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Invest The Difference (1) – Want To Become Rich Or Independent?

You want to become more independent of employed work. Excellent! How do you do it? You spend less than you earn and invest the difference in building your net worth. In other words, part of your income you don’t put into consumption or keep in cash, but use it to acquire assets, i.e. financial assets.

There are different definitions of which valuables are truly assets. I do not want to dive into that discussion here. But if you’re looking for financial independence from a salaried job, I think there is one important point. You have to invest in assets that can reliably produce income for a long period of time.

You already know that there is virtually no ‘passive’ income. That’s okay. But there are more and less active variants in which you can create wealth and income streams.


Become an entrepreneur?

One of the very active variants through which most large fortunes have been built is becoming an entrepreneur. You build your assets yourself from scratch. Or you take over an already existing company. As an entrepreneur, you can generate income streams from the sale of physical or virtual products. Or from the arbitrage between buying and selling. Or from brokerage. Or, or, or…

Long-term success can only be achieved if you persevere. According to the KfW start-up monitor, 32% of founders are resigning from their entrepreneurial activity within the first 36 months.

And historic success does not guarantee future success, look at companies such as Nokia or Kodak. You can try to test your business idea on the market and to limit the risk by starting off on a part-time basis. This can work very well for freelance work. However, this type of work doesn’t scale well: as soon as you work less, your sales will also decrease.


Successful entrepreneurs are active entrepreneurs

Long-term successful entrepreneurs are usually very active and present in their company. Not just in the start-up phase. Especially when a company moves from a start-up set-up into a larger structure, it’s super important to stay on top of things as a founder.

You can’t do everything yourself, but you have to make sure that everything moves in the direction you want. At the same time, you have to realize that you can’t know everything and have to delegate in the right places. But then again you need to exert enough control. But you also want to keep the positive spirit of the start-up. …

That’s exciting for the right kind of person. And it’s actually a way to become ‘rich’. Either through lasting success, or through a profitable ‘exit’. But that’s not my topic.


The muse

A compromise that scales to some extent can be the ‘muse’ promoted by Tim Ferriss (no affiliate link). This is basically a digital product with highly automated processes which can optimally be largely outsourced. So, in theory, you only need to set-up things once, and then they’ll be spitting off income without effort for eternity.

In practice, however, you’ll keep having to invest time in continuous marketing in most cases. You’ll need to adapt the product or even create new products / content, advertise and be present to your customers. And especially with smart ideas on the Internet which are easy to implement it is difficult to build a ‘moat’.


Easy to build, easy to copy

Think for example of the inflation of self-designed T-shirts. For the first sellers the model is attractive. Then they are copied and the increasing supply means higher marketing costs. This reduces the profit. The margins might also be squeezed directly, because due to increasing competition prices can’t be kept up. This is often the point where money is not made with the original product anymore, but with the book or the course about the product: ‘How You Can Become a Millionaire with T-Shirt Design in 10 Easy Steps’…

You should therefore see the potential realistically. But if you have a good idea and feel like going for it, why not.


It’s not about “getting rich quick”

In this blog, I want to focus on the asset classes that make sense if you do paid work now, and want to become financially independent from this kind of work. So my blog is not about ‘getting rich’. And certainly not about getting rich quickly.

I only want to write about the things that I have experienced myself over the past 20+ years. This way you can benefit most, I think. My goal has never been to go into early retirement at the age of thirty or forty. At thirty, I had not even thought about a goal.

Even when I started taking over financial planning for our family and a more systematic asset accumulation, the goal was not to stop working as quickly as possible. Our goal was to build enough wealth to no longer be dependent on two full-time salaried positions when we approached our 50th birthdays. We’ve reached that goal, and I think that’s a sensible target. Maybe you’re setting up your financial independence plans for an earlier or later age? Cool, everyone is in a unique situation.


Take responsibility

One important note in advance: I’m not a financial advisor and I provide no investment recommendations. All that I share here on the blog are my personal experiences and my personal views on business and financial matters.

Before you make an investment decision, you should inform yourself broadly. I know, sometimes it’s hard, and you want to delegate responsibility. But there’s nobody for whom the outcome of your financial planning is as important as it is for you. So you have to make yourself responsible. And since you’ve come to this blog, I’m sure you are aware of this. I think that’s great!


More to come: real estate and stocks

I’ll be going into more detail on this blog regarding real estate and stock investing. In my view, these are the two asset classes that are best suited to becoming independent from a steady, full-time job. But even within these asset classes there are more active and passive options.

In the second and third posts of this series, I’ll put together a few basics about investing in stock and real estate. That should give you a good starting knowledge of these two asset classes. Beyond the basics, though, there is lots of material for more. I’ll be publishing those future posts in ‘Personal Finance’.

Financial Independence Rocks!

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