It’s funny how humans deal with their own aspirations, and I don’t mean it in an entertaining way. One would assume that having an exciting goal or target ahead of us would already offer enough inspiration and motivation to do everything possible to get there. But for most parts, people tend to keep dreaming rather than actively working on achieving their targets.
A goal without a plan is just a wish
– Antoine de Saint-Exupéry
No matter what you would like to achieve in your life, having a plan is surely helpful. You may pray for luck or good fortune, and it may even indeed come true. But your odds increase greatly if you actively work towards it and to set up a plan is the first part of doing so. This could not be truer when it comes to financial independence.
Investing can be a gamble. There are hundreds of companies out there that can create or destroy wealth within the trading time of just one day. But if you think that your odds of winning the lottery are not good, then there is no need to go for a similar approach with the stock market. It makes much more sense to set up a solid strategy and to execute it step by step. Following this simple rule will help you not only to “sleep well at night” (SWAN), but also increase your chances for a comfortable, and possibly even early retirement.
Setting up a budget and a target
Everything starts with understanding the situation you are in and for this, you need to create your first budget. The word “budget” alone makes some people shiver, but for the sake of just start things rolling, keep it as simple as it gets:
+ Total income per month
– Total expenses per month
= Available cash to save/invest
Congratulations, now you know what you are dealing with. If the available cash to save is any positive amount, then you are ready to set your first financial target. For each month, and for the total year.
If the available cash is not a positive number, then it would be advisable to expand your budget slightly to see where the problem is. You might want to break it down like this:
+Salary / Wages
-Food & Drinks
- =Available cash to save/invest
There are only 3 possible options: Either your income is too low, your expenses are too high or both. Playing with those numbers and finding ways to optimize your expenses or to increase your income (revenues) is basic budgeting and an essential part to reach your target of financial independence.
The deeper you dig into the numbers, the more details you add and the more accurately you start tracking all your money movements, the more experienced and professional you will become. You will develop a sense of understanding of where your money goes, how it comes in and what you need to do to really reach your target. All without a lottery and without prayers in dark church corners.
Your first target must be to have cash available by the end of each month.
This is the part where your commitment has to start and it needs to begin without any compromise. No matter what happens, but you need to ensure having enough cash on hand by the end of each and every month. There are few points that need to be prepared before you start investing, but to get there, you need to have cash available – every – single – month. Reaching aspirational and challenging long-term goals is all about commitment, consistency, and dedication to the plan. Of course, there must be some flexibility in certain circumstances, but this one single point is non-negotiable.
You might have to start small with as little as 25 EUR per month. That’s equivalent to only 4 packs of cigarettes or 3 cocktails in an average bar in Berlin. But this will already open up your first door towards your long-term target.
As mentioned in the beginning, one needs a lot of motivation to get started and motivation comes from inspiration. While I will seldom quote actors or wrestling stars, nobody could say it better than The Rock – Dwayne Johnson:
Many of us dream about spending their retirement traveling, spending time with our children or grandchildren and catching up on all those things that we missed when sitting in an office to hit some KPI targets that someone else in another office considers important for life to keep rolling.
I got to be brutally honest with you: When the time comes that you can actually retire, you may find that your health deteriorated, and your social security alone won’t suffice to pay for these simple pleasures. This is not to scare you, but for many, this is already a reality and the trend is not turning to the better for future generations of retirees.
Investing is a first step to dodge this bullet. The sooner you start, the more relaxed you will live towards your retirement. What other inspiration do you truly need?