3 Things you should know about FIRE

The dream of financial independence and early retirement has gained a lot of steam in recent months. But despite the popularity of the movement, there are some important points that need to be understood and which I would like to point out.

It’s easy – and it’s not

Frugal living, saving as much as possible, investing. The concept is simple and easy to understand, easy to copy. In theory. Putting in practice, there is a lot of sacrifice along the way and even after all the hard work, chances are that you won’t be living like a king, but will need to maintain a frugal mindset for the rest of your life.

Here is some overview on how to get started: Let’s say you purchase stocks or ETFs that will generate a yield of 5% annually after tax. You might do better. You might do worse. But from my investing experience so far it’s a pretty realistic expectation to have.

Let’s do the math then, which means that for every 1000 Euro invested, a 5% annual return will generate 50 Euros each year. Let’s put that in lines:

  • 1.000 Euros invested = 50 Euros / year
  • 10.000 Euros invested = 500 Euros / year
  • 100.000 Euros invested = 5.000 Euros / year
  • 200.000 Euros invested = 10.000 Euros / year
  • 500.000 Euros invested = 25.000 Euros / year
  • 1.000.000 Euros invested = 50.000 Euros / year

You can play around with the numbers, the %, and your saving targets, but I think this pretty much explains the whole challenge: You need to save and invest a lot to get to a point that you could seriously relax. And even if you get to the point that you have a Million Euros on your account, a return of 50.000 per year is hardly an amount to live on to consider oneself rich. Comfortable? Yes. Rich? No.

If your target is really to completely retire early, not only would you need to save up a lot, but you would also need to maintain a frugal and simple lifestyle to make sure your income and your wealth don’t get drained too early on. The last thing you would want is to turn 70 and see how others retire on their hard-earned social security while you start to worry about your funds and income. Because if you retire at 35 or 40 and didn’t pay much into the system, then it would be blatantly wrong to expect the system to cover for you later on.

Most who achieve FIRE keep working

Given the staggering amount of money required to really and fully retire early, most people don’t go all the way. Because it’s too hard and it takes a too long time. BUT what many do is to turn to their passions and their actual idea of looking for a purpose once they reach a point of feeling secure enough to do so without going broke.

Say you have saved and invested 200.000 Euros and receive a 5% annual return after tax, 10.000 Euros a year. That’s not enough to retire. But living in the right place, it may be enough to pay your rent. Having “shelter” secured, you might not feel the pressure anymore to chase for a high paying job that would be required to protect you and your family. You could choose another profession or challenge that may suit your personal goals much better, and even if you would bring only another 25.000 Euros a year back home, that could be already enough for a decent living with the good feeling of doing something that you actually really appreciate.

I am also not sure if the actual goal of a “real” retirement would fit with the character of any FIRE aspirant. Because to get to the point that you could actually retire on your savings and investments is really hard work. It requires dedication, patience, and real commitment. Something that you see mostly in career and goal-oriented personalities. Now they might not be always the corporate types, but considering how much work and effort they put into reaching their goal, it’s hard to imagine that they would be able to stay idle right after hitting their target. There are simply too many exciting and interesting things to do in the world to waste time on doing nothing.

It’s really about time and independence

In reality, investing and generating passive income, escaping the rat race… it’s a mind game. Because with every step along the way, with every additional income you create for yourself and with every day you get closer to become financially independent, you are reducing the burden on your shoulders. The burden and the responsibility to yourself, to your loved ones, to society.

Financial independence empowers you to make conscious and responsible decisions, without the seductive element of money attached to it. When you live frugally and have a minimalistic mindset, when you know that you have “enough” and don’t need to compromise your values, your convictions and your personal goals for profits and gains, then you can act true to yourself at all times.

You can also take the time to think things through. To consult with people who matter and you will have more opportunities to do “the right thing”, which more than often goes not well along with the profit and benefit-oriented thinking of many corporations and individuals out there.

I am not sure how many other people out there see it this way. For me, this should be the ultimate outcome. I intend to keep working until I die, but not in the traditional sense and not on other people’s terms. I don’t want to deal with CRAP any longer than necessary and this is why I follow the FIRE movement.

Having said all that one thing should also be very clear: Without those companies which are striving for profits, without all those people who prefer to have a regular working life and who actually appreciate going to an office every single day, FIRE wouldn’t be a thing at all. Otherwise, how would we expect a 5% annual return after tax on our investments?

Get independent and stop dealing with CRAP

There are many reasons to strive for financial independence. For me, some of them are company politics and the never-ending dealing with CRAP. It’s one of my favourite acronyms:

  • Criticism
  • Rejection
  • Assholes
  • Pressure

You can’t become a leader in any organization without it. It’s part of the deal. No matter what you do, once you are in charge of others, CRAP will be part of your daily experience. It’s to a large part the reason why people in higher positions get higher salaries. It’s not really about their skillset, but more so about their ability to deal with CRAP.

And some might even enjoy it for a while. The constant competition, attention and the feeling of winning whenever you come out on the top. But in the long-run it is tiring. Exhausting. And you are not always winning, you will be losing frequently. In fact, the amount of times that you got to pull yourself together, to get up after you have been beaten down and to push through things that might not match your moral or ethic standards, your expectations and believes, it is so much higher compared to the few wins that you collect along the way.

Some just accept it for what it is. But for others, this might lead to depression, frustrations, the occasional loss of faith in humanity, and burn-out. On top of all that, it is really time-consuming and you might start asking yourself, why you are doing all the effort. What is the actual purpose of your journey?

Serving others is the true purpose of any company out there

Tim Cook said it once and he is absolutely right. Every company, every product and every service is meant to be for someone, to solve some problem, challenge or requirement. Solving problems creates value and pricing follows. So whatever we do when we work, we do it to serve.

When you recognize this to be the case, you have the best chances to really understand the purpose of what you are doing. Knowing your purpose gives you passion, and aligning with it leads to dedication. Dedication leads to success. Success doesn’t necessarily mean a monetary reward, but it often comes along with it.

But serving others is a never-ending task. There will always be a problem. A challenge. An obstacle. A restraint, limitation or a sudden turn of events. And there are always other people. Foes and friends. Competitors. Supervisors. Investors. Shareholders. Politicians.

The more success you have, the more lives you will affect. Whether you want it or not, your actions will have an influence on the lives of other people. On the dreams, which you might elevate or destroy for those who work under you, to the pressure and constant rejection by the supervisors who you work for. Shareholders and investors will always keep you under pressure to deliver the best possible financial results. Sometimes forcing you to action things that might go against your conscience or against what you might consider being the right thing to do.

Cut the CRAP

And I think it’s all actually OK. It’s important. Going this path for a while can help you to understand how human minds work, about group dynamics, all the different agendas out there that people follow. Personal and business-wise. It will give you a deeper understanding of different perspectives, sometimes unexpected connections, incentives and occasional shocks on what may seem like irrational behaviour or unforeseen turn of events. Pushing towards success helps us to develop, to learn and to understand the world around us a little more.

But I don’t think you need to do this your entire life. There is a point when the whole thing becomes overwhelming. A burden. Your mind will be dragged down, your physical condition will start to suffer, your personal relations will get affected and step by step you might start seeing only the problems around you. Depression may follow and with it a steep fall from your high ground at work, and possible medical repercussions.

We call this a burn-out. It doesn’t happen overnight, but when you climb the career ladder, it will slowly creep into your work-life. Usually, when you notice it it’s already too late. So knowing all this, how can you avoid it from happening? The answers are, firstly by becoming financially independent and secondly, by choosing when to stop.

Financial independence comes first, because it’s the tool that allows you to go for the second step. When you become financially independent, you can cut the CRAP at any given time without the need to worry about any repercussions on your life. Your shelter, food and healthcare can remain protected. If you really think about it, you will realize that this is quite a lot, more than most people on the planet have today.

Find your inspiration

For me, CRAP is one of the most important reasons for working even harder to reach FIRE. This doesn’t need to be the case for everyone. Some people might enjoy regular work. Having their 7 to 5, the daily soap operas at the office, the feeling of belonging somewhere. Those may find their inspiration for FIRE somewhere else. But for me, after independence and freedom, CRAP is the next immediate reason on my list of motivations to get out of the rat race.

Dividends are everyones friends

I am a strong promoter of companies that benefit shareholders by distributing dividends. While many companies refuse to do so in order to keep the cash for future investments, I believe that since a shareholder carries risk in regards to the companies success, he or she should also reap a reward from his investment and participate in the companies profits.

There is obviously no guarantee for any company to generate profits for a lifetime, but there are companies that have paid dividends and rewarded their shareholders in a very reliable manner.

Dividend Kings and Dividend Aristocrats

The terms Dividend Kings and Dividend Aristocrats are being associated with companies that have not only distributed dividends for 50 or 25 years respectively without a single interruption. They also have never lowered the dividend payout but increased it every single year.

For investors who are looking for a regular income to receive out of their investments, these are the stocks that might be the most attractive ones to look at, as they earned a status that promises a relatively secure financial future. A promise of paying out dividends for as long as one stays invested.

Compounding dividends

This is not only tempting for retirement investors who are looking to secure their nest egg while continue generating a steady cash-flow. It is even more interesting to young investors who possess two important traits: Time and patience. The magic words that come into play here are “compounding dividends”.

Stocks that generate regularly increasing income do not only secure a return on your investment. But given enough time, they might easily outgrow it by ridiculous amounts. How is this possible?

For these companies, revenue and profit growth lead to dividend increases. If a company can grow its dividend by 10% year on year, it will almost double it’s dividend payouts within 6 years.

So for example, if you buy now shares of AT&T (the biggest telecom provider in the US) which yield 5.8% at the time of writing this article, and AT&T would increase its dividend by 10% year on year, then over the next 6 years your return on investment would grow year on year and reach a return of over 11% by 2025. This would look like this:

2019 = 5.80 %
2020 = 6.38 %
2021 = 7.02 %
2022 = 7.72 %
2023 = 8.49 %
2024 = 9.34 %
2025 = 10.27 %
2026 = 11.30 %

The power of time and patience

So just imagine how this will play out if you keep holding the stock for another 30 years. At some point, your yield on investment might actually outgrow your initial investment. Every. Single. Year. Ridiculous? Crazy? Impossible? Not at all. Let me bring up the greatest investor of all times: Mr Warren Buffet.

One of the largest investments in his lifetime was to put money into Coca Cola. Not only did the value of the company shares appreciate over his lifetime but so did the dividends. From what I was reading, his annual dividends on Coca Cola offer a yield on cost of anything between 40-55% – depending on which source you follow.

Just think of it: You put 100.000$ in a company and given enough time it will return to you between 40.000-55.000$ – every single year. And not only that, but it keeps growing and you don’t need to lift a finger.

The astonishing thing is that Coca Cola and AT&T are not the only examples out there. As of the time of writing, the 2019 list of Dividends Kings has these companies on it:

  • Amer. States Water(AWR)
  • Dover (DOV)
  • Northwest Nat. (NWN)
  • Emerson Electric (EMR)
  • Genuine Parts (GPC)
  • Procter & Gamble (PG)
  • Parker Hannifin (PH)
  • 3M (MMM)
  • Cincinnati Fin. (CINF)
  • Johnson &Johnson (JNJ)
  • Coca-Cola (KO)
  • Lancaster Colony (LANC)
  • Lowe’s (LOW)
  • Colgate-Palmolive (CL)
  • Nordson (NDSN)
  • F & M Bank (FMCB)
  • Tootsie Roll Industries (TR)
  • Hormel Foods (HRL)
  • ABM Industries (ABM)
  • California Water Services (CWT)
  • Federal Realty Inv. Trust (FRT)
  • Stepan (SCL)
  • SJW Group (SJW)
  • Stanley Black & Decker (SWK)
  • Target (TGT)
  • Commerce Bancshares (CHSH)

Personally, I haven’t bought a single Dividend King stock yet. I have two current Dividend Aristocrats in my portfolio, namely AT&T (T) and AbbVie (ABBV). And I am purchasing stocks that I expect to become a Dividend Aristocrat at some point in the future. Apple (AAPL) is such a company as is Starbucks (SBUX) which I also both owe.

Over the next two years, I am planning to purchase several of the official Dividend Aristocrats and to add them to my portfolio. I am currently looking at 3M, Coca Cola,  and Target and will probably purchase some shares within this or during the first quarter of the next year.

I am not entirely focused on dividends only, but having a good mix of shares that offer great potential for growth as well as companies that will secure me a steady cash-flow and grow it year on year is a pretty great combination. Dividends can be an investor’s best friend as they create exactly what every FIRE aspirant is looking for: A steadily growing passive income.

Disclosure: I own shares of AT&T, AbbVie, Apple and Starbucks. 

Trading money for time

We all know what it means to trade time for money. We call it “work”. We spend our time to perform some kind of function and receive money for it. Daily, weekly, monthly. Year in and year out.

Most people get so used to it and take it that much for granted, that they seldom try to think the other way round. Trading money for time.

Trading money for time is not any new concept or idea. Most of us do it all the time without thinking about it. When we grab a coffee at Starbucks, it’s not that we just buy a coffee. In fact, we leave our money in the coffee shop for someone to take the time to prepare and serve us a coffee. When we buy a car, we pay money to save us time and effort for travelling around. When we buy groceries in a supermarket, we actually pay money not only for the goods but also for the supermarket to have arranged us a one-stop-place where we can conveniently pick up all we need in one shoot.

So if you understand the concept, you will realize and it will make sense to you that this system can be extended much further. It rationally explains, that the more money you have to trade, the more tasks you can allocate to it and get some time back.

It makes sense – especially if you got big plans

Wealthy people understand this concept perfectly, and those among us who have big plans, big ideas, and by far not enough time to tackle it all, those are the ones who should utilize it the most.

If you are an entrepreneur and want to build up a new company. If you are passionate, dedicated and can’t think of anything else but how to make your dreams come true. Wouldn’t it be a great help if you wouldn’t need to think about all those nasty daily things that one needs to do to get through the day?

Grocery shopping, cooking, cleaning the house, taking your car to the car-wash, mowing the lawn, taking care of your taxes, manage your investments, … if you could get the time back for all those routines and use it to focus on the things that matter most to you, wouldn’t that be great?

It’s not about prestige or being lazy 

People who don’t understand the concept and its value might misinterpret the idea of hiring people for those daily routines. They might think that “that rich guy is just too lazy to do the work”.

But having a housekeeper, a nanny, a gardener, a financial advisor, or a driver… for many wealthy people out there this is not about showing off to the world that they can afford it. It’s about getting back what they value the most. Time.

There is also a financial aspect to it. If you earn 100$ per hour, spending 2 hours to go grocery shopping and cooking is equal to 200$ lost. If you hire someone for 15$ per hours to do it for you, it would mean that you spend 30$ to get these tasks done, while in the meantime you have the opportunity to earn 200$. This comes down to a profit of 170$. If you see it from this point of view, then you stop thinking about why “the rich guy does it” and start thinking about why you don’t.

Time is our most precious asset

As the title of this blog goes, it’s not about money, but about time. Time is our most precious asset and the sooner this concept is understood, the sooner the concept of FIRE receives the understanding and appreciation that it deserves.

4 Reasons not to invest – Having no money

A majority of people out there thinks that investing is not for everyone. A recent survey by Blackrock revealed some critical reasons across generations, and as for why people would postpone or even not consider to invest at all. My previous post was about the no. 1 topic from that list, the access to and understanding of financial information:

  1. Access to and understanding of information about investing
  2. Having not enough money to start investing
  3. Being too worried about one’s current financial situation (and thus being too busy to worry about the future)
  4. Being afraid of losing everything

When you look at the second and third point, they do appear to be connected with each other. And surely they are. So today we take a look at the point no. 2 & 3.

It takes money to make money

A popular phrase, but is it really true? As always, it depends. If you talk to entrepreneurs, they will most certainly say “no” to it. For entrepreneurs, all you need is a great idea, dedication and hard work to make money.

But this doesn’t sound like the right approach to me. The goal for me is to stop trading time for money. Hard work and dedication always require to do exactly just the opposite.

So when you talk to investors, it’s a different story. For investors, it’s all about having money and making it work for you. As Warren Buffett likes to say: “If you can’t figure out how to make money while you sleep, you will have to work until you die.”

In other words, you have to figure out a way how to make money without having to trade time for it. The professional term for this is “passive income”.

Investing is the king of passive income 

If you just type in Google the term “passive income”, the result might produce various topics for further research. The website “Good Financial Cents” has this list in petto:

  • Savings Account
  • High Dividend Stocks
  • Passive Real Estate
  • Betterment
  • CDs
  • Index Funds
  • Corporate Bonds
  • Lending Club
  • Rent Your Space
  • Start a Blog
  • Buy a Blog
  • Affiliatize a Blog
  • Online Course or Guide
  • Online Tasks
  • Online Rebates
  • Cashback Credit Cards
  • Sleep Studies
  • Advertise with Your Car
  • Rent Your Car
  • Rideshare Driving
  • Silent Partner
  • Buy a Business
  • Outsource Your Business

Feel free to visit the website for more details on each and every single point.

From all these opportunities, investing in dividend stocks is probably the most efficient one. This is for several reasons, the most important one being that it’s completely scalable without any extra effort. Of course you need money to get started, but that is it. The only thing you need to get and/or to increase your passive income is additional money. With every additional Penny invested in a dividend-paying company, you increase your annual income.

Now you might argue that you need to trade time for money to have those funds necessary for investment in the first place. And it is true. But from some point onwards, those dividends that come up every month, quarter or year, they can and will grow your account without you having to lift a finger. Dividends grow, get re-invested and compound. In the long-run, it’s the single least-effort-strategy to go with.

How much do you need?

The belief that you need a lot of money to get started is not wrong, but it is flawed. You can start with as little as 25 Euros a month. That’s less than 1 Euro a day. But of course, with such a small investment it would take a very long time to let it grow large enough to be able to retire on it. It’s not impossible, but it’s not something to rely on.

The more you invest, the more return your investment can create. So it is advisable to invest larger amounts and to keep that investment growing until you reach a critical mass that becomes basically self-sufficient. My target: Getting to 100.000 Euros.

100.000 Euros invested in high-yield dividend stocks, REITs and BDCs or even CEFs can create stable returns of 6% or higher – after-tax. That is equal to 6.000 Euros a year. 500 Euros a month. Once you get there, your stock-investment becomes basically entirely self-sufficient. Whether you put in an automated savings-plan or add/buy more stocks each month on your own. The money just keeps coming.

With the above mentioned yield on your investment, every 1000 Euros that you re-invest will add to your annual income another 60 Euros. Times 6, that’s additional 360 Euros a year or 30 Euros a month. So just after 1 year, your monthly return will already increase to 530 Euros on average. And it will keep growing at a higher pace after that, year on year, following dividend increases and the compounding effect.

And the best part is, that you won’t need to do anything for this to happen.

Not having money and being worried about the present

So back to the original point for people not investing because of not having enough money, or to be too worried about the present. I am certain that this is for many the case. But you have to overcome it and find ways to get started. Even if it starts with only 25 Euros a month.

I like to compare this kind of situation with education or training. For example: If you can’t read and write, and your family has no money, you might be forced to engage in low-skilled-labor jobs that will ensure your families survival. But, if you keep doing it without looking for ways to improve yourself, you will never get out of this circle.

If you, however, put in the effort to study and to learn new skills, even if it’s in the late hours after work every day, on weekends, public holidays, whenever you can squeeze out that extra hour, you will set yourself up to be able to take advantage of opportunities that may pop up in the future.

So yes, not having money and being worried is absolutely a valid reason. But success won’t come to those who don’t set themselves up to be ready for it. As Warren Buffett likes to say: “The harder I worked, the luckier I got.” Look where that got him.

If you had your own business…

…how would you run it?

Many people dream of being their own boss. Making their own decisions. Dedicating their available time solely to their purpose, their passion and to their own, full benefit. But is this indeed the reality for an entrepreneur?

Well, as it is with everything, it depends. It depends on the type of business you want to run, on the size, reach, and scale, on your product or service, on your dependency of suppliers or contracted partners, on your team (or the lack of it), and on a thousand other points that may play a role once you decide to do your own thing. Most and of all, it will depend on your perspective and your definition of freedom.

Rule of a thumb is that the more people get involved, the more things get complicated. Whether it’s business partners, suppliers, contractors, your own team or your customers. With every person, every character who comes into play, you are losing some part of your independence.

Running a successful business means to serve others

I think it was Tim Cook who said it last year in a speech or an interview. “A truly successful product or service can only be realized by serving others.” However, serving others means, to a certain extent, to put yourself in the backseat, to figure out what those other people need and want, and to try to deliver it to them.

The thing is though that once you have a business, everyone becomes your customer.  The people who work for you. The people who work with you. And the people who buy from you. Those who work for and with you are called “internal” customers. Those who purchase your product and/or service are “external” customers. And your job as an entrepreneur is to serve them all.

Does this sound like freedom? It certainly is a step forward. By freeing yourself from a boss or a corporate structure, you will have definitely more freedom to make decisions. But at the same time, you will probably discover, that it is not what you might have originally imagined as freedom.

You will have more power when it comes to your decisions and it might feel like freedom in the beginning, when your company is small and easy to overview. But as your business grows and expands, your responsibilities grow with it. And with every percentage of growth, the percentage of your freedom starts to diminish.

The best of both worlds

Reaching financial independence means to me to stop trading time for money. Of course, I still need to have income, but I just don’t want to have to work for it. Not because I am lazy. I am a workaholic. But, as a great quote from Warren Buffett says: “If you don’t learn how to earn money while you sleep, you will have to work until you die.” And I definitely don’t want to end up that way.

There are several ways how this quote can be interpreted, but a realistic perspective is probably to assume that over your lifetime, your focus should shift from working yourself, to let others work for you. When you purchase stocks of companies and become therefore to a tiny part an owner of the respective company, you are doing just that.

As an investor and company owner, you start earning money by reaping the rewards of having other people working for you. And while you have to share these earnings with all the other shareholders, you are free from almost any responsibility towards both, internal and external customers. It is a pretty smooth way of becoming your own boss.

There are risks – but regular jobs bear risks as well

This is not to say that you wouldn’t have any risk. As a company owner, even to a small part, you carry the risk of realizing a loss if the company fails. Also, since your shares represent most probably only a tiny part of the company, you have hardly any vote in steering the companies politics or to contribute in any other way to its success – or failure.

But the degree of your freedom gets truly maximized. And the more different companies you invest in, the more your freedom is being manifested. As you diversify your portfolio, you automatically increase your risk protection and risk tolerance. Even if one company fails, if you have 20 others to support you, then your worries will be still limited.

This will become even more obvious if you draw a direct comparison with having a full-time job. When you invest, you can spread your investments over several companies and thus create multiple sources of income. If you have one full-time job, you are completely dependent on this single source of income. What happens if you lose it?

Food for thought

This is some serious food for thought. People who don’t invest will find a thousand reasons to tell you why investing is not something that regular people do. And they are right about that last part of that sentence. Especially in Europe, the amount of investors is surprisingly little compared to common folks who rely on their day-to-day jobs.

But those are the folks who get sleepless nights whenever companies start to talk about efficiencies, streamlining of processes, outsourcing, and globalization. Technological disruptions don’t excite them, because every disruption may put their livelihood in jeopardy. These are the people who constantly worry, and even more so as they get older.

And you can’t blame them, because these are the people who can’t come up with 500 Euros in cash even if any serious emergency appears in their life. I am not saying this to look down on anyone. I am saying this because people who never learned about how to handle money tend to end up in serious hardships. Despite having worked for 30 or 40 years, many fear that their retirement money won’t be enough to cover their rent and fill their fridge once they (have to) retire. We are not talking small numbers here. Surveys in Europe and the US show that the majority of our populations fall into this category.

This is in stark contrast to those who learned and understood that either having your own company or being a shareholder of another company, can significantly increase your chances for a worry-free retirement. There are no guarantees, but your chances are simply higher.

When it comes to human lives, things can easily and quickly get emotional. Investors, however, take the emotion out of the equation and simply calculate chances. Winning the lottery is not a valid form of retirement planning. Investing is. so when you get your next paycheck, put some part of it aside and start investing. Every single investment that you will do will put you a step closer to be a worry-free individual in the future.

When is the best time to retire?

If you are just about to enter (or new to) the workforce, thinking about retirement seems very far off. Not that it’s not somewhere in your head, it just seems very, very far away. But even if you already worked for a few years, you might still not be spending much time thinking about your future as a retiree.

When we are young, in school or university, nobody is really teaching us about retirement, about financial security. About the limited time that we have to prepare. And for sure, while your HR department might tell you about your options for provident fund support, they for sure won’t teach you how to prepare yourself financially in the best possible manner. It is even more sure that they won’t plant any ideas of early retirement in your head.

There are many reasons why this is a huge, missed opportunity. I would even argue that this hinders humanity on moving a giant step forward. It is a waste of resources, creativity and human potential on a scale that is impossible to estimate. Let me explain.

Asking the right question

So to start off, thinking about retirement, in general, is something that everyone should do. However, I would argue that instead of asking yourself the question about when and how to retire, it makes a lot of more sense to be asking another question: “When do you want to be financially independent?”

The idea of retirement is a very frustrating, de-motivational and overall just a negative thought structure, which clearly explains why we just don’t want to think about it unless we are forced to. Retirement is by most being perceived as one of the last check-points in your life. When, after working for 30 or 40 years, you reach that point in your life when either your body, your mind, or your countries legal structure forces you out of the workforce. Some, who thrived in their profession, might consider it a point when they draw a line to say “we had a good run, but it’s enough”. Some want to retire. Some don’t. But no matter where and in what state of mind you will find yourself, the core of every retirement is financial independence.

So if it all comes down to being financially independent, wouldn’t it make sense to reach this goal as soon as possible?

The benefits of aiming for financial independence instead of retirement

Thinking about financial independence instead of retirement changes the whole perspective, and takes out the negativity out of the equation.

For one, it doesn’t mark any specific point in your life in terms of not referring to you as being old, sick, or in any way considered to be useless by society. Because let’s face it, that is what happens at a certain age. Taking out all these negative thoughts that creep into our heads as soon as we think about the “golden age”, is turning the whole thought process around.

Secondly, financial independence can be a very motivating and encouraging tool that helps us not only to think about the last stage of our life, but that can greatly support us from a much earlier point on.

This is due to the fact that for many of us, challenges in relation to age start to show their ugly face very early on. Ask anyone who got laid off or who would like to pursue a career change and happens to be 45-50 years old. Finding a new job, a new venture at this age can be a very frustrating experience. You might suddenly realize that there are millions of younger, faster and smarter people out there who compete for the same positions. And like it or not, while you might have vast experience, your age will more than often be considered a hindrance rather than a benefit.

Being financially independent as early as possible will give you peace of mind. Knowing that you don’t need to worry about shelter, about food for you and your family and about medical support if needed, will give you the security and the opportunity to navigate through any hardship.

It will also give you opportunities to persevere in your quest for changes in your life. And, it will give you the self-confidence and advantage that you will need to outplay your younger competition.

Doing something else entirely

I hope to reach financial independence in a few years. In fact, I hope my current job to be my last, full-time-corporate assignment. I am 39 years old, the target is to be fully independent by 45, although I might stop working full-time earlier, let’s say at 42 or 43. The financial independence that I can reach by then will enable me to turn to some completely new ventures – and adventures.

I would like to pursue some opportunities that seem hard to reach for the moment. Like working for an NGO or a foundation and help to solve some problems in an area or field that require attention.

I would love to do some voluntary work in Africa or South America. I would definitely be interested in developing some startup companies that can help to shift some peoples lives in a better direction. I would also love to add a few more skills to my repertoire. A better understanding of electricity and potential products or solutions in that field. I want to learn more about renewable technologies, acquire basic coding skills and use that knowledge to find some new ideas and goals to strive for. I also like to learn to play the guitar and piano.

And I know that I am not the only one who would like to do something more with his life than just working for some company, following assignments that I might or might not agree with. Following orders just to meet the expectations of someone with an entirely different agenda… it just doesn’t feel fulfilling to me.

Just imagine, what humanity could reach if a majority of people could at some point in their life use their experience and knowledge, not for the good of some corporation, but to work on projects and ideas that are meant to solve problems and help others.

Our lives are so short and there are so many things to do, to learn and to experience. Staying all our lives in one job and waiting for that magic golden years to start just feels like a lot of missed opportunities. And I think, deep down, that is how most people feel. It may be one of the many reasons for us being reluctant on spending time to think about retirement.

Therefore, I would urge anyone to forget the idea of retirement and to replace that void with financial independence. Retirement is something to wait for, financial independence is something to strive for. After reading this article, which one would you consider making more sense?

The fastest way to get your first million

I like to keep my blog neat and simple. I like to write articles with text only, I seldom use pictures or videos. But every now and then I might encounter an interesting infographic that is worth sharing.

When it comes to the topic of money, the best place to find interesting graphics is in my humble opinion a website called Visual Capitalist. This is also the place where I encountered the following graphic:

infographic-time-to-first-million-dollarsNow the data for this graphic comes from a website that compares casinos. To be clear: I don’t endorse, recommend or promote anything that might be concerned with gambling in any way.

Having clarified that part, the data in this graphic is highly interesting. And kind of amazing. The vast majority of people who made it to the financial top gained their very first million in less than a decade from the moment of (really) trying. How did they do that? Mostly by setting up a business.

Having your own business

So evidently, the most effective way to gain financial independence is not real estate, stocks or gambling – but your own business.

This is actually not surprising. As we know, it takes money to make more money. When you start from zero, the fastest and only way to get some cash-flow started is to work for it. You might start with a regular job, but we all know that when you work for a company, even though you might get good benefits and salaries, the majority of the profits that result from your and from your teams’ actual work goes to your employer. Obviously, this is not the case when you got your own business. As you take on all related business responsibilities, you also reap the full benefits and cash-in the entire generated profits from your operation.

Shouldn’t we all strive for our own business then?

IF having your own business is granting the fastest way to riches, then this would be the right question to ask. And for many having their own business, being their own boss, it is something worth striving for.

Not to me. I invest in stocks for a simple reason. I don’t want to have to work at all. I want to reach FIRE. For me, escaping the rat race is all about reducing the amount of responsibility on my shoulders and to free up my time. When you have a business, you always take on additional responsibility and you always have to keep exchanging your time for money. I want to have the freedom to decide whether I work or not. As a business owner, you don’t really have that choice without accepting sacrifices on your income.

Furthermore, having your own business may be the fastest way to riches, but it’s probably also the hardest one. Of course, there are different types of business and you need to consider whether you just want to earn enough to get through the day, or whether you want to build wealth. Your workload might be mild if you have a small, self-sufficient thing going on. But if you strive for that million on your account, then you will have to work really, and I mean really hard, on a scale that will surpass the amount of stress and responsibility of most regular employees out there.

So it comes down to what you really want. There are many ways and opportunities to escape the rat race. But there are only a few ways that will truly align with your own expectations. For most people who become successful with their own business, the target is not FIRE. They want to work, just on their own terms. If that is your target, great. If not, then you got to find another way.

About monthly dividend stocks

It has been a while since I introduced the idea of receiving monthly dividends. To be more precise, the article was about receiving dividends every 2 weeks – with only 2 stocks in your portfolio. If you like to take a look, you will find the article HERE.

It’s easy to create a portfolio with dividend-paying stocks and if you buy the right ones, then it’s even easier to create a portfolio that will pay you monthly. Or even weekly. So where and how do you find these companies? Don’t despair, I got you covered.

Having a long-standing tradition of taking care of its shareholders, most of these stocks are either of US or Canadian origin. Some are just regular companies, some are REITs and some of them are BDCs. The two companies that I mentioned in the above-linked article are called Realty Income and Gladstone Investment Trust. One is a REIT, the other one being a BDC. But there are more. As of now and if I am not mistaken, 39 to be exact.

Out of those 39, I chose only 10. They have a solid market capitalization and sufficient data and forum discussions available online on them. The 10 companies are as follows. I sorted them alphabetically, without any specific evaluation in place:

  • AGNC Investment Corp.
  • Apple Hospitality REIT, Inc.
  • EPR Properties
  • Gladstone Capital Corp.
  • Gladstone Commercial Corp.
  • LTC Properties, Inc.
  • Main Street Capital Corp.
  • Prospect Capital Corp.
  • Shaw Communications, Inc.
  • STAG Industrial, Inc.

There you go, plenty of research for you right there to fill your weekend. Among all the monthly dividend paying stocks, one name stands out as a seemingly dedicated company to offer its shareholders as many monthly opportunities as possible. Gladstone. Gladstone Investment (GAIN), Gladstone Capital (GLAD), Gladstone Commercial (GOOD) and Gladstone Land (LAND) are four popular investments among monthly dividend seekers. Gladstone Land is not on my list above but you might want to do some research on it anyway. Gladstone Investment is also not mentioned here, but it pops up in my previous article and you can read more about it if you click on the above link.

Also just to mention, the Apple Hospitality REIT has absolutely nothing to do with the technology company that we all know as Apple. I have no idea whether there is any dispute on the name/branding, but both companies are not related whatsoever.

The benefits of monthly payments

You don’t need monthly-paying stocks to receive monthly dividends. You could also buy a bunch of other companies which pay dividends on an annual, semi-annual, or quarterly basis. If you purchase enough of different types of them, then you will surely also get to the point that you receive dividends each and every month.

But well, with monthly paying stocks it is just an easier way to get there. If well structured and wisely chosen, you might even get to a point that you receive weekly dividends. Isn’t that amazing?

Well, not everybody thinks so and there are plenty of debates and discussions on whether a monthly payment is indeed a benefit. At the end of the day, whether you receive a partial dividend every month or a lump sum once a year shouldn’t make any difference, right? Some argue even that the reduction in bank-fees alone would justify for a company to not make any monthly distributions.

For me, it’s more of a psychological thing. The immediate, and frequent satisfaction of seeing my investments paying off simply feels great. Watching my portfolio and dividends growing and seeing it first becoming a supplement to my regular salary, and later, as the dividend income keeps growing more, to see it developing into a full-fletched source of income for my future. It’s very rewarding.

We all have a living to make. We all have monthly bills to pay. Monthly dividends are a great way to get this under control. Especially if you aim for FIRE.

As Warren Buffett said, if you can’t figure out a way to earn money as you sleep, you will have to keep working until you die. Now I definitely don’t want that.

Recent article updates

On another note, I have recently updated two of my most read articles so far. Nothing is set in stone, and as I learn more I will keep updating some content every now and then. So if you like to read again why Nobody wants to get rich slowly or about The Rat Race, then please feel free to do so.

Disclosure

And finally, not to forget the obligatory disclosure. I have shares of Realty Income, Gladstone Capital, Gladstone Investment and Main Street Capital in my personal portfolio. Furthermore, I intend to have stocks of all the above-mentioned companies in my portfolio over the course of this year.

DRIP it another way – DIY

Like in every profession, the world of investments is filled with abbreviations. One of the most popular, and dare I say most important ones, is called “DRIP”.

DRIP is an abbreviation for a Dividend Re-Investment Program which banks may offer their customers when they purchase certain stocks. The idea behind is very simple: When a company pays a dividend, the received cash is being immediately re-invested in more shares of the same company. This way one can automatically increase the amount of owned shares every time a dividend payment is due, without the need for any active involvement from the investor’s side.

It is a very effective and common system in the US. Unfortunately not so in Europe.

Europeans tend to be much more risk-averse and invest on average far less in stocks when compared with Americans. Over my investment lifetime, I had 6 different trading accounts with 6 different banks in Germany and none of them was offering DRIP.

DIY – Do it yourself

Well, if you have a problem and nobody is offering a solution, you got to take things in your own hands.

Every time when dividends are being paid out into my account, I am accumulating them until I reach an amount of approximately 1.000 Euros. Then I re-invest this 1.000 Euros. The 1.000 Euros is my guideline due to the rather high transaction costs charged by my bank. But, as long as I am working and my salary is sufficient to cover my on-going expenses, I am not withdrawing even one cent from my stock account. Ever.

Furthermore, I usually don’t re-invest this money into the same company. Instead, I will be on the lookout for another dividend paying company out there and purchase some shares of a new company.

My idea behind this is to diversify my investments to reduce the risk of any potential downturns in the market. For my FIRE account, I don’t buy companies that don’t pay dividends. So, my annual dividend income keeps increasing with every new investment I make. At the same time, as I spread out my investment over a vast range of different companies, my risk is being deleveraged.

That’s not the way of Mr. Buffett

Investment legend Warren Buffett is not a fan of this approach. He prefers a highly focused and compact portfolio. If I remember correctly, his investments as of today are in less than 20 companies. I have currently 16 different positions in my portfolio and expect to move up to 20 by the end of this year. Next year I hope to add another 10. And the year after another 10. My target is to have some 50 companies in my portfolio with ever-growing dividends.

I would love to have Mr. Buffett’s knowledge and experience, and to be able to make such successful investments as he did in the past. But let’s be realistic. I go to do this my way. I have far less money, experience, time and insights then him. For this reason, diversification is crucial for me.

DRIP or not – you got to keep re-investing

So whether your bank is offering a DRIP option or not. The lesson here is to keep re-investing your income from investments as long as you possibly can. Only this way you will be able to activate the power of compounding and see your dividends and investments grow.

Also, don’t get discouraged in the beginning. Dividend growth and re-investments are like a snowball that is slowly rolling down a mountain. It might take a while to get its momentum and it might even get stuck sometime. But at some point, it becomes a truly unstoppable avalanche.

The current market downturn will offer plenty of great investment opportunities. Watch out for solid, dividend-growing and dividend-paying companies and take advantage of the fear out there to grab them at a discount. Chances are that it will turn out to be a smart move in the long-run.