5 Tips how to manage your time (and budget) now

These are tough times. The world is on lock-down. People are losing jobs or are getting pay-cuts. And the probably worst thing of all is that we don’t know when this is going to end. Therefore, now more than ever, it is important to manage the money we have in the most cautious and structured way possible. Frugal living and strict budgeting can’t be a hobby now. It’s a must. So here we go, 5 things that you should consider doing today to navigate your finances and your well-being through these difficult times.

black calculator near ballpoint pen on white printed paper

Photo by Pixabay on Pexels.com

1. Review your essential spendings

If you never had a personal budget, now is a great time to start. A personal budget plan sounds complicated, but it’s really a simple calculation of income and expenses. The more details you put into it, the more aware you will be about your essential and non-essential spendings. In a situation like now, this information is vital to make smart money decisions.

What do I mean by “essential” spendings? We are talking about survival here. So it’s the 3 basics: Shelter, food and health. Your rent, including electricity, water, and internet. Your spendings on food and drinking water. And your expenses to maintain your health.

Every non-essential spendings need to be put under review and you should consider cutting or minimizing them.

2. Plan ahead with weekly limits on your expenses

After having reviewed your budget, you will know the amount of cash that you have (or that will be available for spending), and how much you need to spend for your essentials. Now plan ahead and split your cash and/or income in a way to keep your essentials going for as long as possible. I guess it’s safe to say that the goal should be to try to sustain your expenses for up to 6 months.

Any remaining cash should be split into equal weekly amounts for the same total period of 6 months. Putting a strong limitation on your weekly spendings is a good way to ensure that you don’t overspend and keep track of your budget.

When I was a student and had hardly any money to live on, I had a very simple system which I still recommend: Withdraw cash for a month ahead for your spendings, divide it in 4, and put each amount in a separate envelope. Each one envelope is for each week of the month, and no matter what happens, be strict with yourself not to open any of the envelopes ahead of time. This method will greatly keep you aware of the money you have and what you can or cannot afford.

3. Get your family on-board

This point doesn’t apply for singles, but for anyone living with a family, this is a crucial one. The whole family needs to be on-board with this. It won’t help if you set up the most delicate and strict plan for yourself while your partner is clueless and keeps on living as if nothing would have changed.

If you have kids, this is a great time to teach them about the value of money. They might cry if they don’t get a toy or some ice-cream, but they will remember this as a “tough” time when the family had to stay strong together. Chances are that you will emerge from this stronger as a family. And it’s never too early to teach kids about the value of money. Trust me, the school won’t do it for you.

4. Consider a side-gig

Financial advisors are preaching to their customers the necessity of having an emergency fund, which should cover at least 6 months’ worth of expenses. The reason that this topic is coming up so often is that there are so few people who actually do it. And to be fair, even most companies don’t follow suit. Just take a look at the world right now: As our economies come to a halt, after only one or two months of missed revenues, millions of restaurants, hotels and even airlines are declaring bankruptcies or are in need of bailout money. They clearly didn’t have any emergency funds whatsoever.

So in case, if you are late on this and can’t see a way to make your finances work over the next 3-6 months, you might have no choice but to consider a side gig. The good news is that if you are reading this, it means that you have a working internet connection, and luckily, there are millions of jobs available online.

Check-out online freelance jobs through platforms like “UpWork” or “Fiverr” which may have jobs matching your skillset. But even if your skills are from completely different fields, consider teaching/tutoring English (or what else you speak), doing transcriptions or translations. There are lots of opportunities out there.

These jobs will hardly make you rich, but they can be of great support to prop up your finances and to get you through this difficult time. Another positive aspect of having a job will be that you won’t go mad while sitting at home doing nothing.

Last but not least, there is a good chance that you might end up keeping your side gig even when this crisis will be over and we get back to our regular lives.

5. Don’t slack off

And finally, no matter how long this may go, I recommend that you don’t slack off. You might relax a little for a week or two, but after that, get a routine in place. You don’t need to wake up at 6 AM, but you shouldn’t sleep until noon either.

Set a proper routine when you wake up, take a shower, shave, have breakfast, dress properly. Then work on your side gig, perhaps study a little bit. Coursera, EdX, and Udemy offer plenty of opportunities to learn some new things for free these days.

Having set times for breakfast, lunch and dinner is good for your inner clock. Set some time aside to exercise at home. Body-weight workouts are a great alternative to the gym. Any other hobbies you may have will keep your body and mind sharp and ready to get back on track immediately when all of this is over.

Depending on work is not a smart long-term plan

I don’t remember whether my parents were asking me about my aspirations when I was young. I also don’t remember hearing them talking to neighbours, friends or family about what I am going to do when I grow up. They never really tried to push any particular profession on me. Maybe because they wanted me to discover the world on my own. Or maybe because as a kid I was not easy to talk to.

We went to school, learned all the basics that were considered important to find our passions, to figure out our talents, sharpen some skills, and to give us a hint of a direction towards some of the opportunities that were out there for us.

What nobody talked about were the things that would stand in our way. The things that would hinder us to develop, hinder us to grow, hinder us to follow our passions and hinder us to truly try to discover our full potential.

To some part, I understand. I wouldn’t believe anyone who would tell me that there was a very high probability to end up doing a job that I might not really care about, for people I might never get to know, to receive some money that will be just enough to cover my living expenses. Mundane tasks day in and out, without passion and without any true commitment, just to get through the day.

This is what we call the rat race and a reality for so many people in the world.

Everything has a price-tag

The grown-ups give us a lot of hope when we are young. They tell us that we can be anything we want. Do whatever we want. And achieve whatever is possible. In reality, it’s all not that simple.

Once we move out from home and leave the protective roof of our parents home and their care, reality quickly kicks in. We need money. Money to pay the rent, groceries, utilities, to go out, to travel. Everything in this world has a price tag on.

So whether you want it or not, you have to start to work. And the moment you get your first job, you enter the rat race. We all got to make a living and yes, living has a price to it. Shelter, food and health. These are the basics and to secure them one needs money.

The bad news is that as long as our financial system exists in its current form, these price-tags will never go away. They just grow larger. With inflation always present, you will experience that over your lifetime prices for everything around you double and triple.

It always starts with trading time for money

I started when I was 14 years old. My parents couldn’t pay me too much pocket money and sometimes cash would be short even for the simplest basics like new shoes or a jacket. So I just found a job to be able to afford what I wanted and needed. I started filling up shelves in a grocery store.

From there on, I would sacrifice every Saturday for it. 6-8 hours every Saturday morning, putting milk cartons into the shelves, sorting frozen pizzas, yoghurts, re-fill soda bottles and occasionally guiding some customers through the store. My salary was something around 6 EUR per hour if I remember correctly. I would earn 36-48 Euros for each Saturday, being paid-out in cash by the end of each week. A huge improvement to the 5-10 EUR that I would get from my parents per week.

This is how I learned to trade time for money. When I needed money, I went to work. When Saturdays earnings were not enough, I would free up an afternoon during the week and work one more day after school. Suddenly I could afford to buy new shoes, to get rid of my glasses and buy contact lenses. I had money to spend when hanging out with my friends. It seemed to be a great concept.

What I obviously didn’t think about at that time was that at some point in my life I would have to pay the rent on my own. Utilities, food, to have my own medical insurance. I didn’t think about how many hours I would need to spend in that grocery store to be able to afford all of it.

Depending on money is killing your opportunities to grow

When you grow up, before you even know it, you start trading most of your time for money. Regular work contracts in Europe have something around 35 working hours per week on them. In Asia, it’s around 48. And more than often, this one job is just enough to secure the previously mentioned basics: Shelter, food and health.

Those who want to be able to get a little more out of life start taking part-time jobs, freelance online and adding up hours of work. This is what they know, what they learned. To trade time for money. But as more and more of their time is being traded out for cash, their opportunities in other areas shrink with every traded minute. Learning new skills, discovering new passions, spending time with their loved ones. The time to do those things disappears with every traded hour. Minute by minute.

How long can you work

And the big question is, how long can you actually do this? What will happen when you get old? Will your social security be enough to live on? What if you get sick? Handicapped? When your mental ability goes down?

And how about all those things you always wanted to do in life? Going for a trip around the world, feel some wanderlust in the Swiss Alps, climbing in the Himalayas, snorkelling in Thailand, drinking Mojitos in Cuba or visiting the Empire State Building? Do you think that you will be able to pursue your dreams once you left the workforce?

We are not smart enough to consider all those things when we are young. I wasn’t smart enough then to think about the next logical step when I started to work in the grocery store. But as we get older and develop a deeper sense of logic, we certainly should be smart enough to put it into consideration, shouldn’t we?

Working is not bad – depending on work is

There is of course another way. A way to develop passive income and to stop being dependent on any job. This does not mean to stop working. Absolutely not. I can’t imagine a life without work. I want to do something. I want to work.

But I don’t want to worry about money.
I don’t want to have to work for money.
I don’t want to depend on work for money.

Those whose minds are trapped in the system won’t understand this idea. How could they? They never learned anything else. But, what if we could work for our passions, our beliefs, our aspirations and our dreams? Wouldn’t it just be something else entirely?

FIRE is all about that. About freeing up your time, your mind and your passions. Because once you reached financial independence, you can focus on things that will truly matter to you. Isn’t this a goal worth striving for?

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 – Information

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. Let’s take a look at the top 4 of those concerns:

  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

All valid points. Some related to each other in one or the other way. So let’s take a look at each of these points one by one. Today’s article will start off the series by taking a closer look at the first point:

Access to and understanding of information about investing

This was the most significant worry in the survey and I am frankly a little astounded by it. I wouldn’t be surprised at all to see this point popping up 10 years ago. But now… it’s 2019. We got the most powerful source of knowledge ever created available (almost) for free, and readily accessible. The internet offers almost unlimited opportunities to gain knowledge.

To be fair, the internet is also full of crap. It takes some time and a little effort to find the most suitable educational source. But it’s definitely all there. Blogs, Podcasts, Audiobooks, YouTube videos, online magazines… In case you don’t know where to start, here a list of some of my most common sources to read and research:

  • The Motley Fool – www.fool.com
    The .com website is for the US market, but they also have websites for other countries, such as Germany, Hong Kong, Singapore, the UK and more. TMF is a great place to start your journey as the articles are always short, crisp and well explained. If you are not familiar with financial terms and/or stocks in general, this is a great place to start your educational journey. I may be a little biased here because, as some of my regular readers might know, I am regularly contributing to their German website. Still, I can say without a doubt, that the TMF community is thriving and full of interesting ideas and tons of knowledge with fresh articles coming out on a daily basis. They main target group are readers who want to learn about and educate themselves about investing.
  • Seeking Alpha – https://seekingalpha.com
    This one is actually a website for professionals, but there are a few authors who regularly write very detailed and well-explained articles, either for individual stocks or entire markets. It is set up like a good, old-fashioned forum with thousands of individual contributors mostly from the US. I have personally learned really a lot from this website, especially when it comes to BDC and REIT investing. Since the main target group seems to be retirees, they have a heavy focus on high yield dividend investments and many articles seem to be slightly biased towards this topic. If you ask me, there is nothing wrong with that. Just don’t take it as your only source of “wisdom”.
  • The Street – https://www.thestreet.com
    If you are up for some entertaining reads and to see all the drama that evolves around companies, markets, and the world, then this should be one website on your schedule to visit at least once a week. Run by an entertaining wall-street guy called Jim Cramer, this website wants to offer not only current news but also introduce the world of investments in general to its readers. Take a peek, it’s worth it.
  • Yahoo Finance – https://finance.yahoo.com
    If you find a stock that you are interested in and want to know more about it, research it with Yahoo Finance. That’s what I do. Even though Yahoo itself might be out of favor as a company, their financial website is one of the best you can find. Whether you are looking for fundamental data (the numbers) or want to take a look and analyze their chart, Yahoo got you covered.
  • Listen Money Matters – https://www.listenmoneymatters.com
    You prefer podcasts? Look for “Listen Money Matters”. I listen to it on and off. Not too regularly because I actually don’t like noise and those guys are entertaining, but yeah, noisy. Having said that, they cover tons of topics and can teach in a very entertaining manner.
  • ChooseFI – https://www.choosefi.com
    Another podcast is ChooseFI, with the FI standing for Financial Independence. Again, I listen on and off and think that there is always something new for me to learn.
  • Flipboard – https://flipboard.com
    Yeah, this app is amazing. Of course, it’s mainly a news app, but if you put in investment, retirement, FIRE, etc. in your fields of interest, you will receive a regular dose of information on these topics and develop your understanding of the world of finance. What I actually also recommend to do with Flipboard is to follow those companies that you actually have or plan to buy stocks/shares from. It’s never a bad idea to know what your company is doing and how it is being perceived in the world and the Flipboard algorithm will filter all the related news out for you.

There are significantly more tools to use out there, so these are just some that you might want to take a look at. The important thing is to get started and to be consistent with your reading efforts. So whatever it is you do all day long, try to dedicate 30-60 minutes a day to read. Doing that, you will quickly see your understanding of the financial world developing to the next level. That’s only 2-4% of your day. I think it’s worth it.

The next article will tackle the second reason not to invest: Having not enough money to start investing.
Stay tuned.

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?

Thinking about inflation

Today is the 12th of May, which means that today is the last day of the 19th week of this year. This, in turn, means that we have only 33 weeks left until it’s New Year’s Eve again. Time is short.

I have fulfilled one of my targets for 2019 and took a break in-between jobs for a total of 6 weeks. Frankly, I could use another 2 weeks. I spent 3 weeks in Thailand relaxing in and working a little on our house in the beautiful north-east province of Isaarn. After that, we visited my parents in Poland for a week and spent another 2 weeks together in our main home in Berlin. Those 3 weeks in Europe just passed by like nothing.

It’s funny because every time I visit Europe I feel different about it. Last year I was feeling great and was actually really thinking about moving back to Berlin. The summer was nice and hot, people were smiling and my daughter had the best time with my parents. This year, while it all also felt good, I took another perspective. One thing I noticed was that the city is getting pretty expensive.

Inflation is just part of the deal

When I moved out of my parents’ place at the age of 21, I had a super tight budget and was only able to spend approx. 20 Euros a week. My rent was roughly 400 Euros a month, which was equal to my income from my civil-service job (instead of going to the army I was doing civil service and working in a kindergarten). While working there from 6 AM to 3 PM every day, I took on a 2nd job for 3 hours daily at some local office. It would pay me 6 Euros an hour, and cover my expenses for utilities, telephone and whatever was required to ensure I don’t end up on the street. Additionally, in the evening, I would give Karate-lessons to children once a week in my local dojo which paid me 20 Euros. This was the money that I used to buy food/groceries for me and my girlfriend at that time, as we moved in together. It was tough but do-able.

Today, it’s impossible to find a 70 sqm 2-bedroom roof-apartment anywhere in Berlin for the same price of 400 Euros. Prices have doubled and tripled. It would also be very hard to get through the week on 20 Euros, even if that 20 Euros would be only for myself.

We all know that things change and that prices go up, one way or another. It’s just how it is and part of the game. Going deeper into this topic one might argue that today we receive much better value, despite paying a higher price. Apartments are in better conditions, with central heating systems, clean drinking water from the tap and better-insulated buildings to protect us and reduce heating costs during winter. Computers got actually cheaper while offering a performance that we could only dream of 20 years ago. Food… well this one is probably arguable. I don’t think food got better over the years.

But still, we really need to think about it and what it means for our personal situation.

Future prospects

This all happened in less than 20 years. I am now 39 years old so chances are, that I got at least another 20 years ahead of me. Probably more. It could be another 40 years. Or even 60. Could prices double and triple again?

Well, yes they could. In fact, I am pretty sure they will.

That’s why it is so important that your savings grow at a similar or larger pace. We cannot rely on things remaining similar in pricing in 10, 20 or 30 years from now. What we think will be enough to live on today, may be very different from the reality in the future. That’s why keeping money on a savings account over long periods of time is probably not the right thing to do. This money is losing value day by day.

Investing in stocks that consistently grow dividends, on the other hand, seems like a much smarter way to go. Even if those increases are marginal, like 2 % or 3 % a year, it beats every savings account out there not only by percentage but more importantly by its long-term value.

Obviously, if those increases can go up to 7 % or 10 % or even more, then there is really not much to complain about. And, this is not the case only for some rare-super-stocks. It’s pretty common for many companies out there. Plenty of companies increase their payouts on an even much larger scale, like 15 % or 20 %!

It does also make sense for a few simple reasons. As prices go up, so do revenues and profits. If companies manage on top to improve their margins and grow market shares, the growth becomes exponential. As an investor, you are poised to participate in this process.

This is why investing is such a powerful tool to increase wealth and this is why in my opinion, everyone who plans for FIRE needs to be invested one way or another.

Counting Weeks

I don’t know about you, but when I was significantly younger, a year felt like a very long time. Christmas was always so far away, the time to my next birthday always seemed to never pass and my parents always looked the same. They didn’t seem to get older.

Today, at the age of 38, I see things very differently. A year has only 52 weeks. And those 52 weeks seem to be passing by faster, year on year.

My day routine is pretty caught up with working in the hotel from 8:00 – 19:00 hrs, commuting, then spending time with my family from 19:30 – 21:30 hrs, exercising from 21:30 – 23:00 hrs and while I cool down after the workout, I usually write on my blog or for my side-gig, The Motley Fool. For most days I go to sleep after midnight at around 1:00 in the night.

Having such a tight schedule was something that I actually never wanted. When you go to school or even study, you really don’t realize how much personal free time you have just for yourself. You might hate to wake up early and to learn all about history, biology and politics for 6 hours a day, but when you get out from school the clock will tick at somewhere around 14:00 or 15:00 hrs. Even if you would go to sleep early at lets say 22:00 hrs, this still means that you got 7-8 hours a day just for yourself! Day-in, day-out. Oh, and of course you have the entire weekend on top of that. And those long summer holidays, which are much longer than any future vacation you will have in any contract.

In the past, time seemed to be abundant, because I was just so much less busy. So much less occupied. I didn’t realized at that time, that my parents were covering such a huge chunk of my responsibility, which would catch up to me as soon as I would try to make it on my own.

Paying rent, having healthcare, covering for any means of transportation and of course, all those small pleasures in life… all those need to be paid for. And as we grow into the system, we trade our time for money. Money, which we spend to ensure that we can worry a little less. Unfortunately, this is an on-going process and your sense of security by paying rent and paying of your health-insurance, it’s a subscription based model. If you miss a payment, this subscription will expire and your worries will be back on.

So I keep counting the weeks, I keep investing, saving. And I continue to count… until I reach the point that I can finally break out of this system. That I won’t need to trade of time for money, and that my worries about my family and myself will become a thing of the past.

Why everybody should invest

I strongly believe that the majority of people who don’t invest their money, most probably also don’t understand our economic and monetary system. There is otherwise no other valid explanation or reason, why any sane person earning enough to build up savings would not routinely and diligently contribute at least a small part of their savings into some kind of investments.

Investing itself is no rocket science and requires almost no effort. It actually only requires commitment and patience. There are many different ways of how investments can be pursued, but the easiest and most accessible one is certainly the stock market via ETF-index savings/investment plans. Therefore also the advice from one of the richest person on the planet, Warren Buffett, that the best investment most people can make, whether they’re wealthy or just have a few hundred dollars to invest, is a low-cost index fund.

We can, of course, have a debate about this and we could find some cases and examples that could undermine this statement – in some cases. But I actually like to learn from smart people who simply know what they are doing, who learned the lessons and are more than happy to share them with the world. It would be just not smart to ignore such learning opportunities.

Why it got to work out

Are there risks involved? They certainly are.
Is it a totally safe investment? It certainly isn’t.

So why should you put your hard earned money there? Well, because at the end of the day it just got to work out. Here is the idea behind it.

Good or bad, our economic system is designed for growth. As long as we keep developing, building, expanding, increasing consumption, researching etc. – our economies will grow. As long as the growth is intact, money is being created and wealth is increasing. However, as everyone noted by now, only a small percentage of people worldwide actually participate in the growing wealth. You might have guessed it: Largely, the investors.

There are people who think that we are approaching a limit for growth. I won’t debate about it but let me just say: Those people couldn’t be more wrong.

The world population is still growing, technology is increasing faster than ever and I am pretty condifent to see humanity going beyond the limits of earth within my lifetime. You remember how your parents were always telling you that there are no limits to what you can achieve? They were probably wrong, but there are certainly no limits to what humanity can achieve. This is what I believe.  And this is also, why growth and wealth creation will continue.

What can go wrong

Now, despite being very optimistic, there might be some bumps along the way. If economies stop growing and a country or the entire world falls into a recession, wealth is being reduced. This is not a theory, but a regular occurrence. The most popular country caught up in a recession is probably Japan. Despite it’s amazing technology development, large population and being home to some of the largest and strongest companies in the world, wealth creation has stagnated or even declined in Japan.

This is the reason why every time you watch news, people are really getting serious about growth. Even small percentages or differences can cause heart attacks, since the outcoming results can be devastating. But exactly, devastating for who?

Now, here it get’s tricky, because while the wealth of investors can be significantly increased during growth periods and reduced during a downturn, investors are probably not the ones who will suffer the most. The one who suffers the most will be the average Joe. Why is that?

Well, the simple point is that investors can control a few things and actively reduce their risks and protect their wealth through active risk management. This may include many different options, from increasing efficiencies at their business, working on better economies of scale, merger & acquisitions… but it may also include simple, old-fashioned cost cuts. Closing down factories, reducing work-force and everything else that might be deemed necessary to reduce their losses or to protect their profits.

This may sound cold and terrible, but it is a purely logical process. Something everyone of us would do, even on a much smaller and simpler scale, like for example when managing our household budget. You might not be able to “fire” members of your family when times get tough, but you might consider sending everyone who reached working age to some kind of work. You might scale down on your house-helpers or gardeners if you had some before. You might cut your Netflix account, put tighter limits on your credit cards, swap your groceries purchasing routine from monthly to weekly or even daily, get rid of you 2nd car, move to a smaller house or condo, etc. Well, in business all the same things are being done, simply on a larger scale.

Why it’s the average Joe without investments who suffers the most

This is the main reason, why being invested is the best thing you can do, in good, or in bad times. Because if your company needs to scale down and you lose your job, then there is probably not much that you could do about it. The same goes for, if your work benefits are being reduced, or your pensions shrink or anything else that the business needs to do in an attempt to reduce their own risk. The average Joe without investments got no say and no alternative.

When you are invested, some part of you is on the other side of the game. Because the money you invested makes you, to a very small part and depending on how much money you put in, a partner and co-owner of the business. It means that all these things that the business will do to protect either its survival or its profits, or simply to reduce its risk exposure, all those things are actually being done for you. To protect your investment.

And not only this. When focusing on dividend stocks or index funds that payout dividends, as long as the business makes profit, it will also keep paying you. While others get their pay-checks cut, you will most likely still keep getting dividend payments.

A dividend cut may occur, for various reasons, but if it happens, then in most cases it will truly be the absolutely last resort for the company. And even if the business should require to propose a dividend-cut, well, as an individual owner of the company shares (not so with an index fund), you will have a vote on this. How many employees get to vote whether they can keep their jobs when a difficult situation comes up?

Investing is the only smart thing to do

On the other hand, as a simple employee without investments, you are not even participating in the game. When you lose your job and the economy takes a dive, you will need to tap your savings, to borrow money or to go for social security. Neither options is pretty. For those who were parking money regularly on a savings account things can get even worse, because just within a few months they might deplete and completely destroy all their years of savings in the process.

As I mentioned, there are no guarantees and even the best investors lose money sometimes. BUT in the long run, as an investor, you have a realistic chance of accumulating tremendous wealth, build up passive income and to actively participate in the wealth creation in the process through dividend growth and compound interest.

It is truly the only, reasonable and proven system to accumulate wealth, which doesn’t require any effort, skillset, or qualifications. All you need to do is to simply invest regularly, disciplined and with patience. Time, growth, and dividends will do the rest. This is why to escape the rate race, the stock market is my way to go.

Time makes all the difference

As you most probably know by now, time is our most precious resource. You can be filthy rich, and yet, no matter how much money you can spend, the clock keeps ticking and every day that passed is a day that you won’t get back.

This is why time is the single, most precious asset for any person who stopped worrying about money. Ultimately, this is also the reason why most people who try to free themselves from the rat race hardly talk about getting rich, but talk more about being free. About the freedom to use their time, as their please, and about the privilege to be able to stop exchanging their time for cash.

However, there is one point that requires serious consideration, and along the way, a degree of self-awareness, that many people don’t have. If you really have all the time in the world just for yourself and stop worrying about money, what will you do with your time?

Going to the gym, taking a plunge in a pool, having a coffee in a nice coffee shop, taking a walk with your dog, picking your kid up from school… that’s all great, but at some point, you might start asking yourself what your purpose in life is, if you got no other aim, or target to follow.

If you are about to escape the rat race, what will you do with your time?