I am one of those people you could call early retirement extreme type of guys. What I would like to achieve with this article is to share how I have been quite successful with my finances and share this experience to others. Money does not create happiness but it does make life much easier and gives you more options. Hopefully you can find something useful in this article which you could apply in your own life. Remember that life is all about choices and we all choose our own paths.
Ages 18-21
I have always been rather frugal and keen on making more money. My journey started actually 15 years ago when I was so desperate to get a car. Since I was minor, getting a job was very difficult and all the jobs would have paid very little. Since I already had 20k£ at that age (child benefit and received gifts), I somehow noticed that I could earn interest on my savings and hence earn more money. This got me really excited. I started investing (with my parents approval) in expensive bond and stock funds but end up losing a few thousand pounds because I always panicked when stocks dropped more than 5% and ended up selling at a loss. When the stocks had rebounded I usually bought it back. This was a typical buy high sell low type of s strategy and when you add trading fees to this, it is a sure way to lose money. After some time I cut my losses and stopped investing for some time to lick my wounds.
Net worth: 18k£
Ages 22-25
I managed to get a summer job when I turned 22. I always tried to maximize my income by working during evenings and weekends. I had just gotten into a university so the future was looking really bright. Since I now had a job, I started investing in stocks again. I was still getting very quickly in and out of stocks as I did not have the patience just to sit tight. I was doing quite all right as for some time stocks were just going up. However, this party ended quite quickly as the dreaded financial crisis was right behind the corner. During that time I was mainly invested in Nordic stocks with all my savings. I was just staring at my screen when I saw my savings vaporize in thin air when everything was tanking. I did not have the courage to buy more but I still vividly remember the bottom of the financial crisis and in the back of my mind I could really tell that the stocks were dirt cheap. Still I just kept holding and did not buy more. I decided that as soon as I stocks start to rise again, I will immediately sell all of my holdings once I get my initial investment back. And I did this in late 2009.
I as well burned my fingers with derivatives. At one time I had a profit of 8k£ from a single trade but then after enough trading, I ended up with a small loss. That was pure gambling and speculation.
It was a shame that I did not invest more during this time especially since I was still living at home and my parents paid all of my expenses and I did not spend any of my summer job income. Once I had sold all my investments in late 2009, I just kept saving all my income to a regular savings account (and watched stocks rising).
Net worth: 30k£
Ages 26-27
I was just about to graduate from university. However, since it was the post financial crisis era, it was very challenging for a student with no previous work experience to land a job. I remember vividly how I did everything I could to get a summer job during this time. I literally applied for almost 100 different jobs. I called to different companies, sent them mails, went to a CV clinic and replied to multiple job advertisements. I got an invitation to 10 interviews and eventually got two offers. I chose the better one of them and I am still working there. The initial pay was really low but as I did not have any other offers I had no choice but to except it.
I was still mainly investing just in savings account but once in a while I was still investing in individual stocks for short period of times. My frugal living continued and as I was still a student, my parents had agreed to pay all of my mandatory living expenses (apartment, food, transportation and school). As a result I was able to save pretty much all I made. After all I did not have much free time apart from studying and work.
During this time I as well stumbled upon day trading. I was literally looking at different strategies, at charts and even made my own backtester software. I still remember how I was testing various trading methods with Metatrader and with my own software only to find out that none of them worked. Usually when I found a decent trading strategy, the outperformance was only a few percentage points a year compared to major indices. The best strategy I was able to find was a typical momentum or trend following strategy. In addition, I got my hands to historical financial data for U.S. listed stocks which meant I was able to test typical value investment strategies, such as Piotroski and Magic Formula. Well, none of the worked as advertised in the web. After all expenses (taxes, spread, commission) and ignoring all illiquid stocks, the returns were quite sub-par. So, I did not take any of these strategies into live use because none of them seemed profitable enough over basic index investing.
Net worth: 60k£
Ages 28-30
This was the time that really changed my life financially. I had just graduated from university and as a result got a 50% pay increase. In addition, I was getting small pay rises once a year as I was performing really well at my job. It was only a few months after my graduation after I started thinking more about my financial future. I had stumbled into a term called financial independence in few of the blogs I was reading and it got me all excited. Even though I enjoyed my work, I did not want to work until retirement and I wanted the possibility to do whatever I wanted with my life. Have more options, like stop working for a few years or switch to a 4-day work week. In order to achieve this, I needed a big enough portfolio. I'm not quite sure how I landed in the exact target figure, but half a million pounds seemed like a nice round and achievable target. After doing some excel sheet calculations, I realized this target seemed possible to achieve especially considering that I was very frugal and most likely would end up with further pay rises along the way. If I recall correctly, my investments would have needed to increase by 7-8% annually to reach my target. I decided to put this half a million pound target to be reached by the time I turned 38 years old.
Even though I had no clear idea how I could earn an income from this half a million pound portfolio, I decided still to pursue this target. I had no clear idea of a proper investment strategy either and initially I invested 50% in low cost bond funds and the rest to stocks listed in my home country. The stocks were pretty much randomly picked based on historical price performance.
During this time I as well purchased my own house. Since there was a government sponsored savings account for first-time home purchasers at that time, I earned something like 2k£ from interest alone by saving in this account. That was a nice thing. I purchased a very cheap apartment right next to my job. I am still living in this same apartment and it has given me two advantages: short commute time, zero commute costs and extremely low apartment costs (<20% of my after-tax income).
I as well tried to do a bit of hustling and freelancing during this time and I earned something like a few thousand pounds. However, after a few clients I struggled to find new ones, so I quickly ended this adventure as well.
I was still saving like crazy but mainly towards savings accounts and bond funds.
Net worth: 120k£
Ages 31-33
During this time I got a promotion with a raise and another raise. Every time I had the possibility to work overtime, I did. In addition, I accepted all the business travel opportunities there were as these provided an additional tax-free income.
Just before I had turned to 31, I finally found the investment strategy which was a right fit for me. Investing in quality companies with long successful business track records and cash flows to show. In addition, the dividend history had to look very promising. This type of a strategy is a combination of dividend growth and quality investing. As a result, I liquidated almost all of my holdings and started purchasing stocks which would fill all of my criteria. It was not until now when it started to become more clear how I could live off using my half a million pound portfolio. It would be using growing dividends. I calculated that during this time, my mandatory living expenses (housing, food, transportation, electricity etc.) were around 10k£ per year. Adding inflation to this number, I figured out that I would need around 12k£ per year after tax in dividends to become financially independent. This would have required finding companies with around 3% dividend yield at the time of investment in order to meet my income target.
Once I had liquidated my previous investment portfolio and purchased only stocks which met my new investment criteria, I started to invest on a monthly basis to stocks. During this time I still had more than half of my net worth as cash. In order to meet my income target, I had to start investing this cash as well gradually on a monthly basis to stocks. I calculated that by the time I turn 38, I should have almost a 100% stock allocation and the half a million pound portfolio value and income target should be realistic providing dividends keep growing and stocks are at least on the same level. At least so far my portfolio has performed slightly better than my benchmark indices during a three year comparison period so active stock picking has really paid off for me. Hopefully it still continues to do that.
In order to increase my income I have as well started looking for side hustling income ideas. I have tried Fiverr, Elance, Ebay and the likes but failed quite miserably with all of them. The best one I have found so far is SeekingAlpha where I can already utilize by vast experience and interest in stocks and investing in general. So far I have generated around 3k$ in three months. Not bad. And I intend to continue this way. I was just googling 'Side Hustle Income Report' and I was looking at ways how other people generated additional income. The most suitable for me was SeekingAlpha as anyone in the world can use it and you do not have to sell yourself to anyone.
Currently around 60k£ is from investment income (price appreciation, dividends, interest) while the rest are pure savings. I am perfectly aware that stocks could tank at any time but the harsh fact is that without risk there is no gain. Staying invested is still the best way to increase wealth. Fiat money is worthless in the long term.
Net worth: 370k£
Summary
So there you have it. My financial life journey. You could say that my current success can be summarized in three bullets only:
- Lived frugally and well below my means. Minimized my costs (mainly apartment and transportation).
- Maximized my income by getting the best education possible and working my ass off in my job. Always asked for raises and promotions. In addition, tried to generate side hustle income. Just looked for ways how other people are doing this and copied them.
- Invested all of the surplus mainly in properly battle-tested investment vehicles (such as blue-chip stocks with decades of investment performance history to show) and sit tight.
There are many people who are criticizing people like me for not "living at the moment". Or saying that life is too short so why not use your savings right now? My answer to all of these people has always been the same. I would rather be wasting 10 years of my life in a front-load manner than waste my full life in a job I hate. Lets face it. People spend more than a quarter of their adulthood lives at job or commuting there until retirement. Once you get to a retirement age, you are dependent on government paid pension, where the amount and retirement age is decided by politicians and government officials meaning you are at their mercy. I prefer to choose a path where I work my ass of during the early stages of my life and let the wonderful effect of compounding kick in. At 38 I could basically stop working and do whatever I wish while all the other people are still being miserably behind their desks living pay check to pay check with a massive debt burden on top of their shoulders. Some people value purchasing goods and services as the most important thing in their lives. I value freedom to do whatever I want with my time. After all, time is the only commodity you can not acquire more.
Thanks for reading and hope you enjoyed my article.
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Great that it worked out for you. While reading this I was sad that you did not invest it all after the financial crisis. I had not much spare money at that time, but you could have trippled your networth with just buy and hold at that time...
My mentor said, if you are willing to invest 10k in a single stock, why not purchase some derivatives with it to maximize your gains.
Thank you for this great article. Your struggling to be independent and use your time as you wish at age 38 was clearly visible. Whenever you focus your mind on something for many years, like your target, it is much more likely that you will achieve it.
Really good to read your story. I'm on a similar journey, albeit in Japan :)
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STOPGood story - have you looked into selling put options?
I am similar to you in terms of my portfolio - big secure cash-rich dividend-paying companies. I stay 80+% in stocks all the time, with a little in cash, but I use the full 100% as collateral to sell put options on those same types of company - just US ones for liquidity - Nike, Kimberley Clark etc
With a portfolio your size, I would be looking to achieve your annual £12k target every two months.
I wrote a few posts about it when I first started on steemit a few months back
Something to think about
Cheers