Getting some perspective

I have been on vacations for the last four weeks. While the first week was still pretty stressful due to a few family and work matters, the second week was already very relaxing. I spent some time at our inherited house in the north-east of Thailand. A peaceful and quiet place.

Extremely low living costs, usually filling a table full of food for less than 10 Euros at today’s exchange rate (1 Euro = 37 THB). A small Thai herbal sauna just in front of my house. A visit there costs only 50 THB which is not even 2 Euros. This includes the sauna visit and free of charge herbal tea – all day long. There is a nice public park for about 5 min. by car from my house, where I can go exercise every day, with a nice lake to run around, pull-up bars, a basketball field, soccer field and some machines that can be used. There is also a nice playground which is great for kids. After exercise, I can take a 2 min. ride to the local market where I can get a freshly pressed carrot-apple-lime juice for 20 THB. Roughly 0,60 Euro. A portion of steamed chicken breast with some rice and a chicken-broth-soup costs 40 THB. A little more than 1 Euro.

Why do I list all this? Very simple: I could have a very simple and actually good life in this place for probably less than 15 Euros a day – for my whole family. That’s 450 Euros a month. We inherited the house so there is no rent to pay, but even if I would rent a place it would cost not more than 200 Euros. For a 2-3 bedroom house or apartment, with a bathroom, garage, garden and garbage pick-up.

Keeping living costs low

The secret to success for most people is not about how much they earn, but about how much they spend. Having a high paycheck won’t help you if you are not able to manage your expenses. Living frugally is an essential part not only to become financially independent but also learn to enjoy a simpler life.

Basic living expenses play a key role in the entire structure. As we know, many people around the world use the majority of their earnings to spend on basic living costs. Rent, water, electric, food, transportation, education, and medical costs tend to eat up very large chunks of distributed salaries. Therefore the logical conclusion for most should be, that in order to be able to save more, one should try to reduce those costs as much as possible. Living above your means is a sure way to end up broke. Living below your means, however, will unlock the potential to save and to invest. Thus, building wealth.

There are plenty of blogs that teach people how to live frugally and I follow a few of them. I can always find some idea and some tips on how I can squeeze out more opportunities to save, without having any significant impact on my lifestyle. So while I don’t intend to make my blog about this, here my top 5 tips that I think can make a huge difference:

  1. Move to a low-cost area – This is probably the most important one. Living in an area where costs of living are low can have a tremendous impact on your ability to save up money. This does not only refer to the rent for your house, but also to such basic costs like groceries, coffee-shops, etc. If your profession offers the flexibility to move around, you certainly should consider moving to a place where you just get more value for your money.
  2. Ditch things that you don’t need – or declutter your life. Memberships, online subscriptions, insurance policies… you really got to review it all and consider which service brings real value to your life and what you consider necessary. For most cases, less can be more.
  3. Embrace minimalism – or declutter your life even more. I am sure I quoted this at some point on my blog already, but many people live their lives by buying things they don’t need, with money they don’t have, just to impress people who they don’t even know. It’s not necessary. You don’t need to have an expensive car. You don’t need to follow every new trend and to always be up to date – especially if you need a credit card to make it possible. Having less will free up your mind, your time and let you focus on the things that really matter. Like your family, or going for a run (instead of the gym). And when was actually the last time that you just laid down on your back in a field or on a lawn and watched the clouds passing by in the sky?
  4. Learn about taxes and benefits – A few things in life are certain. One is, that we all have to die. The second is, that we all have to pay taxes. However, while we still can’t control the first point, paying taxes is not only a burden but it also opens up some benefits. While some, such as a schooling system for your kids or basic medical care, are more obvious, other benefits are hidden and not in plain sight. So no matter where you live and what you do, it makes sense to spend a few days a year to learn about things that you are entitled to, and how to benefit from them. Ask around your friends, google it or maybe invest a few Euros to seek the support of a professional. It may be worth it.
  5. Re-evaluate your priorities – We all have our routines. Things we do, because we always did it. Things we do, because that’s how we grew up. Things we like to do because that’s what we identify ourselves with. Chances are, that those things do cost you money, and chances are even higher, that there are tons of things you might not know about yourself. Try to do new things. Explore your own abilities, interests and challenge yourself with things you never thought about or considered in the past. It’s not just about saving money, but also about developing yourself, expanding your horizons and finding new opportunities along the way.

Early retirement is possible with some sacrifices along the way

I am planning for early retirement. However, as I stated a few times, this won’t work without a few sacrifices. FIRE is not for everyone, because it requires a lot of sacrifices that many are not willing to take. However, living frugally is not one of them.

Living frugally, embracing minimalism and learning to be happy with less, will most probably contribute to a better and healthier life. It will reduce stress, pressure, costs and help you to turn into one of those people who are endless optimists. Because of the fewer things you own, the fewer things you have to worry about. And in today’s world, this is a huge burden taken off your chest. You should give it a try.

Happiness is relative – but money helps

As some of my readers know, I am a frequent visitor to the website http://www.visualcapitalist.com. It offers a tremendous amount of information in a very easily digestible manner: Smart visualizations. Most recently I have stumbled upon this graphic:

world-happiness-map-2019

I like to be very careful with definitions about such basic terms as “happiness” and especially with the criteria that are going into the scoring system. This is because some things one person may perceive as being essential to one’s happiness, but someone else might see it as completely irrelevant.

This graphic has its origins in the https://worldhappiness.report and you can see for yourself how the gathered data has been evaluated, and ultimately resulted in the given scores.

When looking at this report, I can’t help but notice that the happiest places in the world are also the places with the strongest economic status and specifically GDP per capita. This is by no means an accident.

Fact is that wealth, personal or government’s funds aimed at social purposes can contribute to the happiness of individuals in many ways. If you don’t worry about food, shelter, health, and education, life is becoming simpler. Your worries go away, stress levels go down and the future becomes bright. Even if you might miss some good chances along the way, you might still be doing fine knowing that your children have the same or even better opportunities in the future.

So when people say that money doesn’t buy happiness, I would say that this statement is questionable at least. The wealth that is available for your personal use, whether via your own funds or through the support of your government, will produce, statistically, a higher chance for you to be happy. And it is, therefore, no surprise that the happiest nations in the world tend to be among the richest and socially most engaged.

Dividend Stocks make your worries go away

Over the last couple of months, I have started to reduce my social media presence and to close many of my online accounts. My Facebook account has been deleted (I seriously didn’t miss it a single day), and the same thing happened to my Twitter account and AirBnB. As I move closer towards my goal of FIRE, I plan to reduce my social media presence to a bare minimum. In the end, this blog… and possibly also my LinkedIn account for business purposes shall remain. Most others will be got to go.

But speaking of LinkedIn, I have recently noted a larger amount of posts where people are actively and openly seeking jobs, while also publicly stating that they have been unemployed for a couple of months. Some of them even go as far as to explain that they can’t pay for their children’s schools anymore, or to pay rent and needed to sell their house or downsize their condos.

Some of those CVs out there that I took a look at are actually quite impressive. From experienced, well-traveled professionals who reached tremendous success over the years, to aspiring intellectuals who surely made an impact in their previous organizations. And yet it seems that while they grew older, their age outweighs their experience. It just gets tougher to get hired, especially when you reach your 50s.

Prepare yourself

There are tons of situations why and how you might lose your job. You could debate on what is right or wrong, whether something is fair or not, and who to blame for what happens. Or you can prepare yourself. I like to prepare myself because blaming and guessing or discussing the issue at hand will probably not solve my problem. At least not as fast as I need it to get solved.

For me, investing in dividend-paying stocks is one pillar that I use to build my protection on. Due to the nature of my job, I grew with this challenge in mind since the beginning of my career. Every year or two I have to find a new hotel to work for, or worry whether my contract gets extended. Working as an expat in Asia comes with tremendous benefits and financial advantages, but the price to pay is a huge lack of security. Because every contract is limited to only 1 or 2 years and most come without any retirement pre-cautions, one can never truly relax and consider things to go well forever.

This is why securing several independent streams of income is crucial, and why the idea of financial freedom has been engraved in my DNA. I got to prepare myself for the worst-case scenario. I am 39 years old now and just signed another 2-year contract. Looking at my colleagues and other professionals in my industry, I know that 45 is the magic number when things will start to get really tough for me. Therefore I need to be ready for that before this challenge kicks in.

Dividend-paying stocks are a great source of income

It takes some time to play out well, but dividend-paying stocks are an amazing opportunity to benefit from our financial system. Buying the right stocks can result in tremendous advantages and a strong, re-occurring source of income.

When I was significantly younger, I didn’t really understand the power of what appeared to me “small yields”. 2% or 3%… this means that when I put 1.000 Euros into some company shares, I will get only 20-30 Euros back every year? Laughable.

What I didn’t appreciate at that time, was that not only do these amounts compound over a long period but also that those well-run companies tend to increase their payouts year-on-year.

Why is this important? Let me give you an amazing example. Warren Buffett is invested in Coca-Cola for a very long period through his company, Berkshire Hathaway. Over the years, Coca-Cola kept increasing its dividend payout. Year on year. The result: The yield on cost for Warren Buffett is now a stunning 62%!

This means that every year the stock returns him 62% of his initial investment. Getting back to our investment thesis of 1.000 Euros, this means that every year now he gets 620 Euros back in dividend payments for every 1.000 Euros that have been invested.

There is no hocus-pocus there, it’s just very basic and simple mathematics. And coca-cola is not the only company out there with such stunning results. Look no further than the brands you know well: Apple, Starbucks, Microsoft, Daimler, Shell… the opportunities are endless.

Start investing and stop worrying

No matter what your job or your business is, setting up a solid stock portfolio with dividend-paying stocks is a smart thing to do. While you are still working, it will increase your income. When you have no job, it will secure your most urgent needs. And when you plan to retire, you might be able to do so without even touching your savings.

But even more importantly, having another stream of income will put your mind at ease. Because even if you should lose your job, you will still have cash coming in. You will be able to buy food, and if you invested enough even pay your rent or your children’s school.

What happens if there is a crash in the stock market? Keep your cool, lean back and wait. The most reliable dividend stocks continued paying dividends even during the worst time on the stock market. Shell i.e. never lowered their dividend since the II. World War! Of course, there is some risk to every company and every stock, but that is why you need to diversify and purchase several stocks of different companies.

Do this especially when times are good, so you worry less when times turn bad.

Disclosure: I own shares of Apple, Daimler, and Shell at the time of writing. This article doesn’t represent investment advice. Please ensure to do your own due diligence before making any investment decisions.

The Power of Cash-Flow

Conservative investors or people who believe that stocks are too risky often prefer to put their hard earned money in real estate. The usual arguments are always the same and go something along those lines:

  • It’s a “real” asset, meaning that you can touch it, you can see it, you can visit it or live in it
  • It’s a safe investment because real estate rarely loses value
  • It’s generating regular and re-occurring income on a predictable basis

I will get on all three points but the focus will be on the last one: Generating regular and re-occurring income on a predictable basis. This is what we call cash-flow, and I will tell you why it’s such a powerful tool.

A “real” asset

This is a very true point and among the main reasons why people like real estate. Probably most of us have this little dream, of having our own place that we call home. Where we don’t need to pay rent, where we can do what we want and how we want it. Where the only limitation to our creativity and our wish on how to shape it is only our own imagination and the available budget to follow through on it.

So let me tell you first that this is, and probably will remain a dream. The sheer amount of regulations imposed on house construction, building permits, safety requirements, and local rules & regulations will restrict how your house has to be shaped, what building material you are allowed to use, where the doors and windows need to be placed and much more. So, there will be many things to restrict you, and you won’t be able to decide on your own every single part of your dream. You still got to follow some rules.

Second, while it is a so-called “hard” or “physical” asset, it comes with a few flaws that are worth mentioning and required to think about. While you might save money on rent, there are tons of other considerable costs that will strongly diminish your return on investment and may even put you in financial trouble if you are not well prepared for them.

Broken toilets, pipes, roofs, and floors are just one part of it. But new legislation or state laws might come in at very unfortunate moments and force you to spend much more than you bargained for. For example, imagine that the government decided that all houses require to become more energy efficient and thus you will have to upgrade the entire house insulation. A toilet or a pipe might set you back only a few hundred Euros, but a broken roof or house insulation will quickly go to the thousands.

Ever-increasing value

This one doesn’t require too much explanation, I mean the last housing crisis is not that far back. So yes, there is a real risk that real estate also may lose value. But while this point might still be debatable, the more interesting challenge for real estate is about the trading of the asset itself.

Buying and selling real estate is just hard work. It’s not easy at all. It’s not easy to initiate the sales, not easy to find buyers, not easy to negotiate the price and certainly not easy to process the whole thing with banks and all involved parties. Because while for some areas it might be easy to find a place to buy, when it comes to selling the property things can turn really challenging. Finding a buyer takes time, negotiating the price takes time. And the result is everything but certain.

Therefore, and to sum it up, the promised or expected value increase might turn out very different once you deduct all the cost you had to cover over the years holding it, and on top of that, if your few potential buyers won’t be willing to pay your expected price.

It’s generating a steady cash-flow

Whether you save money on rent or cash in rent from your tenants, real estate generates solid and predictable cash-flows every single month. And depending on the size, location and attractiveness of the property, it may be some quite serious money.

Cash-flow is great for a few reasons. For one, it makes you feel to be in control over your asset, it feels safe and very predictable, and you see the result of your investment immediately on your bank account.

Furthermore, due to those regular payments, you are able to manage your cash more actively and spent or re-invest on a frequent and dependable basis. The greatest advantage of solid cash-flows is your control over the money and many real estate investors consider it therefore superior to owning stocks.

There is another way

I got to admit that cash-flow is probably one of THE arguments to bring to the table on any investment discussion. It simply represents everything we expect from an investment: Receiving cash back straight to your account.

However, I argue that you can reach this with stocks in a much better, smarter, faster and easier way, and you are still able to choose whether you invest in companies or real estate.

Dividends also generate cash-flow

To start off, most company stocks that I invest in pay dividends. That’s my cash-flow and it’s also very important to me. Not only does it feel good to receive cash regularly, but even more it allows me to re-invest my earnings. This means that I can take advantage of upcoming opportunities to either reduce my investment costs (cost-average-effect) or furthermore increase my earnings by adding more shares of the same or another company. No matter which of these 2 options I choose, the result will be the same: The number of my shares will increase and so will the amount of my next dividend payment(s). Albert Einstein called it the 8th world-wonder and we all know it from our school-days as the 2 magic words: Compound interest.

Dividend-paying companies have all different policies and they tend to be also very diverse, depending on the country and company profile. But even the very average investor can manage to buy stocks to receive dividends every single month. Hell, just take a look at one of my previous articles where I show you how to get paid dividends every 2nd week!

Mix the best of both worlds – with REITs

If you think that real estates are still the more secure option then you can do even a much smarter thing that will combine the benefits of regular shares with the advantage of the benefits of real-estate by investing in so-called REITs (Real Estate Investment Trusts). Not only do they distribute a large chunk of their profits in the form of dividends, but also you won’t need to bother with all the physical and hard work that always comes with any physical property that you own. Broken roofs or new regulations won’t be your headache and on top of that, your risk will be spread across a significant amount of properties, as most REITs tend to manage not just one or two, but hundreds of different objects.

Investing in REITs won’t give you the feeling of owning a “real” asset, but it will take away all the hard work, balance your risk, and finally also remove all the trading obstacles. Because REITs can be traded on the stock exchange, finding a buyer or seller is as easy as it possibly can be. Just place the order and watch it being processed in a blink of your eye. It’s so easy.

Last but not least and a very, very, VERY important point to me: You can invest with as little as your wallet lets you. There is no need to talk to banks, take on hefty loans and keep paying back for the next 20-30 years. Borrowing money is called leverage, and it’s a serious thing. As our mastermind Warren Buffett famously said, leverage is the single thing that can crush any investor and you got to be really smart how to use it.

I don’t consider myself smart enough for that, so I prefer to stay away from leverage and instead invest only the money that I have available at the time of my choice.

It’s all about passive income

My personal aim is FIRE – and it means to generate sufficient passive income at some point so I really don’t need to do ANYTHING – unless I want to. That’s what the word “passive” stands for.

Buying and managing hard assets is not matching my definition of passive income. Buying a house or condo requires a lot of work, dedication, and responsibility. All the things that I want to get rid off. Therefore, stocks and REITs are for me a much more desirable solution.

This is, by the way, the reason why financial advisors need to evaluate your character, risk factor and expectations before helping you on making an investing decision. So you might want to ask yourself now: What kind of investor are you?

Career Advise for FIRE aspirants

I like to write sometimes about my work. First, because it is an exciting job, and second, because there are countless lessons I gathered on my path to the top.

As some readers will already know, I am a General Manager in a hotel, currently in Thailand. Most recently I was able to secure a new contract, which will (hopefully) turn me into an Area General Manager being in charge of up to 5 hotels. While I am not the smartest and certainly not the best hotelier out there, I reached this stage in my life after working less than 8 years in the hotel industry.

I moved up in positions quickly, from carrying luggage in a Novotel in South Korea to become an area executive for one of the largest and most powerful business company (and family) in Thailand. Therefore, I think I can share some of my knowledge about how to get there with my readers. Bear in mind, this is my personal experience and it might contradict with many, if not most things you will hear from your parents, advisers or coaches.

But before I go ahead, let me tell you first why it matters and why it is important if you are on your path to FIRE.

Your career is the single, most powerful tool to reach FIRE

You can get rich with stocks. You can get rich with a business. You can get rich with a lottery. But for most, building up a successful career is the single, most important step to reach FIRE quickly.

As I mentioned in a previous article, your career is a very important asset. This is simply because the more money you earn, the more you can save and invest. It really makes a difference whether you put aside 100 EUR a month, or whether you are able to put 2000 EUR every month into your stock account without worrying of paying your bills.

This single reason should be motivation enough to pursue a quick and rewarding position. But this is easier said than done, so here some food for thought on how to make it happen:

Forget the term “work-life balance”

The myth of a happy life with a healthy balance between the amount of time you spend at your work and with private things is a major career-killer. If you want to make it to the top, you have no choice but to really put EVERYTHING into your job. This goes far beyond your job description, as you need to really try to understand as much as you can about every aspect not only of your job but of everything that is related to it. Knowledge is the key to success. The more you know, the better-informed decisions you will be able to make and the faster you will be able to take on more responsibilities. Learning requires a lot of time and you should be willing to devote yourself to it.

Embrace what others fear – responsibility and loneliness

In all the years I have experienced this countless times. Smart, great team players who would not advance in their careers because of the fear to take on more responsibility. The excuses are always the same: I am not smart enough yet, I don’t know how to do this or that, I am not sure if this is the right thing for me…

There were much smarter and better people around me when I got my promotions along the way, but the big difference between us was always that I couldn’t wait to take on larger roles and to rush into taking charge of things bigger than me. Most of the time, I even didn’t know exactly what I would have to do once I get the promotion or the new job description. I just knew that I want to do it and I was super-confident that there is nothing that I couldn’t learn.

There is a downside to it. It will make you feel lonely sometimes. Because what most regular people enjoy about their job is the camaraderie and the feeling of belonging to a group. However, the more you move up, the smaller your group is becoming and once you are on the top, you are indeed quite alone.

Sure, you can still have great relations with your teams, but there is no way around it: Your agenda, your perspective, and your responsibilities will always set limits and restraints. And sometimes you might be forced to do things that your teams and even you won’t like, but which are necessary to help your company move forward. When you keep moving to the top, you are forced to keep the big picture in mind and to do what it takes to help your company grow. This will more than often not align with the interest of someone in your team.

There is a Chinese proverb: 高处不胜寒.
It says literally that “It’s cold at the top of a mountain”. It certainly is true for people in high positions. I would often sit alone during lunch or dinner while my teams would enjoy eating in groups at the canteen. Not that I couldn’t share the canteen food with them, but simply because I had so many things to think about and decisions to make, that I would often spend the time thinking about the right or wrong thing to do, even during the precious time that is supposed to be my lunch break.

It’s hard to balance. It’s hard to have a family who accepts you coming home late every single day, to never plan vacations and to move around the world whenever the next opportunity pops up. I am lucky enough to have a very understanding wife, but I know plenty of people who fail on that part. It’s a hard price to pay.

Don’t be scared to do mistakes – and find the right boss to coach you

When you take on more responsibilities quickly, mistakes are unavoidable. Actually, it really doesn’t matter whether your progress slowly or quickly. Mistakes will happen anyway. While you certainly should always try to keep the mistakes at a minimum level, the single most important thing is to learn from every mistake you do. You can try to do this on your own, but it’s much more efficient and will work more quickly if you have the right supervisor to teach you.

I had supervisors who would scream at me. Supervisors who wouldn’t say a word. And supervisors who were moody or simply idiots. I didn’t care about any of that, as long as I could learn anything from them. As long as the learning curve is going up, I would stick with this supervisor no matter what. But as soon as I would notice that a particular supervisor got nothing to teach me or wouldn’t make the effort to support me, I moved. One month of not learning something new can throw you back several months in your career progress, so just really make sure to keep on learning and to have the right people around you to help you grow.

Learn how to communicate and how to build trust

Whatever you know, whatever your skill is and whatever you can do, it won’t matter if you don’t get the chance to show it off, it won’t matter if you don’t get your team behind it and it won’t matter if you don’t learn how to present it to those who judge you on it.

Learning to speak, to listen, to present, to negotiate, to evaluate, to correct, to teach and to scold… it is probably the single most critical skill for any leader. Developing emotional intelligence, learning to read characters and being able to quickly adapt to any person that you encounter along the way is crucial to develop your career.

Because while you got to be used to be lonely sometimes, any business depends on other people. We build products and services with people, we work with other people and we sell our products and services to people. It’s all about people. A manager and/or leader who can’t communicate this properly will have a hard time being successful. And you need success to move up.

Forget this crap about manager/leader comparisons

There was a time when people would discuss the differences between managers and leaders. In most cases, managers were the bad guys and leaders were the good guys. I also used to do these comparisons to evaluate my bosses.

It’s all a bunch of crap.

Truth is, that you need to learn when you have to manage and when you have to lead. No matter your job, you will always have budget restraints, relations between employees and business partners to consider and of course responsibilities towards your business owners. You have to effectively manage the resources you receive to make the best out of it, and this includes the people who work for you.

So you go to take the lead when you get a chance for it, but you also need to manage when it’s required. There is no black and white here, it’s all a grey area and in most cases, it’s not about what you do but how you communicate it that will make the difference whether it’s perceived as a management or leadership decision.

Focus on your skills, not your dreams

I was once reading this quote:

“Who you are, who you want to be, and who you can be are 3 different things”. We all had a dream about who we want to be someday. We all have skills that we learned along the way. We all have weaknesses. And we all have the potential to learn new skills.

However, while I admire people who have no talent for a particular profession, but who nevertheless spend years to improve themselves to chase their dreams, from a FIRE-aspirant perspective it’s simply not the right thing to do.

It would be smarter instead to focus on skills and qualities about yourself which are among your key-strengths and to try to find a matching profession based on those skills. While your parents and teachers will preach you to find a job that you love, I say that you should find a job that you can become the best at. The love will come along together with the success that you will experience.

It’s a little bit like marriage. You don’t necessarily choose the most attractive partner you can find, but the one who you can’t imagine living without. That’s at least how I see it.

And I am not alone on this one. Marc Cuban i.e. is preaching the same, emphasizing that following your passions is simply a piece of bad advice, calling it one of the great lies of life.

Soooo… what now?

I have frankly tons of more things I would like to share but I will save it for another post. I know that some of these points might not match with many voices out there, but please don’t forget that this is specifically for people who would like to achieve FIRE as quickly as possible.

To reach FIRE quickly, you need to push up your career as far as you can so you can increase your income. This will enable you to increase your savings and investments, in ways that most people can’t imagine. Saving 40-50% of your income is just easy if your income is three or four (or more) times higher than the average Joe.

FIRE is not for everyone and there is no easy way to get there. Like with everything in life, to reach something as challenging as FIRE, you really need to work hard on it and sacrifice a few things you might hold dear. So the question is, how badly do you really want it?