As we are often impatient we would like to receive the reward earlier. Probably directly after we started and now. Therefore people are quite vulnerable to believe in “get rich quick”-things.
Unfortunately those plans have a risk and a very short list of people who made it that way. I am talking about daytraders, binary options, crypotcurrency traders, network marketing stuff and whatsoever. To be honest I of course tested some of that ways as I am of course also vulnerable at that point. Why wait when you can have it tomorrow with this simple book/system/blablabla 🙂
In the end the best to success is boring and simple. Get your stuff together, make and plan and use traditional investments to help you grow your wealth. Those tools are available for anyone and pretty easy to use. Keeping complexity low as well as costs has probably the highest interest rate.
There is no right or wrong on that. You might choose a higher risk investment portfolio like me as you want to get to goal earlier. The most important point here is to diversify your investments and not put your wealth at a critical risk. Of course, risk is everywhere, but the more you think about it the better you are able to manage the risk and use it for your compound interest.
Usually your government has legal opportunities to help you grow your wealth. In the USA this is called the 401k and IRA contribution. Over here in Great Britain people are able to save up taxfree into an Indivial Savings Account (ISA). Norway and Sweden are using goverment investment funds to secure the retirement plans. And in Germany politicians are slowly starting to talk about it.
Low costs, taking any advantages you might get (legally) and executing on your investment plan will lead to your personal wealth success. There is no way you could fail except you stop sticking your plan.
#5 Use compound: Multiply your savings and increase your income
The scheme is pretty simple: The more you focus on the input, the more output will follow. That might not always work in any area of you life, but for your finances this is legit. Therefore it is important to start. Start as early as you are able. I really regret I haven’t started earlier, as the compound effect works harder for your over time.
Additionally it is important to start from my point of view as you have a base level from which you level up over time. Imagine starting to save 100 EUR each month. That will not make you rich, but if you work on adding another 100 EUR to it by every year you will be saving 500 EUR per month after five year. Usually this is possible if you are mastering your personal finances.
Financial Independence isn’t for everyone. It is especially for those who are willing to waive short-term rewards to grow their much bigger long-term rewards. You might buy the newest Playstation for 500 EUR or you invest that money. If you do it every month you will create wealth of about 85.000 EUR over a period of 10 years at 6,75% (Bondora Go and Grow as an example). That is nearly 500 EUR every month of interest payment.
Of course the part of personal reward is important but it should be a fixed share of your whole income. Tony Robbins, T Harv Ecker or Robert Kiyosaki – you name it – anyone of them suggests something between 5% to 10% on your personal “fun account”. With this money you are able to do anything. And if you want to have you newest Playstation increase your income so your fun account will grow that far.
In my eyes there is another aspect to think about: The more you get used to not rely on a single income source, the better you are spreading your risk. I am huge believer of creating a sidebusiness which pays you additional money. This might be easy as a ghostwriter like I do or ways bigger as publisher like Lars – or something inbetween. Imagine you are fired for whatever reason – there is still a small income you are receiving which makes me happy to know about.
#6 CEO of financial independence: Act like him/her and make it happen
I really do not know how many of my readers and listeners are self-employed or employees. For myself I am mainly an employee working for a company. Guessing a lot of you are also employees there is one single important fact: employees are directed by their boss and paid to finish the tasks. Self-employed people have to manage a much wider area of tasks about their work. They make the decisions themselves.
So, if you are an employee and your company goes bankrupt you could usually blame the company for wrong decisions. If you go broke as an self-employed person it was you having made the wrong decisions.
Regarding your financial independence there is only one possible answer to the question who is responsible: YOU!
After learning how to set your finances up and master your budgets it is essential to understand, that you are in the lead. There is no one else coming to take responsibility. No one – never! Therefore you need to learn to act like a CEO. You are the CEO of your financial independence mastering your financial way.
You daily work has to make an impact on your long term goals. And if you fail to meet them you are failing as an CEO.
I think this is very important to know. On the hand this is quite a huge responsibility but on the other hand it is a much larger chance to take. You are in the lead. You are the one on the steering wheel giving directions about the way. There is no one you have to care about or fulfill his or her goals.
It feels umcomfortable but it is worth it
From the very first day on those facts felt very uncomfy. I mean I was about the refocus my finances. And those are important for me and for my future. So I started working on my future, which means a) i can influence it and b) if I am doing something wrong it will be me taking a bath on the shit I produced.
And looking on my bank account today it shows me that more than 90% of my way are still ahead. I guess there is no way things will get easier. Facing anything and trying to overcome those obstacles is something I need to get used to. This is mainly the reason why I decided to write this blogpost as I am an expert in letting things influence me – and than trying to get back on track.
So, I hope I was able to explain you my idea of this blogpost-series. From the next blogpost on we will get into details about any of those six headlines.