Our Financial Independence Strategy

Let’s talk about our financial independence strategy.

That might sound fancy, complicated or professional but chill, it’s not. I simply think it’s important to talk about HOW you would like to achieve financial independence.

What are you investing in?  How do you build up your nest egg?

Stockmarket? Real estate? REITs? Build up your business? Sell your business? Commodities? Wine? Classic cars?

The Pillars of Our Financial Independence

First of all, I want to tell you that this is not some sort of secret, bulletproof, fantastic strategy we invented or found in a magic finance book. It’s simply the result of random things that happened in our life and the decisions we took to react to them. It just happened.

We didn’t have the slightest idea about early retirement when we bought our first rental property. We had no idea about investing either. I was just looking for ways to replace my non-existant state pension (since I’m self-employed I don’t make any contributions in the state pension fund).

So don’t take this list as a universal financial “How To” document. Just sayin’…

#1. Rental Properties

As described here, we bought five small flats that we rent out. The first one we bought in 2010 without ANY of our own money. It produces some cashflow and it’s slowly paying itself back in an environment in which property prices are constantly going up.

The plan is to pay back the mortgages on four of the flats by the end of 2019. From that point on, these four flats will cover all our estimated expenses (almost completely passively).

#2 An Online Business

In 2013 I started a website. In 2014 it covered roughly all my expenses for the year and in 2015 it (unexpectedly) more than covered all the expenses of our family for the year.

I set it up and worked on it after my nine-to-five job. I can’t tell you how much time I invested in it but we already had two kids at that time and I didn’t feel like I didn’t spend enough time with my family or engaging with my real life. Nor did I feel like I didn’t sleep enough.

Total investment (including things like web hosting and paying people to do some mundane tasks I didn’t want to spend my time on): about €750 in 2014.

It’s an online community for people who share the same interests and it generates income from advertising and from cost-per-click ads. I have around 30-35 companies that pay regularly for either banners or job postings. These job postings are one of the main reasons people even visit the site. So everybody’s happy. Myself included. It’s the kind of “work” I enjoy.

It isn’t entirely passive, but most of it could be outsourced and automated. I spend more time fiddling around with it than strictly necessary. It’s my baby…

Basically in two years this thing started paying our expenses. Let that sink in for a moment…Am I some sort of programming wizard and business genius? I don’t think so. I didn’t even program a single line of code. I just used a content management system and installed a bunch of extensions. Everybody with an internet connection (access to youtube), two eyes and a finger can build something similar.

You have to like the project though. To do it just for the money would be a whole different thing. In that case I might build up the business but then sell it. I don’t have any intention of selling this one as long as I have fun working on it.

#3 Freelance Projects Using Our Skills

I’m talking about my, let’s call it “skill”, as an online marketing consultant in a special niche (web controlling). Almost all large companies need these sort of services but very few people in Germany are actually specialised in this area. That’s a good, very good position for me to be in.

Mrs. W is a translator. She can always find some translation projects or a job if our other FI pillars come crashig down about our heads. It’s not a niche, it doesn’t pay well, but it’s a skill (I just got corrected by Mrs. W who says that translation is in fact an “art” :)) that you can use to earn a living.

My skill is not passive either, but something that we can always use to generate a lot of income with minimal work, plus it’s partially stuff that I do for fun anyway.

Why do I include skill as a pillar of our FI strategy? Because for me a skill is a (non-passive) income source that I can reactivate any time and almost instantly make good money with. If I didn’t have this fallback I wouldn’t feel very comfortable.

I think everybody should aim for learning a skill that:

  • Has a fair amount of demand in their country/city
  • Will continue to be in demand in the future
  • Can be applied in other countries as well

Ideally the skill also matches the following criteria:

  • Doesn’t require your physical presence and can be done online
  • Pays well
  • You can find clients easily
  • You can pick it up and start making money quickly

Just think about all the services you use regularly both at work and privately: programmers, carpenters, hairdressers, car mechanics, carers, doctors, electricians, engineers of some kind, etc.

If you or your child is about to choose what to study, keep those criteria in mind! In my generation it was fashionable to study marketing and business management. All those people had a really hard time finding a job. Programmers, on the other hand, didn’t even need to look for a job, they got headhunted while still at university.

A good skill provides you with protection against the mistakes you might make with your investments and any ugly surprises the economy/market throws at you. It’s never too late to learn one.

I am starting to realise just now how desperately people and companies are looking for good carpenters, electricians and other tradesmen. It’s so hard to find a good one! It’s because young people are not interested in this kind of stuff! It’s a mistake. There’s a huge demand for good people (I see that in Romania AND in Germany as well even though these are 2 very different worlds).

#4 The Stockmarket

The fourth pillar of our FI strategy is investing in the stockmarket/ETFs. We’re doing this (gambling) with relatively little money at the moment but we’ll start investing most of our cash in ETFs (index funds) once we feel the time has come.

Right now we’re speculating on stuff we think is undervalued. It’s gambling. It’s learning. I’m probably always going to gamble with a small amount of money. I think I need this kind of adrenalin kick. However I don’t touch high-risk stuff that I don’t understand and I only invest money I have left over after I’ve paid all my bills.

While most of the people on the road to FI are investing almost exclusively in the stockmarket, I personally don’t have a good feeling about that strategy. Even after reading about  index funds, Jim Collins’ stock series, several other blogs and understanding the 4% safe withdrawal rate. How safe is the safe withdrawal rate? I wrote a post about what I think about that.

Also I’m waiting for the next crash to come. I think US and EU markets are too high now. I can’t predict the rest of the world. So I wait. I live with the hope (maybe it’s silly) that I’m going to roughly time the market. At the point when the shit hits the fan and everybody runs about yelling that the end of the world is coming, I’ll be there!

So, since we’ll keep earning money that we can’t possibly spend, at the moment we don’t have any idea where to put it other than the stockmarket. Maybe more rental properties, but only if we have a really good feeling about it and it makes sense.

Double FI

When we decided we want to be financially independent, we only had rental properties in mind. We knew that once four of the five flats were paid off, the income they would generate would be enough to pay for all our expenses. Plus we wouldn’t even have to pay any income tax (more on that later). We didn’t have a fancy financial independence strategy.

Now with the online business we have the second (mostly passive) major income stream which was easier and quicker to build up than finding and buying the rental properties but generates the same level of income. This is basically double FI. Whatever we make on top of that on the stockmarket and our freelance work is a buffer.

Conclusions

Start a business! Never in my wildest dreams did I predict that my website was going to produce that sort of income anytime soon. Now that it basically more than covers our expenses, when I think about it properly, such projects are probably the quickest, cheapest, less risky, and most fun way of becoming financially independent (apart from winning at the lottery or inheriting a ton of money).

You can still play on the stockmarket. For the stockmarket strategy (SWR) you need quite a lot of money and time (to wait for compunding or simply to build up your portfolio). You can still do it, but I encourage you to do something else as well.

Learn a skill! Something that makes a difference. Something that’s needed. This is an order! 🙂

And what about you? What is your financial independence strategy?

There’s absolutely no reason for you not to start an online business. You can skip the whole rental property stuff and do just that, or invest most of your savings in the stockmarket if you like and have two separate FI pillars.

I’m curious about how you plan to reach FI. Do you have a financial independence strategy that is based on more than one pillars? Can you imagine starting an online business? Or maybe you have one already? We’d love to hear your story and your plans!

  • I’m at the beginning of my FI journey and right now all of my passive income comes from my stock. I’m looking into different ways of starting an online business, but there’s still a lot to learn.

  • Woody

    I try to avoid any rental properties and just concentrate on the DGWUWA strategy. As well as the stock market.

  • AufHellerundPfennig.com

    We also want to own rental properties but as of now we concentrate on paying off our student loans. I hope by then the bubble here will burst and properties will be affordable.

    • heya! I personaly don’t think ther’s any bubble here. Prices are high but there’s also sooo much money and wealth in this country. I don’t believe RE prices will go down in the forseeable future. Especially now that millions of immigrants arrive. These peopel have to live somewhere and new developments are a joke compared to demand.
      Even if we’ll have a stockmarket crash, many people will move their money into RE and i think, that will not help prices falling…
      But this is only my personal opinion and I am not an expert.
      If I were you, I would focus on building up some kind of business…

  • Ms. Canadian Expat

    You 2 are really inspiring! Just catching up on your entries now.
    The item that most intrigues me is setting up your online business and community. Many of us already engage several hours to online communities anyway (FB, YouTube, etc…), so you’re right that putting in the effort to make it into an income stream is probably not SO much extra work compared to what most people are already doing for free online.

    • Even I watch a lot more TV that I should. I can imagine that a lot of people do the same. So why not watch 1 hour less TV per day and instead learn about WordPress, SEO, Online Marketing and build up your own community. YouTube is magic! 🙂

      • Ms. Canadian Expat

        I’ve already made 23 cents on YouTube in the last 3 weeks, just slapping together badly made videos about a topic I’m passionate about (veganism). So far there is much to learn and I’m still awkwardly fumbling around, but it’s also FUN.

        • this month you make 23 cents, in a few months you make 23€ or more when you learn about how your target group works and what content makes sense and generates more revenue. One good example is Mike and Lauren. They try to make a living out of youtube videos. Recently one of their videos went viral and made about 1K of it :)))):

          Nitro Engine Powered PENCIL Sharpener!
          https://www.youtube.com/watch?v=XLQUy6g40SQ

          I wish you good luck with your videos and keep doing it! Always adapt, try things out and once you find what’s working (and it’s still fun for you) then make more of it!

          • Ms. Canadian Expat

            Ahh, Mike and Lauren! I watch them occassionally. Their content is really well done, and I’m not surprised their video went viral.

            Another way to make money on YouTube without creating content is to upload other peoples’ content and monetize (as long as they allow it). There are people with excellent content who do allow this. So downloading their vids and then re-uploading to your own channel doesn’t take much time or thought, so could be worth the effort. I’m going to try this as well!

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  • Interesting to see how you have taken the Real-estate route.
    I also had two cross-roads : Real-estate vs Index funds.
    But, I have picked Index funds and I think I am gonna stick with it for now.
    After reading your blog, I am considering moving some money into real-estate.
    I just don’t know how to begin. How do you recommend one to learn about real-estate investing?
    Do you have some EU-specific books in mind?

    By the way, I live in Munich, Germany.
    Great content and keep posting.

    • Hey! Welcome to the blog!
      I would say that it’d be a good move to talk to a few people who allready invest in RE and are not interrested ins elling you anything. They can give you some good quality insights. Join local meetups, forums about the topic.

      I never read a book about RE so I can’t recommend any.

      My advice would be:
      – location. The location has to be good. What I mean with “good” is: either in the centre of a bigger city or close to train/bus stop which connects easily to the centre. Basicall you should have a target group in mind who you want as tennants and the locations should be good for them.
      – ROI: it simply has to make sens financially. In Munich you’ll have a hard time finding something like that so I’d look around in smaller cities.
      – You have to be confortable with the thought that you might have to invest (renovate) in it now or in the future.
      – Rather than buying 1 big one, better to have a few smaller ones. Diversification.

      At the last FIWE I had the cance to have some in-depth conversation about this topic with one of the participants who has many rental RE. This way I’ve learnt about many things and heard some advice that you can’t find in any books.

      So, have a look at this year’s FIWE. If you want to join, we’re looking forward to your applikation: http://whatlifecouldbe.eu/fiwe/

  • giffz

    I like your strategy, much better than betting everything on the stock market, even though diversifying!

    A note on the skills: AI will soon be able to do many of today’s job (surely the one of a translator!), this is something to keep in mind and another good reason to start relying less and less on a single 9-5 job income.

    • welcome to the blog! Translator is not the greatest job, but it’s great for remote work. Also, you can choose to translate things you enjoy…
      What languages do you translate from/to.
      What is your story? How did you find us?