Financial freedom and independence mean we don’t have to work to live or, even worse, live to work. That means we live off of the money we saved and invested. I found out, though, that achieving financial freedom via investing is a very slow process compared to starting, running and improving a business.
Today, I’ll show how my business will help me become financially free quicker. I’ll also compare that with how my investments are expected to perform. You’ll then have a better idea of how you can plan out a quicker path to financial freedom yourself. Shhh, it’s by running your own business!
What Financial Independence Means
Let’s first put things in order and briefly explain what it will take for me to become financially free. Most probably you’ll need about the same amount of money as me. Hopefully, you are also debt-free.
As I explained in a previous video, financial independence for me means a million euros invested. With a moderate 4% return on that, I’ll be making 40 thousand euros every year. That money more than covers our family’s annual expenses and allows some lavish spending here and there.
So, my goal for financial freedom is a million euros or dollars for that matter. My plan is to make that money in 10 years, and we’re already in the second year of my plan. I’m still way behind to make that amount but if you never try, you’ll never know. Besides, it’s good to have a goal and a vision in life.
Now, let’s see what’s my current personal income and whether that can guarantee my financial independence any time soon.
My Personal Income Won’t Make Me Financially Free
Previously I’ve made money in a lot of different ways. Nowadays, I create content-based websites. My web business annual revenue is about $60,000. Nothing spectacular. Yet it doesn’t take up a lot of my time to make that money. That’s how I’m able to make these videos in the first place!
Business expenses and reinvesting in my business leaves about half of that as my personal income.
Recently I was able to save a large part of that money. If you haven’t noticed, we’re living in a pandemic, which allowed my family to live more frugally. Since 2020, many of us feel we suddenly became experts in saving money. That couldn’t be farther from the truth.
Sooner or later we’re going to leave the pandemic behind. My family’s spending will go back to normal and most probably I’ll get to spend my whole personal income as before. That means saving money in the future won't be as easy as it is in a lockdown.
So, I need 30K for my family of three. If we’re going to assume nothing is saved, either in my business or in my personal accounts, I will never achieve financial freedom. Living paycheck to paycheck is not how to achieve financial independence. Plain and simple.
What’s the bare minimum to achieve financial freedom?
A million euros sounds a lot. Where do I begin? Surely, it will be quite complicated to come up with a plan.
Nope! Let's keep it simple.
There’s a very easy way to think of hitting my financial goal: to add 60 thousand more to my personal income every year. That’s what I realized as I walked back and forth on that porch two years ago. It isn't an out-of-reach number, it’s just 5K per month. JUST 5K you say? Well, I don’t make it a big deal, otherwise I’ll never start working toward that financial goal!
What will 5K per month accomplish?
Making 60K more every year is equivalent to 700K in ten years. Considering I’d be investing that money in stocks or other assets, the compounding effect of that would probably make me a hundred more. That would bring me closer to the million. While I won’t hit my mark, I consider that the bare minimum to call my plan a borderline success.
In other words, if I have 800K in savings by 2030, I’d call it a win. Besides, it’ll mean I’d likely become financially free two years later. That’s fine really!
Now, how can I make 60K more annually? The easiest way for me to make 60K more is to double my business revenue! It’s already sitting at 60K. All it takes is 100% growth! Surely, it can’t be THAT difficult!
Famous entrepreneurs have said before that making the first thousand dollars is difficult.
Achieving Financial Freedom by Running a Business
So, my mission is to make twice as much as my business is currently making. There are two ways I can accomplish that:
- By doubling the traffic. If twice as much people visit my websites, it’s safe to assume that revenue will be twice as much. I can make that work by either bringing more traffic to my established websites, or launching new ones. And it doesn’t need to be a website per se. It can be a service or a product such as an e-book, or a course. This YouTube channel falls into this category, as well. The bigger the audience, the bigger the return. Anything that can make money online counts!
- By attracting advertisements that pay twice as much. At this time every click on an advertisement pays me a dollar. If an advertiser comes along that pays two dollars, my websites will make double the money. There are other ways, though. As the pandemic will end, businesses will begin advertising again, most likely pushing the advertising cost higher.
Obviously the first option is more expensive, as I'll have to pay for outsourcing content creation and server costs. The second option of improved monetization is cost-free and requires good communication skills. But maybe the industry I'm targeting can’t afford more expensive advertising. Businesses in my niche can make that much, which in turn means their advertising budget is that high. So doubling up my Cost-Per-Click metric might be a fairy tale.
Still, I believe both options are achievable and all it takes is work. For instance, I could launch a new website targeting a more lucrative industry with a much higher Cost-Per-Click. And in fact, I already have!
Now, let’s move on to how to achieve financial independence via saving and investing.
Investing to financial freedom
Last year I saved 40% of my income. That's the most I have ever saved and I invested half of that. I’ve bought more Bitcoin, Ethereum and Monero cryptocurrencies. I have been buying cryptos since 2017, which have appreciated tremendously last year. So, let’s examine how my investments have performed till today and what it will take to achieve financial freedom via investing.
My current investing portfolio consists of 2K in cash, 2K in gold and 22K in cryptocurrency. Cash is losing value and gold’s value is increasing a tad bit slowly. Cryptocurrency meanwhile has experienced the biggest growth. That's why it takes such a big part of my portfolio.
Now, let’s assume I’m saving and investing 10K every year, as if 2020 is going to repeat itself ten times (hopefully it won’t!). I’m assuming here that my personal income will stay about the same, as I’m ignoring to grow my business’s revenue.
By 2030 I’ll have saved 100K. That’s saving 10K for ten years.
If I have invested all that money in stocks, I’d probably make 7% every year. Let’s not bore you with math and let's just say that my savings account increased to 150K by 2030 after investing in stocks. I’m still way, WAY behind my goal. The journey to financial freedom will end up in a complete failure by saving and investing the same amount every year on stocks. And let me remind you that I've assumed I'll be saving cash like I did in 2020, while my personal income doesn't increase! Those are a lot of assumptions and the result is still a failure.
For a moment though, let’s take a closer look to cryptocurrencies, which have enjoyed the biggest growth lately. What happens in a best-case scenario?
Investing in the Cryptocurrency Market
While the market is hyped and crypto-experts grow on trees nowadays, Bitcoin is predicted to reach 200K by the end of 2021. Ok, let’s go for that prediction.
By December this year my current investing portfolio will rise to 110K! That’s great! That's like the previous scenario with stocks, only I did it in a single year! Sure, if my investments made 100K every year I wouldn’t worry about hitting my goal. In fact, I’d already be financially free!
But the market never stays still. We can’t expect a market to offer that kind of return year in and year out. I bet next year we’ll see a big correction in cryptocurrency market, taking some of that profit back. And assuming the market follows the same financial cycles like others, there will be ups and downs in the future.
For argument’s sake though, let’s say that Bitcoin’s value ultimately finds a balance at 400K. That’s a figure many believe is achievable. Of course, just as many people believe Bitcoin will go to zero. Hence, no one advises risking more than 3% of investing capital on cryptos.
Anyway, in case Bitcoin reached 400K, my cryptocurrency portfolio will be valued at 200K. And let’s go a step further and say that I’ll add a bit more to my crypto portfolio over the coming years. That will result in me having 250K in cryptocurrencies by 2030.
So, in the most ideal scenario for the cryptocurrency market, and mixing it up with my stock holdings, I’ll have 400K invested in 2030.
So, in best case scenario I’m half-way to my minimum goal. 400K isn't a small amount by any means. Yet, it can’t guarantee me financial freedom.
The quickest path to financial freedom
Summing it up:
- By saving and investing, I’m looking at 150K-400K in 2030.
- By going for 100% business growth I’m looking at 1million in 2030.
The answer for the quickest path to financial freedom is pretty clear to me. If you’re like me and don’t have a million sitting around, saving and investing won’t make us financially free. Besides, you can only save that much. That’s why focusing on investments and timing the market doesn’t make sense when we don’t have a fortune lying around. I can worry about that once I become financially free.
What you should do instead is focus on your business or start new ones! Many people start a business as a side-income, quickly realizing that they are having a lot more fun than their regular job. I can’t be the judge for that as I’ve never had one in my life. But I do admit I'm having a lot of fun making money as a solopreneur working from home for 15 years!
By having a lot more fun, we’re willing to put in the hours to grow our business. It does so to the point it makes more money than our regular job! Then, all it takes to achieve financial freedom is to increase the business’ revenue. Easier said than done, but what’s the alternative? Working for someone else till your seventies in a job you hate to retire on a pension?
That has never been in my life plan, ever since I dropped out of my engineering classes. Perhaps I’ll never achieve financial independence but at least I will try. And I’m having a lot of fun trying. What’s stopping you from trying yourself and having fun?