Why people buy lottery tickets, when there’s almost zero chance they’ll ever win? Previously I thought the answer is obvious: They buy because they want the millionaire lifestyle right now! Instant gratification! Boom: Millionaire life. Now.
However, after giving it additional thoughts, this seemed not to be the complete truth.
people buy lottery tickets ritualistically because it gives them the permission
to regularly fantasise about living the millionaire lifestyle. It’s like
buying a movie ticket for your own inner mental cinema showing: “Me, the
having this fantasy playing in your “Kopfkino” is worth $2 a week to many fellow
humans. In fact, a large majority of people show very similar behaviour with all
kind of stuff such as weight loss products, get-rich-quick schemes and products,
dating products, you name it.
Why not spend
the money on a one-year gym membership and then daydream about losing weight
while not actually going back to the gym?
convenient! For a seemingly small amount of money you can instantly “buy”
yourself a solution to calm your inner voice that’s constantly asking you to
change something in your life: Like a lottery ticket.
problem here is most folks attempting to consume their way to happiness will
realize that after having bought their “feel-good” products and picturing
what life could become: Instead of changing life itself – everything remains
the same. And soon next purchase of happiness is needed. Like an addictive
instant rich, no instant weight-loss and no easy way to success.
yourself? Many people spend more time reading about getting rich, successful
people or businesses, instead of attempting to build one themselves? Sure, we
all need inspiration. But how to actually get started once you feel you got the
right amount of inspiration?
Most people persistently
complain about “not having enough money or time”. They worry about their
lack of success, instead of focusing on their small victories and building on
what they’ve already got.
successful people, wealth and businesses where not “built” overnight.
Somehow, it’s quite logic, the bigger a dream you dream, the higher an ambition you have and especially the more impossible your plan seems, the more scared you might get that you could fail. Many humans somehow fail to see beyond their own worries, concerns or problems and panic as a result of fear-based decisions.
F-E-A-R has two meanings:
Forget everything and run
Face everything and rise
The choice is yours.
– Zig Ziglar
In other words: If something isn’t working after a few days, or weeks, they move onto something else. And then something else again, and on and on the cycle goes. Until at one point in time, guess what, they buy their next lottery ticket once again and break the chain of trying – by giving up.
How to break
this apparent inevitable downwards spiral?
The key to change is simple, but not easy: Slowly reduce and then replace consumption with creation. Instead of daydreaming about getting rich, start earning more, saving more and learn how to invest and making money work for you. Instead of going to restaurants, start cooking more at home. Instead of reading more, start writing more. Instead of buying craft-beers, start brewing yourself! Need veggies? Plant them! Haircut? Learn how to do it yourself. Make it a habit to keep learning and doing.
“Stay afraid but do it anyway. What’s important is the action. You don’t have to wait to be confident. Just do it and eventually the confidence will follow.”
– Carrie Fisher
Like anything at the beginning, it might feel awkward and you might not get immediate success or satisfaction.
at it! See it as a transformation. Important is that you’ll take the first steps
and that you keep going.
As you keep learning,
doing, creating – whatever it may be – you’ll feel how your skills improve day
by day. If you just improve 1% day over day, imagine how much better you’ll be
in a years’ time, two years’ from now, in a decade! It’s the law of
compounding! Your wealth will grow, your self-cooked food will get better, your
haircuts will start to look better, your writing will get more appealing, you
will get more confident and have more fun. And one day you might be able to do
stuff you don’t even dare to dream as of now.
Creating value to the world is so much more satisfying than mere consuming
stuff or ideas other people created.
you’ll gain mastery from doing. It takes time and repetition. The better you
get at doing something, the more enjoyable creating will get. The more value
you can add to the world, the more ideas will be pushing you from the inside –
asking you to get realized.
can’t leave your home anymore without a notebook to write down your new ideas
as they come and hopefully you can’t even wait to start and keep doing again.
Once you wake up, you’d want to jump out of bed to get back doing and you’ll be
filled with a new kind of energy and deep satisfaction.
Believe it or
not: Humans are born to be imaginative creators!
Not lottery-ticket buyers.
For most of human history there were no lottery-tickets.
In a way, it
was only the occurrence of the industrial revolution that started to change how
we humans spent our days. Thanks to increased productivity, corporations
suddenly found themselves drowning in too much supply and not enough demand.
They had to
find ways to convince us we need more; they improved marketing in order to let
an increasing amount of people believe they need to consume more in order to
“keep the economy going”. Unfortunately, many bought into this lifestyle.
surprisingly is that especially nowadays, where most of us are fully aware of
this bombardment from advertisers, we still let them do it and give them
evermore of our attention – the new currency of the 21st century. We
let them into our lives, our homes, our screens and they know more than ever
before about us. Just think about the big data-collectors on this planet.
is that we believe we can fill our inner emptiness by consuming the right
products and services. However, we can NEVER get ultimate satisfaction by
simply consuming more. Actually, the opposite is true. The more we consume, the
more we tend to experience stress and anxiety. The more we consume and possess,
the more our possessions possess us – mentally, physically and emotionally.
It takes time
to realize that the solution to this problem is on the other side of the
equation: We’re so into this consumer mindset that we forget our inherent urge
to create. At least for me, the solution is to consume less and create more. If
we spend more time creating, we will automatically spend less time consuming.
This saves money, builds skills and experience and leads to a happier life.
“The cost of living is dying.”
thing that will add value to your life, your family and the world – and let’s start
creating it! Step by step. Doing so will provide you much more satisfaction
than purchasing a lottery ticket and just dreaming about another, better
life while your actual life, your time passes by.
For myself, acquiring
new skills, applying them and creating has and always will be an essential part
of my life. Even though I can afford to have my hair cut, I bought an electric
haircutting machine, I love to cook myself, learnt how to brew my beer, paint
the walls in my home, started an indoor herb garden and much more. Your life
does not get better by chance, it gets better by change. So, stop wishing,
What would you love to be able to create?
Would be happy to read more about this in the comments!
Disclaimer: I must admit having bought lottery tickets myself – and will buy again in the future. It’s a fun thing to fantasize and hey, I choose to be called Financial Imagineer. While I enjoy the fantasies, I don’t build my “wealth building strategy” solely on lottery tickets and will not be too disappointed by not winning. Should you have won the lottery already and wonder what to do now, please look no further and read here. There are too many horror stories and horrifying stats about lottery winners getting rich quickly and losing everything again.
What would you do if you received a $ 1 million jackpot? How does it actually feel to receive a windfall? What to do with it and how could it impact your life in the short, medium and long run?
Let’s first think about what you could possibly do with a large financial windfall?
– splurge (Sir? The Lamborghini in same gold as the Maybach?)
– take a sabbatical and travel to exotic locations, sipping martinis all day long
– travel to Vegas (all or nothing)
– re-invest in lottery tickets
– buy a house and/or pay-off your mortgage
– invest all into Vanguard ETFs and draw an annual $40,000 forever (Trinity study, 4% withdrawal rate)
– keep calm and carry on
Here’s what a Financial Imagineer would do with a $ 1 million windfall:
Keep calm and carry on!
Keep calm and carry on!
You find this hard to believe?
Looking through all the above options, this clearly appears to be the most boring choice. But hey, I’ve got a rather personal story for you guys today. Let me explain.
We write the year 2001, my most crazy side-hustling days: During daytime, I was usually studying business administration and economics. Frequently, after sundown, you’d find me baking up to 200 pizzas each night at the first pizza home delivery franchise in my hometown. Saturdays, you’d find me advising clients at a bank counter and Sundays I’d be running the local polling station in our village.
Some wondered if I’d ever catch some sleep.
One evening, I was sitting on our couch watching the Swiss edition of “Who wants to be a Millionaire” on TV3. Somehow, none of the contestants ever seemed to make it past the first 10 questions. It got boring and frustrating. It quickly became painful for me to keep watching. I knew and appreciated the show from abroad and generally liked it because you usually learnt something while watching – infotainment. The entertainment value of the local version was rock-bottom. This tickled a nerve.
Instead of applying the ordinary way, I sent a feedback letter asking them to invite more suitable candidates in order to improve the infotainment value of their show. Little did I know that my written rant would be read and acted upon. Before I knew it, we – my then girlfriend and myself – got invited to participate as contestants at the TV show “Who Wants to Be a Millionaire”.
Turn sound on, click “play” and listen as you read on!
We entered the TV studio. The recording started. Game on. First question. Bam, I got on the hot seat. From there, everything went incredibly fast. And after less then 2 hours in the TV studio I was fortunate enough to have won a large windfall for the first time in my life.
How much did we win?
We cleared about $125,000.
I was young, 21 years young to be exact, ran out of all three jokers and decided to call it a day. It felt surreal.
A short moment later they ripped the cables and microphones off me. There are still some blurred memories of me having shaken the show masters’ hand. My knees were soft, somehow it felt like flying on cloud number 9 to the back of the stage.
All of a sudden somebody tipped my shoulder, they pulled me back to reality.
A pen was handed to me and I was asked to clear the paper work in legalese. I signed. Sign-off here, sign-off there. Besides confirming how much we’ve won, the TV station asked me to also sign a non-disclosure agreement: We were not allowed to reveal the outcome of the show to ANYONE until the show was aired. It took another two weeks until my episode was on TV.
We went home.
Stealth wealth mode.
Swiss banking secrecy.
I knew the drill.
In hindsight, this was probably the most awkward AND best situation I could ever have asked for. It was stealth-wealth practice. Maybe you have also read articles about how most lottery winners can’t handle a windfall and end up broke. I had time – time to think about how to win at life – despite having won a small fortune.
Here I was. Glowing in the inside. Ice cold on the outside. Poker face. Not allowed to talk about my experience of just having won a windfall. Pretending nothing has happened and going back to my normal busy life.
Some of my friends and colleagues knew that I participated on the show. Of course they asked all kind of questions. I played along and didn’t bother to talk too much about the show anymore for two weeks. I was back to “business as usual mode” and kept hustling. Literally the very next day, I was baking 200 pizzas again as if nothing happened. Many assumed that the show didn’t work out for me. At all.
Two weeks later, the TV show finally aired.
As the news spread, some colleagues wondered why I still show up at work and continue to bake pizzas until midnight, continue to advise banking clients on Saturdays and still rely on public transportation instead of buying a car.
What does a 21 year old do with a six-figure bank account?
First thing: I went to the ATM and printed an account statement for the record.
Nice, but now what?
It was a real honor for me as a young BA and Economics student to invite our family and selected friends for a restaurant celebration meal with drinks. Thereafter, we also splurged about $500 for a short break to sunny Spain, paid our taxes (ouch) and most importantly invested ALL the remaining into boring mutual funds.
About two months later, we were back to normal and carried on with our lives.
Did my life change at all after that event?
Hell yeah it did!
Not immediately, but slowly.
Having had the extra cash aside, I slowly realized how much power came with it. Power over your own time and life. While most of my university classmates couldn’t wait to have their employment papers signed, I was dreaming to learn more, explore and discover the world.
Explore, Dream, Discover
With a fresh Masters Degree in my pocket, I took off on a 3 months backpacker trip to Central America. Learning Spanish, exploring a foreign culture and another way of life was extremely refreshing and eye-opening.
On my trip, I passed through New York, Toronto, then Bocas Del Torro in Panama, Turrialba in Costa Rica and many other exciting places. The scuba-dive course was $200. Spanish lessons came at $15 half a day including free coffee and internet. A night in a hostel was $7. Arroz con pollo $2 and cerveza for $1. The ultimate luxury dish, fresh caught lobster, butterfly style, set me back $5. Beautiful.
Conclusion: I learned a new language. Price tag: $3,000 and 3 months of my time.
It came with fun, adventure, new friendships and unforgettable memories. Actually, back in high school I sucked at learning languages! Now, without the pressure, I was enjoying it! Muchas gracias!
On the flight back home I got sad that this “graduation trip” is over. Then it dawned on me: While I was away, my investments more than fully covered for the trip already. Passively.
“If you don’t know where you are going, you might wind up someplace else.”
– Yogi Berra
This experience taught me that I enjoy getting lost in other cultures, eating stuff I’ve never tried before and exploring how other people live on this planet. My logical conclusion therefore was to double dare myself and set an even more ambitious target: learning Chinese. In early 2004 I left home again. This time to live and work in Taiwan, thanks to AIESEC.
In 2007 we – my beautiful, loving wife and I – returned to Switzerland. To say the least, the newly acquired Mandarin Chinese language skills and the cross-cultural awareness opened the door to a promising job covering Chinese speaking clients.
“Time is more valuable than money. You can always get more money, but you cannot get more time.”
– Jim Rohn
Don’t just invest your money, make sure that you also invest your time.
1) Keep Calm and Carry On.
If you win the jackpot, receive a windfall or get a huge inheritance: Keep calm and carry on. Circuit-break your natural busyness and stop the rat-race for a moment. Don’t adjust your lifestyle right away. You got all the time in the world to adapt slowly. Invest into buying time!
Make it a blessing, not a curse.
2) Take a Break and Celebrate Your Windfall.
Commemorate your big moment. Spend something but don’t splurge.
“The more you praise and celebrate your life, the more there is in life to celebrate.”
– Oprah Winfrey
How many people have the opportunity to do this in life? How could such a windfall help you learn new skills, grow and have fun at the same time? Having/ taking time to reflect about life is extremely valuable. We all have different dreams. What is yours?
“A human being always acts, feels and performs in accordance with what he imagines to be true about himself and his environment. For imagination sets the goal ‘picture’ which out automatic mechanism works on. We act, or fail to act, not because of ‘will’, as is so commonly believes, but because of imagination.”
– Maxwell Maltz
4) Invest the Money and let Compounding do its Magic.
Imagine $125,000 invested in equities, growing at an annualized 10% for 20 years: $125,000 could have grown into $1 million by itself by late 2021!
“The stock market is designed to transfer money from the Active to the Patient.”
– Warren Buffett
Become a successful navigator of the seven capitalistic seas!
In 2016 Tim Ferriss’ published his book “Tools of Titans”. One chapter is called “How to create a Real-World MBA”. His idea is quite straightforward: Instead of spending a fortune and a couple of months of your lifetime on a MBA and simply “learning” theoretical stuff in classrooms from reputable PhD theoreticians and professors who use big words and fancy powerpoint slides but never left their campus themselves, you might as well use the same amount of money and start-up a company or create even better and more exciting learning and growing opportunities. Apparently exposing yourself to real-world experiments and experiences shapes you stronger than learning theoretical stuff from books alone. “Tools of Titans”. Great read.
From 2001 onwards I’ve bought time and invested in improving skills of all kind on an ongoing basis. This has not only kept my life interesting and adventurous but also brought me financial returns and lasting contentment later in life.
6) Give back
You can give back and share in many ways. Some people prefer to give money through donations or on a one-off basis. Others prefer to directly share their time and experience. This could be done through volunteering, mentoring/coaching or even with a blog. Ever since my windfall, I’ve done all of the before mentioned. It feels good if you can support and help others!
We make a living by what we get, but we make a life by what we give.
– Winston Churchill
If you are lucky enough to win a windfall: Keep calm and carry on. Celebrate, but don’t splurge. You may not be able to stop time, but you can stop the rat-race and “buy” time. Dream and imagineer your future. Invest in your skills, your passion, life quality, memories and fun. Why? Because it will shape you and your loved ones in ways you could never have imagine before. Dreams are everything – technique can be learnt.
“You cannot advance if you cannot visualize the end from the start.”
– Nabil N. Jamal
What’s your dream? What’s your perfect life? Imagine the perfect day, all the people you’d like to see and have fun with, the passions you’d like to chase as well as all the places you’d like to go. What’s your dream and how do you plan to get there? Writing down your dreams is the first step!
Set challenging targets for 2018. Plan to push yourself out of your comfort zone. Try new things, learn new skills, keep pushing yourself forward, change and enrich your mind and your world. Embrace change. Be not afraid to make mistakes. Nothing is perfect from the beginning. Whatever it is, family, love, art, work – life itself. Do something new, something you’re scared of doing. Dare to allow yourself to make mistakes. Only this way can you grow!
In a life well lived, each succeeding day becomes better than the last. Each day, each year, each experience does not stand alone. It cannot be separated from what has happened before or what may happen later. Yesterday determines today and today helps determine tomorrow. Decide and plan your tomorrow today. Do not stick to business as usual, don’t be a play-it-safer, a creature of the commonplace or a slave of the ordinary.
If you want to have an extraordinary life, you got to get rid of your ordinary one first.
Same procedure as every year James?
If you are aiming for a journey towards financial independence: Dream big, plan ahead and get started. Life is busy. Time flies. Organize your life. No one cares about your success more than you do yourself. And surprise: It’s not all about a budget, saving or investing.
Your social environment defines who you become. Did you know that you’ll become the average of the five people you hang out the most with in your life? Therefore: Ensure that you surround yourself with people sharing your vision for financial success!
You become the average of the five people you hang out with.
Do you spend enough time nurturing relationships that matter? Do your current relationships bring you closer to where you want to be? Do you actively reach out and try to connect with people that are already living a life you’d like to live yourself? How do you manage toxic relationships that drag you down? Is the bulk of your current relationships meaningful and enjoyable?
Find five people within your social network that are living the life you dream about, increase engagement with them and learn from and with them. Grow together! Re-imagineer your trusted circle. Engage also in social media online groups such as Choose FI on Facebook.
Your network is your net worth. How do you value your network? Well puttygen , if you don’t value it, cultivate it, nurture it, it becomes worthless. If you do value it, it becomes priceless.
If you’re looking for a new start in 2018, this is where to get started!
2. Commit Yourself to Lifelong [Financial] Learning
If you want to grow, you got to keep learning and expose yourself to new experiences. Make expanding your mindset your new habit – embrace ongoing learning. Learn one or two new skills in 2018. This could be anything you believe could add value to your immediate life. Learn how to cook, how to write, how to invest better, how to start a business, anything that brings you forward and closer towards your goals! The most important thing is to get started and keep going so it may become one of your habits.
Make it a habit to read three blog posts a day – http://rockstarfinance.com/ already did the job for your pre-selection by posting the three best personal finance posts every day! Listen to good podcasts on your commute to and from work.
Simply: Create an environment that won’t allow you to escape your new habits anymore. Set yourself up for success.
Jerry Seinfeld has a great way to make new behaviours a sticky habit. Get yourself a big wall calendar and hang it on a prominent wall. For each day you got to do your newly self-assigned task, e.g. to write or to read, take a big marker and make an X over that day. After a couple of days, there will be a chain of Xs on your wall and you will feel a sense of accomplishment. Keep at it and let the chain grow longer. Your only job now is to NOT break the chain! After a couple of weeks you can put the calendar aside as you’d be living your new habit.
Education is the key to unlock the golden door of freedom. Never stop learning, because life never stops teaching. Education, therefore, is a process of current living and not a preparation for future living.
Bonus tip: For myself, I always carry a notebook and pen with me to write down new ideas as they pop up, some people also use online tools such as Evernote. Do this right after you’ve had an inspirational chat, listened to a podcast or finished your three blog posts a day.
Commit yourself to lifelong learning. The most valuable asset you’ll ever have is your mind. Don’t starve it and feed it well.
3. Set A Net-Worth Target
Humans are simple, they usually pay extra attention on what is being measured. Hence, measure financial success, and I assure you will pay attention to it. Start tracking your net-worth, set-up an excel and define a net worth target for you to reach in the next five years, by end of 2018, 2019, 2020, 2021 and 2022.
Goals are simply a dream with a deadline.
What is your current net-worth? Well, you basically add up all your assets and deduct your liabilities. Track the value of your cash, your investment account, your real estate, your business and deduct your loans, your mortgage and any other outstanding liabilities. The resulting balance is your net-worth. Aim to grow it.
When people calculate their net-worth for the first time, some will add their furniture, a car, an impressive DVD collection and assign highly subjective dream valuations to it. Don’t be like these people. Only consider your tangible assets with a objective market value for your net-worth calculation.
Net-worth can be grown by increasing your assets, by decreasing your liabilities or by doing both at the same time. Define by how much you aim to grow your net-worth in 2018 and get started.
Wealth is not money, it’s capacity for quality of life.
4. Activate Your Assets
Look through your list of assets – as in step 3 – and try to find any assets that are currently idle and could be put to work harder in order to help you achieve your net-worth target easier. This could be a large chunk of cash, gold or other unproductive assets, an extra room or two in your home, an extra parking lot, assets in your retirement account not invested efficiently or many other things that I might not have listed in this paragraph.
An asset is something that puts money in your pocket, a liability is something you still got to pay for or that costs you holding it. Hence, you better check if there’s any idle parts in your overall assets that you could activate or reconfigure. Any idle asset that you could activate today will start adding money to your pocket tomorrow and lets you achieve your financial targets earlier and easier.
You got a huge home? Rent out one or two rooms in your home! You got a parking lot but no car? Rent out your parking lot! Reconsider your current retirement account investments and make sure your current assets are put to work in an efficient manner. Many people will be surprised to find potential for further optimization in this area. Activate your assets!
A related area could also be to optimize your debt. Maybe you could pay-off high interest liabilities with lower interest loans and streamline your liabilities part as well. Sometimes I meet people who take up a car-loan but could have borrowed for much cheaper against their home or their portfolio.
Are you making as much money as you’d like to? No? No problem: Everything is figureoutable! If you’re not making enough money [yet], then you need to get more creative. The majority of our fellow human beings rely on their salary for a lifetime. That’s not wrong, but it decreases their chance to attain financial independence dramatically. Did you know that the average millionaire has somewhere around seven different sources of income? In case you’d like to earn more money, don’t just focus on your job alone. Explore, dream, discover!
The most helpful tool I’ve come across for this step is Rich Dad Poor Dads Cash Flow Quadrant. The Cash Flow Quadrant is comprised of four quadrants. You might want to view this short video for further clarity before we move on.
E stands for Employee – Human Capital, no leverage
People that “have a job”, they sell their time and are “compensated” with money. Whatever value they create or contribute is absorbed by a company and they are “rewarded” with a salary for their efforts. As you will shortly see, this is unfortunately the poorest quadrant of them all. It offers no leverage and you can’t stop working without loosing your income immediately. Active, linear income with time constraint.
S stands for Self-Employed – Human Capital, no overhead
People in this quadrant “own a job”. They are self-employed and can cut-out paying for expensive offices, bosses or other stakeholders involved in the E quadrant. Hence, they can earn somewhat more money against their time. However, it’s just another version of the “time against money” game since if a self-employed stops working, no income is flowing back to them. Somewhat more money, but still active, linear income with time constraint.
B stands for Business – Human Capital with leverage
People in this quadrant “own a system”, the system allows other people to work with them and hence, they have a leverage component in terms of manpower. The system and its people work for the owner. The key to building a sustainable business system is to have useful, unique and hard to copy products, solutions or services combined with a great branding. Franchise systems can also be considered. In order to be successful, people need to transition from a job-mentality to a business person mindset. They need to learn how to hire and motivate the right people and how to keep all stakeholders involved happy over time. This quadrant is still a rather active one, but offers leverage from the peoples’ as well as the capitals component. Owning and managing a business is more risky than holding or owning a job. Therefore governments around the globe incentivize them with tax benefits people in the E and S quadrant don’t have.
I stands for Investors – Financial Capital with leverage
Last but not least, the investor. The big difference of this quadrant is that investors invest their financial capital instead of their human capital. In other words, they send money to work. This quadrant is therefore the only truly passive income quadrant. The active part comes from choosing the right investment cases and reviewing existing investments once in a while. Investments can be made in businesses, the capital markets as well as in real estate. This quadrant offers you unlimited upside potential but also bears most risks due to the volatility of the markets.
A common way towards Financial Independence is to slowly emerge from the E quadrant towards the S and B quadrants while constantly feeding the I quadrant on the side over time. Don’t just diversify your investments, also diversify your streams of income. Evolve from the E and S quadrants and start unlocking the B and I quadrants for yourself. In case you like it on the safe side: You can still hold your job while taking the first steps into these new fields! Don’t chase seven rabbits until you learn how to catch one.
I would rather earn 1% off a 100 people’s efforts than 100% of my own efforts.
– John D. Rockefeller
6. Multiply your streams of [passive] income
There are different forms of income. In step 5 you’ve seen that there are active and more passive forms of income. You can either sell your time for money or create systems such as a business or investment strategy to provide you with income. Most people start the wealth building process with an active form of income: salary.
Get started on this path and as your active income grows, open up and invest into passive streams of income.
First step: Make a list of all your current streams of income.
Interest [cash, bonds, mutual funds, ETF]
Dividends [stocks, mutual funds, ETF]
Capital Gains [real estate and capital market investments]
Rental income [apartments, rooms, parking lots]
As you look through this list, categorize the income streams into active and passive streams of income. Also make a triage in terms of how much return on investment you could possibly obtain by shifting your focus and/ or more capital into each respective source of income. Now, figure out how much additional resources such as time and savings you could possibly boost every month and define into which income streams you’d be investing your time and money going forward.
As the CEO and CFO of YOU Inc., it’s your job to focus on increasing your passive streams of income, especially where your expected return on investment is the highest. In order to learn more and get your streams of income from more independent sources, try to diversify into several streams of income as long as the administrative effort is manageable.
Imagine: If you’d be a publicly listed stock, would you invest in yourself?
If you don’t find a way to make money while you sleep, you will work until you die.
– Warren Buffett
Did you know Warren Buffett is still living in the same home he bought for USD 31,500 back in 1958. He managed to avoid lifestyle creep and smartly reinvested his savings instead of upgrading his residence. Amongst other reasons such as being patient, sticking to his strategy and reinvesting his profits, this allowed him to “early retire at 25” and focus on his true passion: Investing instead of selling stocks. Eventually, this helped him to unlock the magic of compounding interest and lead a happy, self-determined life.
Warren never thought of a $5,000 couch simply as a $5,000 couch. He calculated that $5,000 in today’s dollars multiplied with 7% annual performance over 50 years would represent an opportunity loss of $5,000 x 1.07^50 = $150,000. Now imagine, how much a new car, that expensive dress or a designer bag will actually cost you in tomorrows’ dollars. On top of that, such stuff will all end up as trash.
Warren is smart and successful. Be more like Warren.
Constantly throwing money at new experiences or more stuff is also not a recipe for lasting happiness and contentment. Don’t get me wrong, you don’t have to live like a caveman. But I’m 100% confident almost everyone can cut back their expenses and reinvest the difference in order to snowball their wealth up faster. Economize somewhat, simply spend less on housing, cars, eat out less often, keep your desire to acquire in check and off you go!
8. Pay yourself first – automate your investments
The majority of people simply spend their whole pay-check and only in the rare and special case some cash remains after a month, this might eventually get stashed away. Why not do the opposite and pay yourself first instead? Did you know Mustachianism comes from MUST-STASH!?
“Treat your savings account like just another bill. It has to be paid every month or there are consequences.”
Define how much to stash away every month! Right after you’ve received your pay check, pay yourself first. Best is to have this transfer automated! Stash this cash into your savings or even better investment account. By doing this, you will not be tempted to spending away your saving portion and you will start getting used to making ends meet with whatever amount is left in the bank account after having paid yourself. Another habit is created!
After you paid yourself first – get this surplus invested and make it work for you. Invest whenever your money is ready, invest regularly, best is to have investing automated as well so you don’t have to actively make an investment decision every single month and end up suffering severe decision fatigue. Once you pay yourself first and the investment part is put on auto-pilot, you’re set for a financially successful 2018 and beyond!
Looking for more reading material on these topics? Click here.
What are your Financial New Year resolutions? What are your net-worth targets? Which skills would you like to build? Leave your comments below or on Twitter and Facebook!
Remember: Failing to plan is planning to fail!
To reaching new heights and making dreams work in 2018!
Gift the key to more freedom, happiness and financial health.
It’s beginning to cost a lot like Christmas: The season of gargantuan money wasting on overpriced plastic toys that will soon be forgotten again is unleashed upon us. Nonetheless, the act of giving and sharing with our loved ones is what makes Christmas what it is.
People pursuing Financial Independence don’t necessarily enjoy shopping and try to avoid wasting gas driving around the city in order to hunt down Christmas gifts or spending money on stuff just for the sake of it. Most kids in our modern, privileged society enjoy already plenty of toys and stuff to “kill time” with. Stop wasteful behavior and focus on giving something with a deeper purpose instead.
Financial Intelligence is knowing that if you spend your life energy on stuff that brings only passing fulfillment and doesn’t support your values, you end up with less life.
Being a financially independent money nerd, a veteran banker as well as most importantly a dad of two and uncle of six kids between 3 and 11, I feel an inner calling to spread the mindset of financial literacy, financial intelligence and ultimately financial independence to our kids. Christmas is a wonderful opportunity to make an impact to the kids’ financial education while still having tons of fun.
Gift the building blocks of financial literacy and seed keys to financial independence as early as possible! Life isn’t about finding yourself. Life is about creating yourself. Help your kids creating their best version of themselves by unlocking their toolbox for building a dream-life at an early age.
“As your dad, I’m supposed to give you two things… roots and wings. Roots which is knowing that you have the security of a family who loves you and wings, which is the confidence to do whatever you want.”
This is my Santa’s Christmas List for Financial Imagineers, version 1.0
1. Ideas for new-born babies and toddlers
Time, the rarest of all investments. You get it for free, and spend it until it’s gone.
The magic of compound interest is most powerful the more time is available to let it work. As babies can’t make financial decisions yet, help them and gift them an all equity investment account with a maximum time horizon.
You can initiate this gift at birth and as the kids grow older and more mature, you will be able to start teaching them about this special account before they actually can lay their hands on it once reaching adulthood.
While an investment account is a very abstract and invisible gift which little kids can’t see, touch, feel or comprehend yet, gift the good old piggy bank. Small kids will be thrilled to “feed” their piggy bank over time. Going forward, the highlight will be to accompany your kid to the real bank and deposit the saved coins – and to invest it into their investment account. The older they get, the more you can explain and teach them about the investment part.
2. For kids from 5 years onwards
“The best teachers are those who show you where to look, but don’t tell you what to see.” – Alexandra K. Trenfor
Monopoly Junior is a simplified version of the original Monopoly adjusted to be enjoyable for young children. Its somewhat smaller than the standard board and instead of street names the properties that can be bought are amusement facilities such as toy store, candy shop, arcade or cinema. Money matters are kept more simplified and kids learn basic math skills, negotiation skills and tactical concepts as to secure the best spots and how to win. Play with them and teach them how to improve. Then let them win and the valuable lessons will stick.
Similar to the adult version, the Junior version of The Game of Life allows players to simulate life from beginning to the end – every time your kids play it again, they hopefully will get smarter and play better as they have digested the lessons from past rounds. The Junior version comes with more fancy rides to play and is simplified as compared to the original game. The game lets kids rehearse life over and over again. I love it as kids try to amend their strategies as they repeat playing in order to get to the best possible outcome. Great game.
3. For kids from 8 years onwards
If you stop believing in Santa…. you get underwear.
The ultimate classic game to build your real-estate empire by buying and trading properties and developing them with houses and hotels. The original idea for Monopoly comes from “The Landlord’s Game”, a game originally intended as educational tool to illustrate the negative aspects of concentrating land in private monopolies. In 1935 Parker Brothers started selling their version as Monopoly and thanks to its great success, the game is nowadays licensed in over 103 countries and available in more than thirty-seven languages!
Since Monopoly was designed as an educational game, let’s look deeper into what kids can learn from it. First and foremost, the monthly salary is passing the “start” field. Kids will discover pretty soon that round after round, staying in the game will get more costly and the only way to stay afloat is to invest and develop their property. They will learn the numbers of their banknotes, they will be exposed to mathematical challenges, they will engage in trying to negotiations and making deals. They will learn to bluff and sell. They will discover that playing with different people will get to different outcomes. They will also learn from the more successful players and reveal mistakes of losers. The very best part: Every time you restart the game, there will be new scenarios and lessons to be learnt as every round of monopoly will be different.
We only have one life and it doesn’t come with a manual. This game will make kids think more about their life, their plans and their future. The game of life lets you simulate and choose the life you want. Go to college, take the family path, have kids, see what happens when unexpected twists change the game. Will you receive a fortune and lose it as quickly as you got it? Will you need a bank loan to pay a debt? Once all players reach the end of the game – retirement – everyone pays their debts and adds up their wealth. The player with the most money wins. It’s up to you to win the game of life. Every time you play, you can reset and experiment with different life paths, will you take student loans? Or join the working force and earn a salary? Will you end up bankrupt or earn millions with stocks and real estate? Anything’s possible with a spin of the Life wheel. Imagine the family table conversations you’ll have with your kids about their played experiences from this game. Kids will observe you and your life and try to decode with the puzzle pieces from playing this board game. Playing The Game of Life will make them think, inspire their imagination and let them get familiar with certain patterns about how to win at life – in real.
4. For kids from 10-14 years
Doing what you like is Freedom. Liking what you do is Happiness.
Written in a concise but playful tone, “How to Turn $100 into $1,000,000” is an accessible, exciting and essential book for every kid growing into this world. Every parent who wants to raise a money-savvy, smart, confident and knowledgeable kid should consider it as a gift. It’s a practical, entertaining and inspiring guidebook covering topics such as earning, spending, saving and investing money. From earning a first $100 the book covers thinking like a millionaire, learning ways to get more money and letting money work for you – it covers compound interest and how to track your investments.
Even topics such as spending more than you make, ponzi schemes, wrong budgeting, or bad investing along with clarifying illustrations are making kids aware of the pitfalls in life.
While a ten year old kid will be able to comprehend, “How to turn $100 into $1,000,000” is also suitable for young adults and even people above 30 will find something useful in this book.
Besides money stuff, it also engages kids to think about achieving bigger goals, it makes them excited about making and saving money and it also suits readers with a rather short attention span as you can jump topics.
All in all, this book should be included in every elementary school curriculum as it’s the perfect resource charting the course for the ultimate goal: Financial Freedom.
Not only girls should be reading this book, it’s packed with 100 stories about extraordinary women and how they mastered life in fairy tale style. It inspires daughters and sons – who love to listen to the stories as well – to dream big. It covers scientists, engineers, judges, painters and many more female personalities who have lived a life worth telling the stories about. It’s most likely also the best bedtime book you’ll ever read.
5. For teenagers from 14 years onwards
Santa saw your Instagram: You’re getting clothes and a bible for Christmas!
This “Get-out-of-the-Rat-Race” -game made by Robert Kiyosaki (Rich Dad Poor Dad) is like a level-up Monopoly version. Players start the game in the inner circle – the rat race – and got to survive round after round by managing to cover their monthly expenses with a salary that’s derived from their profession. If they play well and take the right steps, players may escape the “rat-race” once their monthly expenses are fully covered by passive income! This is nothing else than reaching financial independence.
In the game, this step unlocks the fast track, the so called post-financial-independence life. Here, you can choose to chase your dream and further increase your wealth and your monthly cash flow with more ventures, such as businesses or real-estate.
In short, this game teaches its players not only how to make your money work for you, to reach financial independence, but in addition this investment simulation allows you to learn valuable lessons and gain priceless insights into personal finance without having to put your actual money at risk. The game is Robert Kiyosaki’s vision of an interactive tool for financial education and the fulfilment of his belief that we learn best by doing. This game makes learning accounting, finance and investing fun. You can try strategies for building wealth you might never dare to try in real life. If you’re a saver, try aggressive investing. If you’re a risk-taker, try slow growth. Win either way by learning! Expand your mind and start dreaming about the possibilities.
6. For adults including yourself
What’s the ultimate quantification of success? For me, it’s not how much time you spend doing what you love. It’s how little time you spend doing what you hate.
Robert Kiyosaki’s step-by-step handbook for parents who’d like to teach their children the fundamental principles of finance. It introduces a variety of financial problem-solving skills that help youngsters understand the importance of financial planning in their lives. Bring your kids to financial excursions, teach them hands on lessons and let them explore finance in a safe environment before they become adults themselves.
In this book, financial expert and best-selling author Dave Ramsey and his daughter equip parents to teach their kids how to win with money. Starting with the basics like working, spending, saving and moving into more challenging issues like avoiding debt for life, paying cash for college and battling discontentment. It’s a no-nonsense, common-sense approach for changing and positively impacting your family tree.
Hits you like a much-needed slap in the face from your best friend: Hilarious, vulgar and thought-provoking. Resilience, happiness and freedom come from knowing what to care about – and most importantly, what not to care about. This is a masterful, philosophical and practical book that will give readers the wisdom to be able to do just that. Besides, it’s a very fun read!
The perfect gift for indecisive individuals amongst us, this is the desktop dial that imparts unbiased wisdom to its spinner for making important business decisions. A spin of the chrome-plated ball empowers the paperweight with one’s fate as a red ball-bearing circles the base and lands on one of nine laser-engraved answers including “buy”, “sell”, “pray”, “ask mom” or “fire someone”. Unlike token “yes” men that always provide the same stale response, this item offers insightful advice and concrete answers to everyday questions that plague indecisive executives, parents, people and apprehensive investors. Best enjoyed with a grain of salt.
With these ideas I’d close for the day.
Merry Everyday and a Happy Always!
Well intended money nerds like us are not universally appreciated and whether or not your beloved giftees will appreciate a money nerds’ gift is up to your sales pitch: Best is to keep low profile, apply a sneaky “stealth-wealth-preach” and masquerade the obvious hidden-purpose of gifting these very items with profound heart-warming care and love as only Christmas could.
Further, as this blog doesn’t finance itself, please be made aware that the product links used above are affiliate links for which Financial Imagineer will receive a compensation.
What if there was a financial super weapon which can be used to multiply the firepower and reach of your money in ways you’ve never thought possible before? What if such a weapon is widely available already and unlocking it only takes a few well directed steps? What if you’d like to learn more about this? Read on.
Spoiler alert: Having been working in Wealth Management for most of my professional life, your gravity defying money bazooka and most powerful tool to build and multiply your wealth is: Credit!
Recently Jay Z rapped about how crucial he believes credit is for financial freedom.
“You wanna know what’s more important than throwin’ away money at a strip club? Credit
You ever wonder why Jewish people own all the property in America?
This how they did it
Financial freedom my only hope
Fuck livin’ rich and dyin’ broke
I bought some artwork for one million
Two years later, that shit worth two million
Few years later, that shit worth eight million
I can’t wait to give this shit to my children”
In this post we will first discover how money is made and multiplied in our world. In the second part of the post we will explore how to apply this knowledge for your own investments and pursuit of wealth.
Part 1: The Money Multiplier
Do you have cash in your pocket right now? Chances are, the answer is yes. Money, we all use it, want it and think about it. But did you ever reflect in more detail about where your money actually came from and how it’s being released into the system? Instead of arranging a field trip to the money factory, let’s explore further here.
Step 1: Central banks add [virtual] money in the form of credits to the balance sheets of the various commercial banks.
Step 2: The commercial banks will then release it to the end users in the economic system, be it in the form of account balances or in cash.
The fascinating outcome of this money game is that after a while, the final amount of money in the system will DIFFER from the original amount of money issued by the central bank as in step 1. In fact, it will be a multiple of the original amount!
Surprising? How come?
Well, commercial banks engage in two distinct types of activities. One on each side of their balance sheet: Deposit-taking and lending. Are they allowed to lend out the same amount as customers have deposited? No! Banks have to withhold a certain percentage of all deposits as a safety requirement. How much is defined by the so called “reserve ratio”. The reserve ratio or withholding rate can only be amended by the central bank.
How does that work in real life?
Let’s say A has $100 which he likes to deposit into his bank, if we assume the bank has to withhold 10% as reserve, it can lent out $90 of A’s deposit. Assume the $90 are taken out and end up with B. B will now deposit the $90 back to the bank again. In a third step the bank can lend out another $81 (withholding 10% of $90 yet again) to C. C brings his $81 back to the bank and after withholding 10% an extra $72.90 may be lent out to the next client in line… Continue this game on and on until you realize the final sum of money floating in the system is not $100 but a whopping $1,000 instead.
So, we conclude:
If the reserve ratio is 10% the final amount of $100 issued by the central bank would end up to be $1,000 in the system. We can generalize that the money multiplier of any economy equals = [money issued] x [100/withholding rate]. The lower the reserve ratio, the higher the money multiplier of the economy. In case of a reserve ratio of 20% a $100 issued by the central bank will only magnify to $500 in the system.
The final amount of money in an economy is therefore not equal but a multiple of the original money released into the system. All capitalist monetary economies are controlled by an underlying money multiplier. The money multiplier is the result of central bank money issued into the system and the chosen reserve ratio which banks have to withhold. It’s not just a money multiplier, heck no, it’s an economic multiplier!
Understanding this mechanism is the key component for you to imagineer your own gravity defying money bazooka which you then can use on your journey to financial independence.
Part 2: Building Credit and Charging your Money Bazooka
Now think of yourself and your assets not just as a person but as a company or an economy as in part 1. What makes such entities so powerful as compared to a single human being? Well, they all have heaps of “credit”. Companies can issue equity or bonds, economies can even print money or steer the money supply by manoeuvring interest rates and reserve ratios. Now that’s powerful stuff. Isn’t it. This kind of credit, credit-worthiness or credit-line is something I deem a must-have for a successful financial life.
Somehow, it’s an often overlooked and ignored addition to any financially savvy persons’ skill tree. Build credit. Charge your Money Bazooka – unlock your own personal potential money multiplier. But hey, wait, wait, wait: You GOT TO UNDERSTAND how to apply, take aim and learn how to fire once loaded.
Hope is not a strategy.
Luck is not a factor.
Fear is not an option.
Wisdom is Knowledge Applied
Since we’ve gone through all the theoretical stuff, how do we actually charge our Money Bazooka effectively and how to engage, take aim and fire?
Level 1: Improve your credit score and get higher credit card limits.
First homework is to level up your credit score. A credit score is a numeric value which represents an individual’s creditworthiness. Banks and credit card companies use such scores to evaluate the potential risk posed by lending money to certain consumers and are aimed to avoid bad debt. How these scores are composed and evaluated differs from country to country. My advice: become the kind of person banks offer higher credit card limits and credit lines. If banks actually want to lend money to you, you’ve loaded your Bazooka to level 1 which is paramount to unlock further levels. While Level 1 doesn’t allow you too much financial imagineering yet, it unlocks the beauty of credit card award funded travel hacking, a topic we shall cover another time.
Level 2: Get standby lines of credit on your investment accounts.
Once you’ve maximized your credit score as in level 1, your bank would love to lend you some money. Let’s further imagine you have securities of $1,000,000 sitting in your investment account – invested in equities and bonds through fairly liquid products such as shares, ETFs or mutual funds. Did you know banks offer credit lines against such holdings for clients with good credit scores? Most banks can issue a credit-line somewhere around 50-70% of your liquid investment holdings. A $1,000,000 investment account will therefore provide you a comfortable $500,000 credit line – on demand. This is your Money Bazooka. It’s a “nice to have”!
What to use it for?
Picture yourself sitting at a real-estate auction where you suddenly realize you’d love to purchase a decent unit everyone’s bidding for. The going price is around $300,000 but you feel it’s worth more. How many people would you think can make an outright cash-offer and sign the deal on the spot? Congrats, since your Money Bazooka is fully loaded you’d be one of them! If you decide to buy the unit on the spot for cold hard cash, all you need to do is to draw the $300,000 from your standby line at the bank and pay. Done. You might even get (or ask for) a discount for speedy all in cash payment. Settled and end of story. Thanks to your loaded money bazooka you’ve just bought another property at a discount. But that’s not end of story yet. Once the deal is complete, kindly proceed to level 3.
Level 3: Pledge assets such as your real estate and parking lots to the bank.
After you’ve analyzed your newly purchased $300,000 real estate further, you find out its assumed market value is around $375,000. You present the property to your banker who will provide you with a mortgage of 80% of its value = $300,000. After all the paperwork is done your banker promptly provides you with a $300,000 mortgage. As financially smart individual, you promptly wire the $300,000 mortgage payout back in order to pay-off your short term advance against your investment portfolio. Doing so will recharge your Level 2 Money Bazooka in an instant (ka-ching!) – and you are ready for a next shot.
What happened: Surprise! Your Money Bazooka bought you time and flexibility – imagine you’d have to apply for a mortgage or sell your financial holdings just because you need liquidity in order to grab hold of a great opportunity during an auction.
If you’d like to magnify the firepower of your Money Bazooka for a potential next shot, you may also pledge other real estate such as property, parking lots or land.
Whether or not to shoot is up to whether or not you’d like to seize opportunities. It’s always nice to know you could take a shot if you wanted!
A somewhat more advanced move to consider for Level 3:
Imagine now the stock market goes on Sale – let’s say a 30% dive in the S&P500 happens – you may now call your banker and take another controlled shot with your asset-backed and fully loaded Money Bazooka in order to pick-up some discounted shares. Sit and wait until markets normalize and unwind.
Dedication is what turns dreams into reality.
Level 4: The full pledge
Since building and managing wealth will cover all aspects of your finances, some friends might want to think about going one step further. Consider to power-up your Money Bazooka by pledging your retirement account/ portfolio, a life insurance, a portfolio of employee stocks or in very lucky cases publicly traded shares of your very own company which would allow you to keep the majority voting rights while having an option of drawing cash firepower against your post-IPO shares. Some of these ideas might only work in certain countries but unlocking and activating Level 4 assets for charging the Money Bazooka offers you a new level of financial flexibility. It’s simply a matter of activating underused assets.
Make your own paychecks!
Level 5: Learn how to shoot around the corner with your Money Bazooka.
The cross border pledge is what enhances the reach of your Money Bazooka: Keep and pledge your assets in country A and draw-down a loan in country B using a letter of credit or undertaking. This comes with a price tag from the bank but allows you to safeguard your nest egg in a appropriately sheltered legislation while providing you with cash-firepower for investing in a new place without actually transferring money via cable transfer. Level 5 is the ultimate hack providing you a maximum of global flexibility and lets you apply your financial firepower like a pro. This level might however require a certain amount of accumulated wealth before it can be unlocked.
Magic is something you make.
Some People are Wise, some Otherwise.
Know what you don’t know and beware. Credit lines, loans and leverage can be your most amazing secret weapons if applied correctly. However, they also bear the risk to morph into a weapon of mass destruction if used wrongly. Start small and slowly is my best word of advice. Also, study and be aware of margin call levels and local legislations as well as tax implications for cross-border transactions. Read and fully understand the manuals well before manipulating your bazooka!
If you always do what you always did, you’ll always get what you always got.
– Albert Einstein
Using credit is similar to companies or economies using their very own money multipliers to do financial magic in order to expand their balance sheets and seize opportunities without selling your core holdings.
Take it step by step, unlock and get to know your gravity defying Money Bazooka!
As another year is coming to an end, most cubicle farms will soon be engaging in the annual ritual of employee performance evaluations. Since I no longer pursue a regular job, this will be my first year since leaving university without going through this customary review process.
“Wow, I’m so excited for my annual performance appraisal!”
Said no one ever
Help, I FIRED – who’s holding me accountable now? How to Ace Your Annual Performance Review …on a life towards or on FIRE?
Why do we review performances and hate it so much at the same time? People want to know where they stand. People want to get confirmation, they want to know what to do better and what to stop. People expect to be held responsible – in good as in bad ways. In a perfect world the system should be fair and give you what you deserve.
Depending on your job, the result of an annual review will impact your compensation, your corporate advancement in short providing you an affirmation of how your efforts are paying off. Providing feedback to employees mainly benefits companies as people are held accountable for achieving targets that have been pre-defined a year earlier and should keep the company on track on a larger scale. This got me thinking.
Boss: “Spends extra hours on the job”
Translation [employeese]: “Miserable home life”
Anyone having been in a corporate culture knows just too well that whatever is being measured and prioritized will somehow be achieved – sometimes with unexpected and unintended losses in other areas. Imagine a customer service center that implements a KPI to “remediate client queries within 5 minutes of picking a call” because last years’ customer feedback might have been something along the line it takes too much time. If this KPI where to be implemented, you could be assured, calls will be ended before reaching the 5 minutes threshold – irrespective of the outcome of the call. This is an example of how well intended but poorly designed KPIs could backfire.
Boss: “Approaches difficult problems with logic”
Translation [employeese]: “Finds someone else to do the job”
In an ideal world, performance reviews improve employee engagement, which in turn improves customer satisfaction, productivity and profitability. You don’t need to be Mr. Spock to come to the logical conclusion that managers who focus on employee strengths will therefore experience the highest levels of engagement and those who don’t share any feedback have the least engaged employees. Being ignored is harming employees’ engagement more than negative feedback.
“Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients.”
However, writing feedback on a blank form is difficult and may take a long time. Besides, it’s not easy to find the right words – what is meaningful or even what is legal!
Imagine your boss would write: “Since last year, this employee has reached rock bottom… and has started to dig.” or “It takes him 2 hours to watch 60 minutes” or stuff like “It’s hard to believe that he beat 1,000,000 other sperm to the egg.”
Employees expect a reality-check, they want to know how they did on the corporate scoreboard. On the other hand, most people believe performance reviews are a complete waste of time anyways. Despite all the measurable parts, in most companies there are very subjective and political forces at play in the background. And if you don’t prepare yourself well enough for these reviews, you’ll be like a turkey on Thanksgiving waiting for the axe to come.
Boss: “Unlimited Potential”
Translation [employeese]: “Will stick with us forever until either fired or retired”
Putting all these thoughts aside, one better prepares well for this meeting. Especially if there is no more boss around to judge. A managers’ role is usually to optimally engage all his (human and capital) resources for maximum impact.
Boss: “Enjoys job”
Translation [employeese]: “Needs more to do”
This is exactly the same for your own private life and personal finances. However, you are not a turkey, sheep or a resource of someone else: You are your own direct report now. You are in charge. Assume command! If you attempt to take charge of your personal finances, YOU got to define how to measure your progression and where you would like to finish up next year, 5 years from now, a decade later, in your life.
As much as we dislike annual reviews, humans – you and me – focus on what we measure. In order to improve and get more successful, we have to learn how to create our own KPIs that are impactful, useful and meaningful at the same time. Financially reverse imagineer your dream life and learn how to set the right KPIs that will guide you on the path of your life towards your dream life and beyond. So define and measure the parameters that are important for and to you and make the measuring stick.
KPIs [Key Performance Indicators] have to be SMART: Specific, Measurable, Achievable, Relevant, Time-bound
1. Getting your priorities right: Happiness tracker
My review for 2017: In 2017 I dared to quit my job, moved with family of four from Singapore to Switzerland to start our new life on FIRE and attended my first Fincon in Dallas in order to get my blog started. I give this a full mark for 2017.
Translation [employeese]: “Paid too much”
“Most of us have two lives. The life we live, and the unlived life within us.”
– Steven Pressfield
Note to self: Do something you love today!
2. Net worth tracker
This one is fairly simple. Add up all your assets, your accounts, your everything and deduct your liabilities from it. This is your net-worth. Do this exercise on a regular basis. I’ve been doing this with an excel sheet since 1995 [yes, since 22 years now…] on a monthly basis and can confirm it works. If you focus on increasing this number, you’ll find yourself more and more options in life. Believe in your inner Warren Buffett.
“The first $100,000 is a bitch, but you gotta do it.”
– Charlie Munger
In order to make this one more “achievable”, break your big target down. Set a target for this year, a target for two years from now and a five year target that can be somewhat more ambitious. Best is to start your own excel sheet and implement some functions in your excel to simulate different scenarios (e.g. salary developments, saving rates, budget-miss or overshoots, real-estate price and profitability developments) – play around with the calculator and optimize for maximizing your net worth. My current excel spreadsheet reaches 20 years into the future. Simply adjusting little details like school fees putty download , monthly bills, housing expenses or passive income by activating assets will show net-worth and passive income impact over half a lifetime at a fingertip. Tracking net-worth and simulating different forward scenarios has been the single most crucial factor on my path to FIRE.
My review for 2017: Despite giving up my job, surrendering my monthly salary and purely relying on passive income since July while financing an intercontinental move with a family of four, my net-worth still increased 6 digits in 2017. Check.
Boss: “Of great value to the organization”
Translation [employeese]: “Turns in work on time”
3. Investment performance tracker
This KPI gets more complex the more assets you hold as different asset classes are not equally correlated to each other and have different risk/ return and liquidity features. How to measure emerging market real estate/ parking lots versus fixed income mutual funds, single equities, active asset allocation funds and overlying option strategies including the respective currency effects. This part can be rather fanciful but doesn’t have to be. Most people in the FIRE community opt for long Vanguard S&P ETF and keeping fees as low as possible which is beating more than 80% of global investors in the long run anyways. As a lifelong investor and early retired banker, investments are my true passion and I plan to revert in more detail about this topic in subsequent posts.
My review for 2017: As per November I’m very satisfied to have reached a performance in excess of 20% on my core investment portfolio of bankable assets which I consider a clear done for 2017.
Translation [employeese]: “Is still getting work done even if supervisor helps”
4. Passive income tracker
In early 2017 the big question for us was: “Will our passive income be sufficient to support the family”. As the first couple of months passed on, our key initiative was to review all assets and double-check whether or not they could be “activated”, e.g. if they could be used to produce passive income. The key decision in 2017 and main enabler was to boost our passive income by activating our condo in Singapore as a rental unit.
My review for 2017: In summer 2017 we activated and unlocked the potential of our Asian home while moving to a cheaper residence in Switzerland. This move increased our passive income, reduced some of our unnecessary expenses (mainly location related schooling fees for our two kids) and resulted in a 6 figure passive income delta (difference over 2016) per year. The passive income was now more than sufficient to let go the monthly salary. Mission accomplished.
Boss: “Uses resources well”
Translation [employeese]: “delegates everything”
5. Budget/ saving tracker
While at the beginning of 2017 our household budget was supported by salary AND passive income, we made a transition to an only passive income fed budget. As the end of 2017 comes closer, I’m very happy that we still manage to save parts of what we consider our passive income despite and especially having a nice life.
In Singapore, we could choose to indulge in cheap foods – hawker center streetfood dinner starting from $3 – as well as super expensive options such as a 2 star michelin dinner for $300 per person. We could basically “arbitrage” within the city state itself and choose which options to go for. Luckily Singapore offers a wide array of options.
Our new home in Switzerland is considered expensive. Nevertheless, our city is conveniently located only 10 minutes by car from either Germany OR France. We are living in the beautiful city of Basel, a tri-national urban area in the heart of Europe. Most certainly, you could find us comparing our grocery options in different supermarket chains in three nations nowadays. We can finish a cross border grocery shopping trip within an hour or could indulge in longer trips taking advantage of each locations specialties, restaurants, price levels and so forth. Having convenient access to tri-national grocery and service shopping in Basel is a paradise for a mustachian inspired arbitrageur.
My review for 2017: On target!
Boss: “Exceptionally well qualified”
Translation [employeese]: “Has committed no major blunders to date”
6. Bucket list tracker
In March 2017 we went to a two week family campervan trip to New Zealand, we covered both islands and saw the nice hot springs at Hanmer Springs, checked the Franz Josef and Fox glaciers at the West coast, visited Wanaka, saw Mt. Cook, did whale watching at Kaikoura, crossed with the Interislander to the North Island and went on the see the Waitomo glowworm caves, visited the Rotorua Maori village and Pohutu Geyser. It was marvellous and the kids are still telling stories of this trip.
In May my wife and I celebrated our 10 year wedding anniversary and left for a trip to Hong Kong, Tokyo and Kyoto mainly financed with travel miles. To kick-off this trip we indulged in flying Singapore Airlines Suites class together for a mere $50 and some travel-hacking funded award miles. On this trip we planned what to do in the years to come and once we returned home, we were ready to let go of my job.
My review for 2017: Very satisfied.
Boss: “Uses time effectively”
Translation [employeese]: “Clock watcher”
7. Check progress against five year plan
Together with my wife, we have planned our life in 5 intervals ever since we married in 2007. This year marked our 10 year anniversary and we have achieved all our big hairy ambitious goals for the past two 5 year plans. We have been able to safe sufficient, invested enough and well, got two kids on the way and ignited our new life on FIRE after our 10 year honeymoon trip in 2017.
My review for 2017: It was an exciting journey and thanks so much for my patient wife to hang along. If you’d like to have an extraordinary life, you’d have to give up your ordinary one. We have planned our next 5 years till 2022 and we are ready to roll.
Boss: “Deserves promotion”
Translation [employeese]: “Create new title to make him/her feel appreciated”
Plan and track your progress towards your dreams. Break down your ambitions to achievable, measurable goals. Measure up. Be accountable. Be responsible. Have patience. Have grit. Keep going. Think big and go for it! You’ll get there.
Back in Kindergarten my father once asked me: “Son, what would you like to do once you’re a grown up?” – of course I was dreaming all sort of things, most prominently wanting to become a bus driver, a pilot or an astronaut. These more ordinary dreams for boys of that age came to an abrupt halt only shortly afterwards as I unveiled the ultimate profession: Inventor.
Imagineering = a combination between “Imagination” and “Engineering”
Imagination: The creative ability to form images, ideas and sensations in the mind without any immediate input of the senses. Imagination helps make knowledge applicable in solving problems and is fundamental to integrating experience and the learning process.
Engineering: The application of mathematics, science, economics as well as social and practical knowledge to invent, innovate, design, build, maintain, research and improve structures, machines, tools, systems, components, materials, processes, solutions and organizations. The term engineering is derived from the Latin word ingenium, meaning “cleverness” and ingeniare meaning “to contrive, devise”.
Back in the days – and still today – my fascination for Disney comics was tremendous. Immersing myself in these fantastic stories and associating myself with the lives of all these marvellous characters was such an enriching experience. Eventually I picked a favorite. You might now think, since I’m writing about personal finance my hero and role-model would be Scrooge McDuck. Well: wrong! The ever-lucky fellow Gustav Goose? Wrong again!
My absolute role-model was Gyro Gearloose! The inventor!!!
Scrooge McDuck: “What did you do??”
Gyro Gearloose: “Well, you did say to make it as real as it can be, so I did!”
He literally blew my mind. Whatever he imagined, he found a way to make it happen: his outrageous creativity and productivity was pure genius. Once, he ran out of ideas and solved the problem by inventing a thinking-cap which empowered him to have more and better ideas! If he didn’t have his cap with him, he stroke himself on the head with a big hammer! His job was to make fantasy a reality despite all odds.
Gyro Gearloose’s main ambition was not so much to get rich and famous but rather helping the people of Duckburg to improve their lives. He is also known as being good-natured towards others. In one of his stories he actually persuaded Duckburg citizens to rebuild their whole city into a futuristic utopia which somehow worked out too well: Donald Duck only worked 1 hour a day and spent 23 hours sleeping which left him more bad-tempered than normal. At the other end, Uncle Scrooge McDuck suddenly controlled an army of robots which collected way too much money for him – filling up his money bin to the point where good old McDuck couldn’t even jump and dive into his coins anymore as it was too full. Only when Gyro’s robot invented another robot to replace Gyro himself as an inventor he decided Duckburg must be turned back to its old self. Wow! Elements of early retirement and artificial intelligence in a 1980’s comic book!
That was it: Duckburg’s [most famous] inventor became my role-model. I wanted to become nothing less than an inventor myself! Helping the world become a better place with new ideas. A few years later, my aspiration to pursue a career as inventor became even stronger after having been exposed to the crazy scientist Dr. Emmett “Doc” Brown who managed to convert a fancy De-Lorean into a time machine. Marty McFly travelled back and forth in time and changed lives of others as well as his own to the better and worse!
That movie opened my eyes to how much you can affect your own future [with or without time machine]. Your future self will be the compound result of many small steps and decisions in life. If you take controlled, well directed steps towards an ambitious goal, you can get anywhere and change your faith. Little did I know about the miraculous power of compound interest back then, but this was about to change soon.
As much as becoming an inventor was my big dream, there are no job openings as inventors or imagineers on the street. So, as I grew into adulthood, I got “normalized” a fair bit by society. Nevertheless, whenever I could, I kept looking for ways to improve life and kept a vivid imagination and explorative curiosity all the way further down the path; keeping the imagineer within alive.
This ultimately enabled me to keep optimizing and improving the lifestyle design for myself and later my family. My journey took me through hustling three jobs simultaneously during college, pilot training, winning a chunk of money at the TV game show “Who wants to be a Millionaire”, studying Economics and thereafter spending several years of my life working in Asia – learning Mandarin Chinese – and until most recently working for the largest Wealth Manager on this planet assisting the High Net Worth individuals of this world managing their wealth – also with my ideas – doing and learning – in the end becoming one of them myself.
Eventually my journey lead towards financial independence and freedom. In retrospective I strongly believe being an imagineer was THE key to achieving this big hairy audacious goal.
So, back to the question: Why on earth should YOU “Financial Imagineer” your life?
You may have heard of the “American Dream”? Half way around the globe my friends work on making their “Chinese Dream” happen while my colleagues in India are chasing the “Indian Dream”. Every place seems to have their specific dream. Dreaming is an important and crucial element of the human experience and the fuel for reaching new heights – together as well as for an individual.
Dream big! And then become the very best version of yourself and keep adapting, pushing and improving yourself further into the unknown. Imagineering is letting your imagination soar puttygen ssh , and then engineering it down to earth. Aren’t we somehow all Imagineers, just trying to figure out this thing called “Life”, optimizing for the best result possible?
My answer: Because you can!
Ignite the light, get your mind on FIRE and let it shine.
Space: the final frontier. These are the voyages of the starship Enterprise. Its five-year mission: to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before.
And yes, you are not alone. Let’s make your dreams work together.
Truly yours, Financial Imagineer
You never suffer from a money problem, you always suffer from an idea problem.
– Robert H. Schuller
This post is not a “giving birth with confidence blog” for mums to be but the “giving birth to a blog [with confidence]” post instead.
The Financial Imagineer has been in the making for about 9 months and was the most audacious goal on my bucket list for my 2017 life transformation from corporate life into financial independence and freedom. Seeing it going live today gives me goose bumps and happiness simultaneously and marks the beginning of a new era in my life.
As the father of this new-born blog, I now have a tiny baby to take care of. Babies want to be loved, cuddled, held close but they also want to be nourished and grow. Ultimately there are only two lasting things we can hope to give our children in life: Deep roots and foundations BUT ALSO wings to fly. That’s exactly what I have in mind for this blog. Let’s watch it grow and fly together as flying alone would be boring and pointless, shall we?
That’s why my new baby blog is aiming to grow new friendships across the world by sharing financial experience and knowledge – helping each other fly.
It will keep learning and discover new aspects of how to design and financially imagineer YOUR life so YOU can make it a more enjoyable experience and align it with your passion and dreams.
There are several steps one has to take in order to board the journey to financial independence. Some of you might be further ahead in the game as others. The key is: getting started.
“If you always do what you’ve always done, you will always get what you’ve always got.” Albert Einstein
Take control – disrupted, reimagined
First step on this journey will be switching off the “auto-pilot” in life – to wake up – and taking control. Align your life with your dreams and passion, only then can you work towards making your dreams come true. Take control. Take ownership. This is not a rehearsal. This is your life. Game on. Here and now. Because:
“On a long enough timeline the survival rate for everyone drops to zero.” Chuck Palahniuk
Navigate – Re-Imagineer your life
Prior to making first moves, we must first understand the following:
Know yourself – where are you?
Know your target – where would you like to go?
Know your course – why/ how would you like to go there?
Only if and when you have answered these three questions may you set-out and plan your journey. So do your homework well. There might be different approaches on how to navigate and make it happen for you depending on each and every situation. But luckily: Everything is figureoutable. Unleashing the desire to embark the journey is key and only the enduring will be able to keep the course and reach the finishing-line. Therefore: “why” is more important as “how”.
Know yourself. Know your target. Know your course. Go!
Financial Imagineering is the process of crafting and implementing a [financial] plan aligned with your [wildest] dreams, ambitions and imaginations in life – making your dreams work. Your “tool-box” so to say in order to put the rubber to the ground. You might have heard that by making financial literacy a priority, freedom and happiness will come as a natural result of having more options in life. The spiritual focus is not so much money but more freedom. Creative mind mapping, exploring and discovering ideas to support the course and making the journey easier and more enjoyable will be the core of this blog. There are many ways to Rome. And as you might know, Rome was not built in a day.
“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” – William Arthur Ward
Defying Financial Gravity – Imagineered for success
Growing your net-worth is prerequisite for attaining financial independence and therefore your freedom. Taking-off and getting started is sometimes hard. As you get increasingly financially literate and grow your net-worth over time, it will get easier to defy financial gravity [the magic force that pulls many people back to ground zero] as you will unlock more options in and for designing your life. Measure your net-worth regularly and make it your top priority to let it grow. Level-up! Working on your own financial independence is not a walk in the park and will require your hard work, commitment, time, knowledge, confidence, passion and patience. Hence, it should be a fun journey and having friends along the way will make it easier.
“Always shoot for the moon, even if you miss, you will land amongst the stars.” – Les Brown
That leaves me with closing that good things don’t come easy – but they do come eventually for people who commit to learn and work on making their dreams reality. Good things don’t come to those who wait, they come to those who go out and make them happen – step by step – and never give up.
Winning and Quitting are both a habit. Which one are you forming?
Thanks for sticking with me and reading this far. This newly born baby blog should grow into a connecting-the-dots-go-to-source for people searching for applicable ideas about how to pursue financial independence and how to pursue happiness. Please do join me on this new adventure.
This is the Financial Imagineer getting started – see you soon!