Take care of your family

I feel pretty motivated these days to write about a few more things that are on my mind, and one of these things is something I consider pretty important. My family.

Now, we don’t know the future. We don’t know how things will turn out, and as my anti-FIRE friends like to say: If you die tomorrow, all your work was for nothing. That is true. Sad, cruel, maybe somehow sarcastic, but nevertheless, true. As investors, we are almost obliged to be positive and to see a bright future ahead. Otherwise, what’s the point? But obviously, it is still possible that something happens that we didn’t expect or simply didn’t put into equation.

An accident, a sudden death, a divorce, family wars, or just anything that might disturb the peace, harmony, and the bubble that we feel comfortable in at this very moment. So, while it might be difficult to control most factors and possible drama around that, we can make sure of one thing: That no matter what happens, everyone will be more or less protected financially.

For this reason, I have added another 2 goals to my 2019 targets: Building up of two additional stock accounts. One for my daughter and one for my wife.

The one for my wife will be income oriented and focus on high-yield-dividend stocks. Since my wife is Thai (and we are living in Thailand), and to make sure to keep things as straightforward as possible and easy with the tax office, I will dive deep into the Thai stock market and setup a pure Thai stock portfolio. It will be an interesting ride.

For my daughter, I plan to create a mix of income and growth with my broker in Germany. A rather smaller amount will be put in some monthly paying stocks, which should cover her future pocket money requirements. And a little larger amount into a few growth stocks that may potentially help her to reach my current target at a significantly earlier stage in her life. While I plan to reach F.I.R.E. by 45, I believe she should be at least F.I. by her 30s. Being only 3 years old, she got a 27 years head-start. It should be do-able.

I started purchasing some first stocks for my wife last year, just to get to know the market and to understand trading patterns, with very small trading amounts. The great thing in Thailand is, that trading cost is extremely low. While our American friends already enjoy super-competitive trading platforms with very low cost, most European counterparts tend to be pretty expensive, with usually a minimum charge of around 8-10 EUR for a 1000 EUR order. Well, in Thailand, we are literally talking pennies, so you can even start with as little as 50-100 EUR to invest almost without any effect on your performance due to purchasing and selling cost.

Another great point of setting up a trading-income account in Thailand will be, that it will help us to reduce our currency exchange risk. When the time comes that we will start to actually use the generated income from the accounts, we will have the luxury to use EUROS when the exchange rate becomes more favourable again, and to use Thai Bath in case the EUR keeps trading low.

Obviously, in case anything should happen to me, or any single one of us, everybody will be still protected with some source of income to make it through the roughest times.

No matter how I see it, there is only a win-win there.

Again, my anti-FIRE friends might argue, that an insurance is better suited for that. I disagree. Not only have stocks a life-time-income and growth potential far beyond what an insurance can offer, it is also uncomplicated, without any small-lettered-exceptions and conditions, it is unbureaucratic and lastly, it will also help to educate my entire family financially to a point, that is far above average.

For example: I will keep re-investing the profits from my daughters account back into her account on a regular basis. When she starts withdrawing cash from the income for her pocket money purposes, let’s say at the age of 10, she will always receive a choice: Get the cash, or re-invest it, to increase her future income. She will not get any pocket money increases from me, it will be all her own decisions. No need to say that same will go for my wife 🙂 Well, if put the cash into the right stocks, she will automatically benefit from any dividend increases – and suffer from dividend cuts in case they occur.

We are 3 weeks into 2019, this means 49 more weeks to go. Time is short, let’s make the best out of it.

2019 – Drop the resolutions!

Yes, you read right. The new year started but we don’t do the resolution stuff. We start the year with serious targets.

Today is the 6th of January, so the 1st week is almost gone. This means that we have roughly another 51 weeks to meet our own, ambitious but still realistic expectations on 2019. What can be done in 51 weeks? Here are my targets:

  1. Improve on time management. As you all know, and as the sub-headline of this blog indicates it: It’s all not about money, it’s about time. Time is our most precious resource and it needs to be managed well. A day has 24 hours. After deducting those 6-7 hours that are necessary to re-charge our batteries, plenty of things can be achieved each and every single day, if we allocate the remaining time efficiently. I would rate myself rather poor on this skill so far, as I still spend way too much time with my phone, while I could allocate more time to this blog, to my side hustle, to stock analysis, and to my workout routine. I will start slowly by:
    • trying to leave work on time,
    • delete useless apps from my phone and
    • to schedule my workout routine a little earlier throughout the day (so far I was always exercising after 10 pm)
  2. Increase side hustle earning by 50%. Right now I am writing about 1 article a week on average. I will try to increase this to 6 articles a month to curb my side-hustle income and to have more cash available for investments.
  3. Increase my dividend income by at least 10%. That’s right. While this should be not a problem, I put it on my target list. Most of my stocks will increase the dividend throughout this year anywhere between 2% up to 25%. However, I can also increase my dividend output by buying more stocks of companies which I already owe and which had been dragged down throughout 2018. This will cost-average down the stock-price in my portfolio and thus increase my average yield on cost per stock.
  4. Prepare for a larger market crash by saving up enough cash to be equivalent of 50% of my current stock portfolio volume. That’s the biggest and most difficult one, because this would require me to really try to achieve my savings target of 40% of my total annual income. Not impossible, but a tough one.
  5. Find a new job and re-negotiate my base salary by at least +20%. As mentioned in the last post, it should be possible due to my current situation, but I will aim even significantly higher. With perks and benefits, the total value increase should be at around 35%.
  6. Take a break for 1 month in between jobs. Yes, I put this in my target list also. I need time to recover and re-charge after my current assignment. I have now worked almost 2 years with a 6-day workweek, spending on average roughly 65 hours a week in my hotel. This does not include my side-hustle activities, my family time and my exercise routines (which takes 1,5 hours per day). So yes, to ensure I get no heart-attack before time, taking a break for a month will be commendable.
  7. Visit Japan and/or Korea this year. Indeed, it is about time. I haven’t gone to Korea and Japan since 2012 which is a real shame. I know my parents want to see my daughter and want us to go to Europe, but Japan and Korea is the reason why I moved to Asia in the first place and I seriously need to visit this beautiful places once again. On top, I have promised my wife this trip for a very long time.
  8. Exercise routine annual target:
    • 36,500 push-ups (100 per day),
    • 18,250 burpees (50 per day or 150 every 3 days),
    • 18,250 squats (50 per day or 150 every 3 days),
    • 3,650 pull-ups (10 per day),
    • Fresh-up of all my martial arts / kata routines
  9. Actively teaching German and English to my 3 year old daughter for 30 min a day
  10. Actively involve my daughter in my exercise routine to practice with me. She already started to sit on my head when I do squats or push-ups and loves to hang on to me when I try to do pull-ups, but this can be fostered more

So yeah, many things to do and 51 weeks is actually a short time. The older we get, the more we realise how precious time is. Let’s make the most of it.

And no, you really don’t need 8 hours sleep. The day is just too short to spend 1/3 of it with doing nothing.

This year, I also intend to write more about individual stocks and my investments. So just to give a brief heads-up, here a list of stocks which will be discussed and possibly purchased sometime in 2019:

Monthly dividend paying stocks:

  • Gladstone Investment
  • Main Street Capital
  • Realty Income
  • Apple Hospitality

Regular Stocks:

  • Ares Capital
  • Cisco Systems
  • Starbucks
  • Microsoft
  • McDonalds
  • Coca Cola
  • Merck
  • Pfizer
  • Iron Mountain
  • Tesla
  • Bayer
  • BASF
  • Aumann
  • DĂśRR
  • GlaxoSmithKline
  • Royal Dutch Shell (B)
  • Baozun
  • Alibaba
  • QQQ

ETF:

  • iShares MDAX UCITS ETF

Disclosure: Some of those stocks I already owe, some I had in my portfolio in the past but sold them with a profit and plan to buy again when prices drop.

So get ready for a furious, active and hopefully rewarding 2019!

What FIRE really means

Retiring Early and being financially independent may be a dream for many. But before you put too much romance into that thought, let me tell you something: It becomes a dream once it happens. But before that, it can get really tough.

Savings target

My plan is to retire with 45. That’s 6,5 years from now. A long time? Not at all. Let’s do some basic math:

6,5 years => 52 x 6,5 => 338 weeks.

IF you would look at your current situation right now, how much money could you save up every week? 20 Euros? 30? 50? 100? Even if you would save 100 Euros a week, after 338 weeks this would equal only 33,800 Euros. Hardly enough to retire on.

So my target is actually significantly higher, with a goal of saving approx. 500-700 Euros a week. For most people this may sound hard to manage or even to be complete madness. But yes, it CAN be pulled off. It’s just really, really hard.

Focus on your career

I work as a hotel manager and have a decent salary which contributes mainly to reach my target. However, becoming a hotel manager at the age of 36 while having started in the industry only when I was 29, was a pretty tough call. In order to get quick promotions and collect the necessary knowledge and experience, I managed during this short time-frame to work in Korea, Japan, China, Scotland, Germany and Thailand. When I took on a role, I learned as much as I could, and as soon as I noticed that there is something in my way of moving up the career ladder, I simply moved on. I didn’t care about where I go, what my initial salaries were and I had almost no personal life whatsoever.

To be exact, the hotel was my life. I didn’t celebrate my birthday with any of my friends back home for several years. I didn’t celebrate Christmas or New Years back at home, because this is mostly a super busy time in any hotel around the world and you just don’t get off for that. I had no time for a family and even regular relationships were mostly annoying because they would just slow me down and require me to compromise on my career choices. My luggage was (and mostly still is) a 7 kg carry-on plus my laptop bag and a couple of suits. I hate to check-in luggage. My point here is: You got to really push yourself to get this career that will help you in building up your savings and investments.

Save a lot and use your savings to invest – aggressively

In the last 3 years I started to invest in stocks on a larger scale. Basically, when I got salary, I would send 50-60% of it to my stock account right away, and leave just enough on my cash account to get through the month. While I have a high position and a high salary by now, I really hate spending money for things that simply don’t matter. And believe me, from my point of view, there are not many things that would matter.

I don’t collect stuff, I don’t believe in buying presents or gifts. I get headaches when I enter a shopping mall and stay there for longer than 20 minutes and most of my clothes are being worn until they literally fall apart. I upgrade my phone and my laptop once every 5 years (yes, it should be Apple products, other brands just won’t survive long enough), I don’t sign any contracts that would involve monthly payments. Netflix is currently the only exception.

Don’t compromise your savings, get a side-hustle if you need more cash

But most and of all, I focus on work. When I get short on cash, I don’t withdraw any money from my stock account. I go to http://www.upwork.com and find a quick side-hustle to earn a few quick Euros to cover the expenses that suddenly came up. If I can’t collect the money quickly enough, I will put it on my credit card, collect the points and pay it off immediately as soon as I can collect my side-hustle reward.

Credit cards can be tricky but also useful. Living now in Thailand for a while, I can honestly say that during the last 3 years I never paid for a movie ticket. I got enough credit card points to go in every week (if I wanted to) without spending a dime. This is mainly, because I put almost any of the necessary expenses that I have on my card – and pay it back as soon as my points come in. Avoid delays, because credit card interest can seriously jeopardise your finances, but collecting credit card points is a great way to improve the value of your spendings.

For the last 6 months, I have filled my weekends (and some nights) with writing articles for The Motley Fool GmbH (German subsidiary). Regular writing on the side helps me a lot to keep up with my goal and additionally, it helps me to stay up to date on financial topics and stock research for any future investments.

It can get really tough

Sure, my wife complains sometimes about not having enough time for the family. My hotel job covers me for 6 days a week (yes, only 1 day off per week) and I usually spend roughly 60 hours in the hotel – every week. Researching stocks and writing about them adds at least another 20 hours on top of it. So I am now at roughly 80 hours per week. Hell, that’s a lot. Seriously, it is.

BUT the way I see it, in 6,5 years from now I will have plenty of time for everything – until I die. That may be shorter than I think. Or significantly longer. Who knows. But I don’t buy the “living for the moment” mantra when it comes to finance. Yes, I may die a year after reaching my goal, but the much higher probability is that I will be around for another 40-50 years after that.

Isn’t it a better choice to be optimistic about your life expectation and to look forward to it, with the confidence of being financially independent? I think so. I believe so. And that’s why FIRE is for me.

If you can’t motivate yourself to INVEST your time, and to dedicate your attitude and career approach to this goal, then FIRE will be seriously hard to pull off. And probably remain just a dream.

Investing Time

Time is your single, most important asset. It’s probably the only, completely undisputable truth that anyone can find and verify for himself in this world. Time is limited, and every minute, every second that is passed, won’t return.

It didn’t take me long to recognize this, subconsciously, but it took me a while to truly understand the meaning behind it. But more on this a little later on. To finalize my short series about the 3 most important topics for successful investors, I will write today about the importance of investing time to make informed decisions when it comes to investments. For those who would like to take a look at the previous articles, here the short-links:

The first two topics have something in common and this last topic is not different: It requires studies, practice, and experience to master all of them. Time plays, therefore, a crucial role here. Let me explain.

The difference between spending and investing time

You might think that when it comes to time, spending it is all we can do. You also might guess it already: You might be wrong on this one.

Coming to work on Monday, your co-worker or your boss might ask you, how you spent your weekend. What he or she is really asking you is actually this: What did you do with the time you had available, out of your regular work?

Now to be perfectly frank, most people don’t really care about the answer. For one, because, well, most people don’t really care much about others. But secondly, even more importantly, most people do nothing productive on weekends. Watching a movie in the cinema or visiting the new, fancy restaurant in town, going with your kids to a theme park, or just sleeping through and going for a lazy-in-bed-Sunday… it’s all good stuff, and time (probably) well spent.

But if you want to get out of the rat race, you need to re-think the idea of what you do with your time out of regular work, which includes after hours and weekends, holidays and basically every hour you can spare on doing something productive.

Talking about investing time is a different issue, and you may not like it at first. Coming back to the previous question about how you spent your weekend, a more accurate version of this question from someone who might be actually really interested would have to go along something like this: How did this weekend help you to reach your goals in life?

Now that’s a deep question, but in my opinion, a pretty good one. Not only because I wrote it, but because this question shows a genuine interest in enquiring about your actions, that you were able to do while having some time on hand, to work on your life goals.

Investing time includes spending it. But while the time we spent is usually just time that passed, investing time means, that we perform actions that we expect to have a beneficiary middle- to long-term effect on the goals we set in our lives.

Investing time for FIRE aspirationals

If you are reading this blog, you know that it’s all about FIRE – Financial Independence & Retiring Early. Investing time can have a different meaning for every single individual, depending on the goals we have, but for me and for every other FIRE follower, here is a list what you should be doing whenever you have some time on hand:

  • Reading. Expanding your knowledge is a crucial element when it comes to making investment decisions, and the single most important point in this blog post. Understanding how our economy works, how things relate to each other and being able to grab hints and read between the lines when markets change directions or new products are being introduced, can have a significant impact on your success.
  • Side hustling. Even the smartest investor won’t benefit from his knowledge if he/she has no cash on hand to actually start investing. I was recently reading an article, that saving only 5 EUR a day for 30 years might be already enough to become a millionaire. The math behind it, with an average 7% return on investment year on year, is, of course, depending on market conditions. But it has a clear point: Even small investments in combination with a dedicated follow-through will lead to success. If your current job doesn’t offer you enough support to hit your goal OR if you want to hit your target as early as possible, then it means that you got to invest time to make it happen. Luckily, it’s 2018 and there is an almost unlimited amount of jobs at our fingertips. I will write more on this next week.
  • Budgeting. I spend about an hour every weekend, to go through my month-to-date expenses and to adjust my annual forecast, which is closely and accurately calculated and aligned to my goal of retiring early. You don’t need to do it in such a super detail as I (or many other FIRE followers) do, but it is truly helpful to reflect after a week on your spendings and savings and to understand what happens with your money. The more you learn about the process, the easier it will be for you to control your money.

Now, this may sound like a lot. But it’s actually not. Start slowly and dedicate 2 hours each weekend. 1 hour should be for reading and the other hour for whichever one of the other tasks you feel up to.

I can’t emphasize enough how important reading is. One part should focus on economic and political news. When you got through it, I recommend reading news about specific companies that you are interested in, to follow a blog or a specific investment website or to subscribe to an online course that might cover some basic financial topics. Reading about industries that you would consider to invest your hard-earned cash and about the people behind the companies. It’s a huge puzzle and tons of information to cover, but thanks to the internet, it has never been easier to find all these information.

For beginners, I recommend following The Motley Fool. As some of my readers may know, I am frequently writing for the German subsidiary, The Motley Fool GmbH, which is my side-hustle. This online magazine greatly helps to provide information on the daily things that happen on and around the stock market, in a simple and non-fuss manner. It’s easy to read and a perfect weekend lecture for those, who don’t have too much time on hand.

I don’t promise anything, but you might rather quickly recognize, that investing time will make a huge difference in reaching your goal of escaping the rat race. It’s Sunday. Why not start today?

Guilty pleasures

We all have some guilty pleasures. The movie, that everyone hates, but that you secretly enjoy watching over and over. The song, that you would never admit to your friends to have it on your playlist, but that you just have to listen to every now and then. The fast-food burger, that everyone know is not only bad for your health but also bad for your waist, but that you crave for after every work-out.

For someone who wants to retire early, guilty pleasures are even more of a concern. Because they include any not necessary spendings. Drinks or food on the go, online-shopping, giving into promotions and special offers, simple home improvements or even just that monthly Netflix charge, can quickly start feeling like a guilty pleasure. Because you know, that every Euro spent, is a Euro which does not make it into your savings or investment account, and thus will ultimately delay your dream of early retirement from becoming true.

But here is the thing. Being overly strict with yourself, can prove to be a counter-productive strategy.

The strategy to early retirement is actually simple: Spend less than you earn, save and invest what is left at the end of the month, and repeat the process until you hit your target. When it comes to determine how much one should save every month, the easiest answer is therefore of course: As much as possible. The more and the faster you safe and invest, the earlier you can retire.

Some financial planners or advisers might tell you to start by setting up smaller targets, like 10% of your monthly income. You might have already guessed it: This won’t work for an early retirement plan. Saving 10% a month might work well for a social security top-up-plan. But for early retirement and to escape the rat race, you need to get really aggressive and put as much as you can, as soon as you can to work. The power of compound interest, dividend and stock-price growth can only truly unfold it’s beautiful wings when it has enough time to do so, thus every delay, every wasted Euro and every wasted day does count and can have a significant impact, no matter how small.

You might hear or read stories about people who go as far as to save up 50% of their monthly income. While it may sound crazy, it’s definitely not impossible. The only real question is, how much you truly want it.

The yo-yo effect

However, no matter how determined you are, you are also a human. Humans have a soul, feelings and needs, that often go beyond rationale. Not surprisingly, while it can happen that following a super-strict regiment will get you to a saving percentage that will make your jaw drop, there is a high chance that you get either tired, annoyed or over-confident and without even noticing, snap back to your previous spending habits. Very similar to the famous yo-yo effect, as we know it from people who are trying to lose weight.

It’s not just about saving more – it’s a fundamental lifestyle change

I would say that reaching this goal of a 50% savings rate is definitely achievable, and it is actually something to really strive for. But you don’t need it from day one.

Your financial planner might be not wrong after all, and starting with 10% while learning about investments, understanding your spending habits and learning how to budget, track and adjust your money matters is actually probably a very good idea. This way you may lay the track for a step by step approach to adjust yourself and to slowly start shifting into sustainable changes to your lifestyle.

I have detailed budgets since 2014, and my savings rates looked like this:

  • 2014: 37,32%
  • 2015: 36,06%
  • 2016: 18,10%
  • 2017: 31,16%
  • 2018: 35,56% (expected)

My daughter was born by the end of 2015, so the majority of the initial baby-costs and family related matters kicked in a little later on in 2016. And of course I also needed to bring her and my wife to Europe so my parents will see their first granddaughter, so this was another factor and a few thousand Euros spent. But other than that, I got pretty hooked up between 31-38% year on year. While these numbers are not bad, they are for me a little bit frustrating to look at, especially since my salary has also grown during that time – significantly.  In 2018, I am earning almost 3 times what I was earning in 2014. This means, that I should be able to actually save significantly more.

Well, that’s not how life works and different circumstances required adjustments. Getting married, having a daughter and starting a family life definitely had a large impact on my overall lifestyle and spending habits. Also, it took me quite a while to bring my wife back from the dark side (of spending habits) and to get her aligned with me on our financial targets as individuals and as a family. This should start bearing fruits by 2019 and I think I am going to break through the 40% barrier by that time.

No regrets

But having said all that, you should not think that I would regret any of the Euros that didn’t make it into my investment account yet. Having a wonderful, understanding and supportive wife and a beautiful little daughter makes my days on earth truly worthwhile and I wouldn’t want to exchange any moment we had together for any of those “lost” amounts. It was actually absolutely not a loss of whatsoever, but probably one of the best investments I have actually done.

So my point in all of this is: Don’t hang up yourself if you don’t hit your magical savings and investment numbers immediately. Keep it up as your target and try your best to work towards it, but don’t forget that you still got a life to live. Living frugally is only enjoyable when you set your priorities right and allow yourself to enjoy the moments that truly matter. Even if they do cost some money sometimes.

FIRE – It’s about time, not money

Financial. Independence. Retire. Early.
F.I.R.E.

If you are interested in financial freedom, sooner rather than later you will stumble upon this term. While reaching financial independence and being able to retire early is not a new concept, it seems that these days it got plenty of steam, and there certainly is a very good reason for it. Probably more than one.

One of the main reasons I could think of would probably be the ever-increasing lack of job security, and the increased amount of options to travel and to explore the world.

Job security is becoming a relict of the past

As far back as I can remember, I was being told that to make a career one has to be flexible, adaptable and independent. While I got no problem with this and actually very much embrace the idea, one needs to realize that with more flexibility, we are also talking about more freelance jobs and short-term contracts. The traditional life-long assignment with one company has not become a rarity just yet, but it is becoming less common.

Don’t get me wrong, I don’t want to blame the industry or politics for this though. Frankly, I couldn’t imagine and wouldn’t even want to work for the same company all my life. Even 4 or 5 years would feel like an eternity to me. I rather believe that this is pretty much a reciprocal alignment of interests from both, the modern employee and employer’s side.

Working in hotels, I usually receive a contract for 1 or 2 years for each property. It happened only once, that I received an unlimited contract as a manager, but in most cases, it’s a limited offer. It’s a common standard in international hospitality so I don’t spend too many thoughts on this, but for most of my friends, family, and colleagues from my home area of Germany, there is not much understanding why anyone would agree to work on terms like this.

It all comes down to security, or does it?

Of course, the main idea behind the thinking of my family, friends, and colleagues is about the job and pension security. While schools and universities are preaching independence and flexibility, parents and politics are trying to push us into “stable” careers where you don’t need to worry about growing old – and receiving a sustainable and handy pension. This might be less common in the US, but it is pretty much the idea on which Europe has been built on.

I am traveling for a long time now, and my personal attitude was to always put freedom ahead of security. I hated the over-regulated German system and always wanted to get out of it. So, talking about security was always just some annoying concept to me. Being young, educated and in a booming industry, I was feeling like I could take on the world and handle everything by myself, while having much more fun, traveling and exploring the world along the way.

But things change, and you surely start to think differently when you turn 35 and got a family to support. For me, something happened around that time, when my daughter was born.

If you got no kids, you won’t be able to understand the fundamental change in your attitude that just comes naturally shortly after your kid is born. Your thoughts and priorities will slowly start to shift, towards wanting to make sure that you can care not only for yourself but also for your loved ones – no matter what. You might be a master in survival, but your significant other and your little ones might be much more vulnerable and you might start taking this into account at some point.

Many people start then to think about security for their family. As for my case, while security is a part of it, my worries shifted not towards security, but even more towards freedom. Freedom for myself, for my wife and for my daughter.

It’s all about time and what we do with it

I mentioned it over and over again and I will not get tired of repeating it: A successful career is the single, most important piece of the puzzle that you need to work on to reach your target of financial independence as early on as possible. The logic is simple: The more you earn, the more you can save, invest and the earlier you can start living off your investments and your savings.

A successful career has also plenty of other benefits, namely opportunities to gather experience and to face challenges in areas which you might not be able to have access to as a regular rank & file employee. Every experience helps us to develop further, to learn more and to understand the world, people and everything around it a little better. Therefore, I absolutely think that one should aim high and try to move up the career ranks quickly and with a high motivation to learn and to develop.

But having said all that, there is really no reason to do it for all your life. Especially when you have a family, spending 60-70 hours a week in an office becomes less and less desirable. You want to have more time, and you want to have the freedom to use this time the way that it will benefit you and your family the most.

Now here is the single most important realization about any job:

To work means to trade time for money. Your time is limited. Money is not.

You can only have more time if you have sufficient money to support yourself. If you don’t have money, you need to trade your time for money. You need to work. The more you have to work, the less time you have for anything else.

It’s simple, but yet only a few people truly recognize the significance of this logic.

Thus, the ultimate goal is actually not really about money. It’s about time. It’s about the freedom not to need to trade your time for money. This means that we have to use our careers, our income, and our skills to invest in assets and to set up businesses, that will allow us, step by step, to reduce the amount of time that we would normally need to trade for money.

Once we reach the point that we don’t need to trade time for money anymore, then FIRE becomes a reality. Or, whatever you would prefer to call it.

On a final note

There is one more thing that I will dedicate a separate post later on, but that I would like to shortly bring up today. If you truly understood the point above, then you will also realize another fact. Since your time is limited – on a daily basis – there is also a limit on how much you can earn by trading your time for money – on a daily basis.

Think about this: Let’s say you are a barber. It doesn’t matter how good you are and how much you charge for a hair-cut, there is a time limit as to how many haircuts you can perform per day. Meaning, there is a limit to how much you can earn.

Becoming independent also means that you remove this natural barrier, by focusing on money earning methods that are scalable. Meaning: They have no time limit attached to them and can produce higher results, without trading in additional time.

This might sound a little bit more complicated, but I will get on this topic in detail at another time soon.

Evaluating your expenses

My family was never wealthy, frankly speaking, there were times when we had trouble to get through a month and as far as I remember, we mostly lived paycheck to paycheck. This resulted in a very low pocket money which our parents would hand out to me and my brother. It didn’t bother us when we were very young, but things became unacceptable when we turned teenagers.

Hanging out with friends, buying new sneakers or going for a party costs money, as do computers (I still remember that first C64) or books and magazines. I wanted to have all those things, and there was only one way to get them. I had no choice: I had to work.

The Time & Money Relation

The legal age to start working in Berlin in 1994 was 14 years (don’t nail me on the details, I might be 1 year off) and I quickly found part-time jobs which I could do after school. It was a great experience for me: Working just 1,5 hours in a shop cleaning or filling up empty drawers would provide me with the income that before I had to wait for an entire week. We are talking about roughly 10 DM – today the equivalent of approx. 5 €.

I realized how much time I had wasted in the past: 1 week vs. 1,5 hours for the same reward. Just that the latter one would require my active participation.

The lesson learned was that I could get much more money by spending more time working. Having realized this, I didn’t want to spend time at home anymore. I wanted to go out and work.

However, since that very first time, while I basically kept on working until today (I am 38 now), this feeling that I had when making my first salaries didn’t come up too often with later jobs. I was always tight with money and therefore I learned very quickly that if I wanted to get anywhere with my wishes for what I want and what I need, I had to prioritize – and sacrifice.

Measuring expenses

It was a tough lesson and I hated the very idea that most things were still out of reach for me. Because you see, we get used to our salaries very quickly and by some miracle, the more money we get, the more things we start to see that we want to have which are out of our reach.

So, when I started to work the initial happiness didn’t last that long. I got unsatisfied with the situation, as I needed to make constant choices and set priorities. To help myself manage my expectations in a better way, I developed very quickly this 1 way of measuring expenses, which helped me to actually really understand what I truly wanted every time when I reached for the wallet.

I was counting hours.

I was counting how many hours I needed to work, to either get the money back that I was about to spend, or, how many hours I would need to work in order to be able to afford something I wanted. With this idea in my head, the evaluation of “wants” and “needs” took a truly different perspective.

Time is limited. There are only so many hours in a day and with my limited knowledge, school and friends to take care of and family, there was simply a limit of how much I was realistically able to earn. Measuring working hours against the price of a product would clearly show me if it’s something worth working for.

At that time I also learned that in the future I would have to learn to control these 2 factors: My hourly income and the amount of available time to take advantage of it.

This habit stayed with me until today and in a sense, investing in stocks became the ultimate solution, because this is what stocks, especially dividend-paying stocks, do.

They take time almost out of the equation because analyzing and purchasing a stock is a one-time effort. But it can reward you for decades. The only difference is, that instead of time to exchange for money, you need to put money as a downpayment first, and receive both, time and money slowly back, stretched over a long period of time until it starts to out-weight your initial investment.

The more you invest, the more time you free up and at the same time your hourly income increases. Patience and diligence is the key here.

Just chasing higher salaries will seldom give you time back. And working less will seldom give you opportunities for higher salaries.

You see, this is what investing is all about, and this is why it’s, in my opinion, the best way to escape the rat race.

Discipline, Patience, ​and Emotions

To reach financial independence, it is important to save, invest and to create alternative sources of income. At the same time, it is also important that we keep our spending routines at bay to ensure that at the end of the month, the account remains positive, all bills have been paid and that there is still money left that can be invested. The basic formula remains as simple as it gets at all times:

Income – Expenses => Money on the bank => Money available for investments

Obviously, most of us won’t be able to set aside and invest large amounts that will immediately show a great relief. Adapting the investor mindset and truly understanding that time is our biggest asset takes a while and requires a lot of patience, but even more so, discipline.

Discipline and patience are key factors to create wealth and are both in my opinion, among the most important attributes of any human being. I might go a little far on this judgment call but I really want to point out the significance of these skills.

I can’t think of almost any situation when a patient person would not be rewarded at some point for their skill, benefitting from a much better risk/reward ratio compared to a person who rushes into things. Of course, there can be a situation where the fastest reaction may give a “winner-takes-it-all” reward. But in the long run, a patient person usually gets to where he or she wants to be in one way or another.

At the same time, nobody would doubt the benefits of a disciplined approach to any job, study or project that any person in any profession around the globe would face at any given time.

Patience

The great news is that both, patience and discipline are skills. It’s not something we are born with, but rather it’s something that can be trained. Some might find it easier or more difficult depending on the way they grew up, but overall, everyone can learn to be patient and disciplined, provided the right training and incentive.

To master patience and discipline, it is all about learning to control our emotions. 

Most of our desires are initially based on our emotions. We smell a fresh banana-pancake on the road, and we want to have it. We see the new iPhone, and we NEED it. Our friends tell us about the new gym and the amazing yoga course, and we want to join it. The sun is shining hot and bright, and we want a cool beer.

There is nothing wrong with all of that, but what we got to learn is to step back before making a decision and be able to evaluate the actual benefit of it – and whether it helps us to reach our target or not. The banana-pancake surely smells and tastes great, but if you are not actually hungry and perhaps on a diet, then you should not buy it. There is a new iPhone coming out every year. Just keep using your old one, nobody really cares and it will do the job for 5 years at least. Unless there is anything wrong in your current gym, there is probably no need to change it. Well, you might consider if it comes cheaper with a promotion. And on any day, a glass of water will refresh you more and serve your body better than a beer.

The true strength of a successful person lies in the ability to evaluate situations and to make decisions that help him or her to reach set goals, even if it goes against his/her own desires and the ideas or expectations of co-workers, families, and friends.

This is easier said than done and you may truly be forced to do some great sacrifices along the way. But at the end of the day, no one said reaching your goals would be easy. In fact, it never is. But with time on our side, setting goals and working towards them with a disciplined routine promises a high chance of success. 

Reaching financial independence quickly is not a simple task and thus not easy at all. In fact, I would say it is one the largest challenges of all times, with billions of people struggling to even think about it. It is not impossible, but in order to reach such an ambitious target, the focus and determination have to be at peak while one’s patience and dedication will truly be put to a test on more than one occasion.

  • I can’t count how many times I have been fighting with my wife about expenses that I was not willing to agree on. I am talking about simple cases, like buying toothpaste. I mean, why would I buy toothpaste if my pack at home is still full? Or buying shirts. I still got 7 perfectly fitting shirts that are less than 4 years old and enough to carry me through the week. Why would I need more?
  • I lost a lot of friends when I left my home country in pursuit of a better career and my personal goal of living abroad, in a low-tax, low-cost country. The logic was simple and turned out to be true, that we can develop better and faster in a developing surrounding. One needs to take some risk into account and accept possibly lower living conditions, but overall the risk/reward ratio is significantly higher compared with staying at home.
  • Most of my colleagues are shaking heads when they see me and my family driving around in the small Mazda 2 while I surely could afford a BMW or a Mercedes – or a second car. But why would I want to spend so much money just on some convenience? Having a car at all is already a luxury factor for me that I would not consider to have if I wouldn’t have a family, so one is more than enough. And the additional costs for gasoline, repairs, insurance, cleaning, etc. are not attractive at all. It is so much cheaper to use public transport and in the event that you really need a car, just to rent it.

This samples may sound extreme, but I want to retire with 45 and that’s only 7 more years down the road. To get to this point, I needed to focus on the main factors:

  • First to have a great career. I am sure I mentioned it before, but let me repeat: your career is your single most important starting point to get on the fast-track to financial independence, and there are more opportunities in developing countries.
  • I need to save 30-50% of my income, but this won’t be possible if I have to give away 30-40% on taxes alone and finally
  • I don’t want to spend another 30-40% of my income on basic living expenses including housing and food.

Following most financial advisors to save approx. 10% of your income is OK, if you plan on working until 65. If not, you need to save significantly more and considering this set of goals, the decision comes very rationally in my opinion. The samples don’t sound extreme to me at all. They rather show commitment to the set target. Without discipline, patience and controlling emotions, making those decisions wouldn’t be possible.

Now, this may not be everyone’s cup of coffee. Many people will say, that they want to enjoy their life and since there is a chance of dying much earlier due to an accident or unexpected medical condition, they want to make sure to make the most of it. But let me show you a very simple and brief overview. Numbers don’t lie so here it goes.

Consider living for 75 years. The first 25 years are devoted to family, school, university. Most of us have only good memories of this time due to the amount of time we spend with friends, families and other relations. Thus, out of this 75 years, 50 are left. Most of us intend to work until 65 when social security kicks in. So, from 25 to 65 are exactly 40 working years to consider.

One year has roughly 52 weeks or 14,560 days over 40 years (it’s actually exactly 14,600 days but the calculation with workweeks makes more sense here) with a 5-day workweek. That’s 260 days of work. The average European has 28 days paid vacation and another 14 days come for public holidays. So we are down to 218 days of work and 146 days off per year. You see there is one day missing out of 365 which is due to the work-week calculation, but it’s negligible in the grand picture.

A person who works 40 years will, therefore, have spent: 
218 x 40 = 8,720 days working and
146 x 40 = 5,840 days not working over the period of 40 years.

For a person who sacrifices and goes all-in to finish with 45, the calculation is as different. From 25 to 45 its 20 years dedicated to working and then he/she is done. For the purpose of a comparison, let’s see how it works to compare the 40 years of work with the same amount of time split in 20 years with, and 20 years without work.

In this case, we will have:
218 x 20 = 4,360 days working and
146 x 20 = 2,920 days not working during those first 20 years, and
52 x 7 x 20 = 7,280 days not working during the other 20 years.
Thus resulting in a total = 10,200 days not working over the period of 40 years.

I specifically calculate in days, not hours and you might be right to dispute this. If you go for a career, you will have usually no way around pushing plenty of overtime but it’s the total timeline that I want to compare.

Thus, in my eyes, there is a possible double-reward here. If you are successful in retiring early, you get to double up your free time and you reduce your total time committed to work by half. Even more so, and not taken into account on this calculation is the fact, that you won’t need to worry beyond the age of 65. Because, seriously, if you think social security will be enough to take care of you, better think again. And what about if you don’t die early, but rather old? What do you intend to do with those additional 20 or 30 years, when you won’t be able to afford going out for lunch without sacrificing payments for your medical expenses?

This is some serious stuff to think about, but no matter what, it’s never the time to get all emotional about it. Rather realize your target, set goals and start working on it. Start investing. Time is your friend. And so is the investor mindset. Stop The Rat Race.

Nobody wants to get rich slowly

When the financially most successful people on the planet are having discussions, it might be not a bad idea to listen. And there is a famous quote from Warren Buffett, which came up during a conversation between him and the currently richest man on earth, Jeff Bezos, the CEO of Amazon.

During this conversation, and those two being longtime friends, Jeff Bezos asked Warren Buffett: “You are the second richest man in the world and yet you have the simplest investment thesis. How come others didn’t follow this?” To which Warren Buffett responded: “Because no one wants to get rich slowly”.

This statement couldn’t be truer

When you think about investing money in the stock market, there is a high probability that you might have a certain picture of investors and stock traders in your mind. Successful individuals, who in your eyes made fortunes overnight. You might think about news articles when some publicly traded company reported amazing success stories with its stock price sky-rocketing by hundreds, or even thousands of percent over a few days, weeks, or months.

I am not saying that those stories aren’t true. There certainly are cases of famous companies which made some investors very rich in a short time. However, that is not really what stock investing is about.

Yes, it is possible to get rich with stocks quickly. It is also possible to lose your hard-earned money even quicker. And this is where the misconception starts because many people who lack financial education see the spectacular rise or fall of companies as something else. They consider investments as just another method of gambling. A quick get-rich-scheme with all its promises and the attached risk to it. Just another lottery. In reality, though, investing money in companies is a partnership and a commitment. And both take time to grow and to develop.

Patience is key to success

When you buy shares of a company, you become a stakeholder and thus, a co-owner. It means that from that moment on some tiny part of this company belongs to you.

If you look at investors from this angle and if you would think or consider becoming an investor, what kind of companies would you, therefore, choose to partner with?

The choice is all yours and you have plenty of diverse opportunities at hand. Would you prefer to take a stake in a new business idea? A company that may disrupt some business and that may someday produce exploding profits? Are the ideas and the team behind that company smart and resilient enough to make this come true? Or would you prefer to partner with an established business, that is growing its reach, revenues, and profits step by step?

For most people who intend to build wealth, the 2nd option will be the preferred one. The simple reason is that we do want to have some sense of security. A reliable, established and steadily growing business offers a promising risk-profit ratio. However, it does require time and patience to fully develop into a compounding source of long-term profits. It’s not a get-rich-quick scheme.

Reduce your risk with an index fund

For the average investor, Warren Buffett recommends also diversifying investments. He advises people not to buy individual stocks, but instead to invest in so-called index funds or ETFs. His preferred index recommendation is the S&P 500 which represents the largest 500 companies in the US.

When you buy this index, you become a co-owner with the 500 companies which are included in this index. The idea is that thanks to the structure of an ETF and the investment being basically split into 500 tiny pieces, your risk ratio becomes diversified and more balanced.

This works, because even if one of those 500 companies should tumble, the other 499 can easily balance out the drop. It’s a simple way for investors who don’t want to think too much about where and how to invest their money. It offers a balanced investment approach in which risks and profits are diversified. It won’t make you rich quickly. But if history is of any lesson, it will generate wealth in the long-run.

What is “Retirement”

For most people, to retire means to stop working. It means that at the age of somewhere around 65 and working for all of your life, there is this certain point that marks that you have contributed an amount to society that allows you to say “it’s enough”. From there on, social security is taking over and you receive a monthly payment that reflects your contributions over the years.

It is calculated by a formula that no one truly understands. All we know is that it’s based on your education, your social security contributions over the years, inflation, government subsidies and support, and many many other factors. To put it short, until receiving your first notification of what you will actually be entitled to, you have probably no idea what your number will be. In fact, I am not sure about the US but in Germany, it is highly recommended that you spend a week or two to double-check every single number in this first statement as there are frequently mistakes in it that can mount up to significantly different amounts.

I don’t believe in this system. And I don’t recommend it.

By this, I don’t mean that I don’t believe in its existence. Obviously, it’s there and plenty of folks are being taken care of by it. What I don’t believe in is it’s efficiency, reliability and future prospects of it.

It would be too much of a topic to discuss the purpose of social security systems, but when speaking about retirement, it is obvious that being risk-averse and trying to cater to all equally on a non-personalized scheme, social security is poised to deliver the absolute minimum of what’s possible to its participants. Furthermore, with an ever-increasing population, rising costs, inflation and stagnant wages, the system is by far less secure that our governments want us to believe. As a result, some countries are pulling up the retirement age to 67 or 69 years, freeze raises and plenty of other tricks to adjust the calculations in order to reduce total payments.

So, while social security is by nature designed to barely be able to support a very basic lifestyle, relying completely on social security and calling everything off on the official day of retirement may have even much more dramatic effects.

Working is a good thing.

Let me start off by saying that working is not a bad thing but to put it a little more into perspective: Working in a regular job, happy or unhappy doesn’t really matter, gives you much more than just a mood and a salary.

Brain activity, actual social interactions (meaning in real life and in person with real physical contacts and conversations), planned-out time throughout the day and among the most important ones, having less time to spend money, are seriously underestimated benefits of a workplace. It’s a fact that without activities we get… well, weird. Our brains and bodies basically degrade, we get socially detached and we tend to spend more money to “do stuff”.

Consider never to retire but embrace change

Talking about escaping the rat race and early retirement comes almost hand-in-hand so defining retirement and early retirement is important. As for my idea, retirement should be nothing else but a change, and early retirement an “early” change.

I never intend to truly stop working in the sense of being active. Retiring for me means to stop being active in order to have to make a living. Instead, the goal should be to embrace activity as a mean to create, develop and improve ourselves or our surrounding without having the financial pressure in the back to be required to do so in order to get through the day.

As Confucius once said: “Do what you truly love and you will never work again”. Unfortunately, most of us require to do things that generate cash in order to ensure our families are fed, we have a roof over our heads and our children can visit schools to become the next generation that we all hope for. At the same time, some jobs may offer much lower benefits than others, thus restricting our choices. Financial independence can lift those restrictions. This is what for me freedom is and what early retirement is all about.