Our readers have probably noticed the change in our financial priorities. In a nutshell, these have become ‘increase earning’, ‘keep spending steady’ and ‘invest the rest’ so that we can be achieve financial health and financial independence.. Nothing unusual about this one: most people dream about being financially secure and the ones who not only dream but also plan have very similar priorities.
What is probably a bit less usual is that we don’t subscribe under the ‘white money for black days’ mentality of most savers; or even most moderately ambitious investors. Shortly after we paid off all our consumer debt we, as a couple, moved away from the ‘I’ll be employed till the time to retire comes’ that is one of the fixtures of our generation to ‘I’ll be financially independent in five years’ time’.
My ‘brand’ of financial independence, though, is not simply and not only about having sufficient income so I don’t have to be employed if I don’t wish to be; my brand is also about certain life-style which we would like to have.
We calculated how much is our ‘enough’ – given that we wish to have income of about £120,000 ($188,000) per year, we calculated that we need to amass £2.5 (about $4) million. Before different objections start racing through your mind – some probably moral in nature – let me say that this income will allow us to fight the reigning neo-liberalism by embracing it. If everything is the responsibility of the individual and ‘the state’ is withdrawing from one of its main functions – supporting the more vulnerable members of society – I see becoming wealthy as my sacred duty; this way I could work to fill in the gap by initiating foundations, fellowships and other directed financial support.
We would also like to do the ‘right’ kind of travel; the travel where you go somewhere and spend several months there learning the language, sampling the markets, learning the history and absorbing the culture. And meeting people!
Now, this is all very good but…
…there are two complementary strategies to get to a financial situation that makes this possible. One would be to have all £2.5 million in safely (relatively speaking) invested cash; the other one would be to aim to achieve ‘the equivalent’ of having all the cash that will generate an income of £10,000 ($15,000). These two extremes, pose different matters to consider.
With the former strategy, one ought to consider issues related to fast accumulation of capital and building investments and businesses that are secure and can be sold. With the latter strategy, serious matters to consider relate mainly to connectivity, locality and level of effort one is prepared to still put in the businesses that generate the level of income we aim to have. While personalised connectivity and access today is not really a problem – many web-based companies offer IVR which means that calls can be routed anywhere – deciding on the level of effort is vital: this is what the decisions regarding appropriate businesses to keep and the level of automation that will need to be achieved would depend.
All my play with scenarios show that the fastest way to achieve our financial goal and be able to live the lives we want to live in five years time would be through a combination of the two strategies.
In terms of building up liquid wealth we are looking to:
- Increase our income rather substantially and fast. This is on course and our family (regular) income will increase by about 25% in December; this is a combination between the increase of my salary and John’s monthly income. Another part we are growing is the ‘side hustle’. As a next step, we intend to increase our income further by increasing reputation not by selling more labour. Increasing income helps with accumulation.
- Holding investments. This is how I have come to refer to the relatively conservative investments we have been making while accumulating the resources that will allow us to invest in ‘big deals’. In practice this means that we have been investing through Nutmeg and will be also investing in the House Crowd. The expected average return on these investments is 6%.
- Invest directly in businesses. This is on the back burner for the time being but we are looking around.
- Build businesses. We have been working on building three kinds of businesses and these projects are at different stages of realisation. Were we to stick to liquidity these businesses ought to have grown sufficiently that they can be sold in five years.
We are building the following businesses to achieve financial independence:
- Internet-based businesses. These naturally includes building blogs; The Money Principle is growing nicely and John is building The Investment Principle. Apart from that, John is working on the launch of a web hosting service with a difference (but more about this one some other time).
- Fat-farms. I know this sounds a bit ‘fattist’ but having become a bit rotund myself I should be allowed to use this ‘working name’ for this business project. My trainer (who is also a friend) and I have been meaning to get this baby off the ground for couple of years now; in fact we have an almost finished e-book setting out the weight loss/fitness gain philosophy we will adopt. We are finally moving on this one and sometime in late November we’ll be looking at a house where we could have the residential part of the three month, life-style transforming course. Later this can branch out into residential training for ultra-marathons and triathlons. I see great potential here.
- My writing sideline. One of my goals is to build up my writing as a serious earner. On the Rotund Writer I’ll be chatting about how this one is going.
Now let’s see how do these businesses fair regarding the three criteria mentioned above: connectivity, locality and immediate effort.
It seems to me that the one that is most appropriate to keep would be the ‘internet based’ businesses. Connectivity is relatively unproblematic: most interaction can be by e-mail; even if telephone contact is needed this can be either enacted by using technologies like IVR or by completely out-sourcing it and hiring virtual PAs. It is locality neutral – to the extent to which there is internet connection it doesn’t matter where one is to be able to maintain the business. Last but not least, internet based business can be automated to a level where relatively low level of immediate effort is necessary to maintain the business.
Next would come my writing. Connectivity is not a problem because exchange can be mainly via electronic means; my guess is that this would involve very few calls though some face to face meeting would be needed. Locality is important in that regular change, travel and experience are conducive growth and improvement. Only problem is that writing is and will remain a high input occupation but the saving grace is that it is so much fun that I may decide it is for keep. And of course generating serious income from writing usually involves royalties (though my royalties from my academic writing are so far pitiful).
I am slightly disappointed to say that the fat farms cannot be part of our life-style in five years time. Success and recruitment crucially depend on telephone and personal contact; the business is locality dependent and face-to-face; and it is high level of personal effort (even if we hire people to do the courses).
For our financial independence in five years time, we are working on a double edge strategy of building liquid wealth and building businesses that meet three conditions; namely, these do not present serious connectivity problems, they are not dependent on locality and take low level of effort to maintain. Of the three businesses we are building only one meets these conditions perfectly.
Can you think of businesses that meet the three conditions set above?