Before I give you my overall strategy of becoming financially free, I have to remind you that this is not an official financial advice. I'm not an expert on finances nor am I licensed to give any advice.
The basics of becoming financially independent seem quite simple and straight forward.
- Become debt free
- Don't spend your money on (luxury) goods you don't really need
- Live as frugal as you find comfortable
- After paying the bills, invest the surplus of your income to make your money grow and work for you
This all sounds logical and easy, but in reality takes quite a bit of focus and dedication. Your friends and family may not understand and criticise you for it. Well, until you reach your goal, I would think.
The most disastrous thing for your money is debt. Paying of a debt means paying back the money you loaned including a hefty interest. A debt can best be compared to a bleeding wound that doesn't want to heal. If you have a debt, pay it of as soon as possible. A mortgage is basically also a debt, but this is not easy to pay of quickly. On the other hand, a mortgage is also (mostly) an investment. So, when I talk about debts, I mean student loans, credit card debts, car loans and the like. As soon as you pay them of you can focus on investing your money wisely. When I first started with investing my money I still had a student loan. Until one day I (finally) realized I could easily pay it all back. So, I did and I could be more happy. Now, I'm truly debt free.
If I want to become financially independent FAST, I need to save as much money as possible and invest it safely. That would mean I would have to cut down on expenses. That proved to be a little more difficult than I first thought, but I got rid of all unnecessary subscriptions and insurances and started to think more before I would spend money. The more money I spend the longer it will take to become financial independent. I have low living expenses and I drive a cheap and economical car. I do, however, sometimes indulge myself in some excessive spending. It' s like a bad habit I need to get rid of. Reading The Power Of Habit by Charles Duhigg really helped me controlling my bad habits, but it's still a work in progress.
As far as living frugal goes, I think I'm doing quite well, but I can do better. The rent for my house is very low, but I do spent to much on the gas bill. Mainly, because we take long showers and the house has quite bad insolation. I did, however, stop buying expensive shit I don't really need. But when I do buy something I need I try to buy quality rather than the cheap stuff. It will eventually save me money on the long term.
So, my living expenses are low and I'm debt free (yeah!). And as an independent worker (freelancer) I earn a lot more money than my colleagues who are on the payroll. The big difference is that they can get unemployment benefits when they lose their job or fall ill, while I have to take care of myself. And employers have to start a pension plan for their workers, while I have to save the money myself. For many people this is a to greater risk, because they have kids and a mortgage to pay. They much rather have a steady job with a fixed income. Sounds logical, but if the financial crisis of 2008 has taught me anything it is that a steady job doesn't give you any security at all. When the shit hits the fan, you're out. To me a steady job is a false sense of security. Better take care of yourself.
I think my spending is pretty well in control. I do like to travel and I then usually go for comfort rather than the cheapest option, but I do try to make sensible decisions. So, I can do better, but I'm not spending my money like it's water (Dutch saying). Now, the investing part. What do I do?
I have an investment account with Brand New Day. The investments do quite well. It looks like they follow the same path as the Vanguard ETF's. However, I stopped investing in this account, because options are quite limited. When I add money to the account it will only be invested once a month and not on the day I added the money. This may cause me to miss an opportunity. This account lets me choose the balance between stocks and bonds and there is a short list of Brand New Day funds I can put my money in. For people with very limited knowledge of investing in stocks this is actually a very nice account to have. It's easy and not to expensive.
By far the most money I invest is via DeGiro. This is a Dutch internet broker with very low fees. It is a young company. They started in 2013, but made great progress in a very short time. I can use their website to logon and invest my money in a great selection of stocks, bonds, ETF's, etc... . The webapp is great, easy to use and has many options. Also, they have an easy to use app for my phone in case I want to buy some stocks when I'm on the go. I use this account to invest in Vanguard ETF's. They offer a lot of Vanguard ETF's (I think about 150), so it took me some time to sort out which one I wanted. Not all ETF's perform equally as well and they also differ in price (fee). I keep most of my money in this account.
At one time I heard about Peer-to-Peer lending. The idea is simple. When you put your money in a savings account you will get a low interest rate. When you want to loan money from the bank, you will get a high interest rate. With Peer-to-Peer lending the interest rate will be somewhere in the middle. So, for an investor this is interesting, because you'll get a higher interest for your investment and for people who want to loan some money it is also interesting, because they pay a lower interest rate. When I first tried this I invested €3000 through Lendico which would eventually (after 5 years) add up to become a little over €3400. So far it is going well, but it is quite slow. These Peer-to-Peer lending clubs where accessible for everybody, but nowadays they mostly only allow companies as investors and loaners. It was fun, but not very interesting.
So, most of my money is invested in Vanguard ETF's, but I also have a savings account I use as a buffer for paying taxes.And I own about €20.000 worth of Gold coins. All tucked away in a safe somewhere :).
My strategy may change over time, but for now this is how I'm saving money for my financial independence.