One of the most frequently asked questions I receive from readers is how I earn and manage money, and how I was able to create a passive income so that I could quit my job.
In the past, I’ve been reluctant to share too many specifics, as it is a huge subject and I’m not a financial adviser. Furthermore, everybody’s situation is different, depending on their job, earnings, age, risk appetite, city/country and economic environment. With so many variables, there’s no way I could speak for everyone, so the best I can do is talk about my investment journey.
In these posts, I’m not going to tell you how exactly to invest (entire books have been written on this subject) or recommend one particular course of action over another. I’m not telling you what you should, or shouldn’t do. Rather, I want to share my own views on money and work, how my views on wealth have changed over the years, and how I approach investing, earning and spending now.
When I talk about ‘wealth’ in these posts, although I am discussing material and monetary wealth (something that is not often discussed by minimalists as a good thing!) I am well aware that money is not the measure of one’s worth. Please see my Minimalist Meditations on money and wealth for my views on this.
I’m going to share how I went from a full time corporate employee working 50+ hour weeks to earning the same amount of money but only working between 1-6 hours per week on a passive income, all from a minimalist’s perspective. By ‘minimalist’, I don’t mean that this post will be a simplified, dumbed-down article about investing basics. It will be about how I have applied various minimalist philosophies to my approach to investing, for example, how I’ve been able to educate myself in various types of investing so that I’m able to select the type that works for me (in this case, getting fair returns by doing as little as possible so that I have time for things that are more important).
I’m not saying that it is every minimalist’s aim to quit their job, lie on a beach, and do nothing at all. Nor am I saying that having or not having money defines minimalism in any way. You can be a minimalist in a hut, or a minimalist in a mansion. Minimalism means something different for everyone, and for me, minimalism has always meant freedom. Freedom to choose what I wanted to do, when I wanted to do it, where I wanted to go, and who I wanted to spend my time with. It means directing my limited resources of money, time and energy away from what people think of me (the size of my house, car, wardrobe etc.) towards things that actually matter to me, like giving to those in need, and spending time reading, creating, travelling, and with my friends and family.
Everything I’ve always wanted to say about money (almost!)
I’m going to be very frank about the subject of money here, because I think there are some hard truths in this subject. It won’t be to everyone’s taste, especially people who don’t want to admit that they are unhappy or doing anything wrong. I’ve heard a lot of excuses in my time. The worst approach I’ve heard people have is complaining how everything is stacked against them, how they’re ‘just not lucky’, or resenting people who have been successful in this way, but doing nothing about it.
I also don’t expect everyone to agree with everything that I say, which is fine too. I’m always willing to hear other people’s opinions and learn something new, but if you don’t have anything helpful or constructive to say except for poo-pooing on somebody’s else ideas, you can save your precious time and stop reading now.
If you’ve read this far and want to carry on, good for you. There is a lot I want to say, and because it is quite a complicated subject, I will break it down into multiple posts in linear steps, although life rarely works in a straight line. For the sake of easier understanding I’ll start with the basics.
- 1—Motivation and Environment
- 2—Mindset and Education
- 3—Accumulating Capital and Allocation
- 4—Investing and Income
- 5—Your New Life
- 6—The Past (Reflecting) and the Future (Giving)
I’m going to try to fit in everything I’ve always wanted to say about money in these posts. The reason why I say ‘almost’ is that I’m sure there’ll be things I’ve forgotten and will want to add later, or edits, clarifications, and answers to readers’ comments in the future so the above post ideas are subject to change.
Before we start, I strongly recommend reading a previous post I updated recently 5 Ways to Get Rich for Free about some basic yet important ideas about money.
1—Motivation and Environment
Most people don’t just stumble upon investing. We’re not taught it at school, and it’s not a natural instinct or something that is instilled in us as children—that money can be made other than the route of school -> university -> job -> promotion(s) -> retirement = success.
There’s usually a trigger that sets people on the path of investing—usually a person, or an event. For me, my trigger was realising (over a period of a few years) that I never wanted to work in an office again. There were times when I enjoyed myself, but after a while, I felt conflict with my inner self, the person who I wanted to be. Working long hours in a meaningless corporate job felt like it went against my philosophy of minimalism, not because I owned a couple more things, but because I felt I had much less freedom. I was cash-rich, but time-poor. Even if I changed jobs, I would be subjecting myself to the same things I hated (long hours, pointless meetings, office politics etc), just with a different job title. So I quit the world of work to get my life back.
I want to stress that I don’t recommend this approach to everyone, especially if you’ve got people dependent on you. At the time, my life overheads (ie. what I was spending on a day-to-day basis) was very low, which meant at the time of quitting I had enough savings to pay essential bills and food for about 18 months. I had a vague idea that I was going to use some of those savings to do something on my own, although what it was exactly, I hadn’t figured out yet. For most people, I recommend getting any side businesses or secondary income streams off the ground first, before quitting your main income source.
For me though, I knew that I could always get another job if things didn’t work out, and I could always fall back on a couple of online work-from-home jobs I used to have. So my basic needs were taken care of, but I needed to quit to have the time and energy to pursue all the other things that I had neglected while I was working. As well as start my vague business idea, I wanted to have the energy to get fit, to read, to write more, to travel, and to continue my language studies, among a lot of other things.
Your motivation for investing is important because it shapes what you decide to do, how you go about it, and how long it takes you to achieve whatever goals you have. You need to have the internal drive for it, otherwise you’ll get bored, or lazy, or both.
You are also affected by your environment. External factors such as your local economy, your job situation, and the kind of people you surround yourself with all affect what and how you do things, and the results you’ll obtain.
In my case, I didn’t want to work in an office. I hated the early mornings and long work hours, so I decided I would find a line of work that generated passive income. This means I wasn’t going to start an Etsy (not that I have the talent for it) or any other labour intensive business. I didn’t want to swap one full time job for another, and I didn’t want a job that was paid by the hour/day because that would mean I was trading my precious time for money.
I wanted to find a way of earning money that allowed me to put in an initial amount of work, but then after that income would continue to roll in, rather like someone writing a book within a few months and getting royalties for it forever. After a lot of research, I found that I lived in a city where there were huge business opportunities in property. The market was growing, with lots of young people wanting to live here, and prices to buy and rent were steadily rising. Investing in property fit my requirements—if I was able to buy a place (it is slightly capital intensive to buy an apartment but I will tell you how I did that in a future post) the rental income would continue indefinitely.
Once I had an area in mind (property investing), I could start building a foundation of knowledge…
2—Mindset and Education
With investing, if you just dive in, you’re probably going to get hurt. And it will be painful. I wasn’t stupid, so before I did anything, I spent months learning everything I could about about the practical aspects of investing, from how inflation works, what ETFs are, how to make a start-up, to the psychology of investing. I read a lot of books and information online about property, all of the monetary and legislative aspects involved, and researched the market in the city that I lived in. I lived and breathed investing, absorbing everything I could, and learned a huge amount. I’m still learning every day.
One of the most important things I learned from the book ‘Secrets of a Millionaire Mind’ by T. Harv Eker is about people’s ‘money blueprint’. Your blueprint is how you think about money, largely influenced by how you grew up. For example, if your parents have always told you that “money is the root of all evil”, or that “rich people are greedy”, you might still believe it today, and the thought subconsciously holds you back from earning too much because you don’t want to be seen as evil or greedy. Resentment towards the rich is what causes people to stay poor. (Here, I use ‘poor’ not as a derogatory term, but as a practical word to describe people who live paycheck to paycheck, but don’t want to be. I’m not making any sort of moral judgement for or against people who are ‘poor’, or ‘rich’ for that matter, but when talking about money in this context, it’s important to honestly say that there are definitely people who are poor (in monetary terms) but wish they could be more financially free.)
This resentment causes people to not do anything about their work/money situation. They go wherever the flow is taking them in their jobs, and they don’t do anything about their spending habits. They let other people influence them on what they want to buy, and their saving/investing habits may be poor or non-existent. They might even be fearful of any other type of work, such as starting their own business because it’s ‘too risky’ and they would prefer the security of a job. There isn’t anything wrong with living like this by the way, I’m all for enjoying life the way it suits you. If you love your job, good for you (honestly!). However, if you don’t enjoy working, then the constant spending on expensive things means working more than you have to, which means you’re spending half of your life unhappy, as was my case.
Also, people who are not financially literate may think that the only way to earn money is by working a ‘normal’ job, which is simply not true. We live in an amazing world now where there is so much money to be made, and you don’t have to have a lot to start with. People with closed mindsets think that any other way of earning money apart from working is ‘risky’ or at least, so complicated that they could never understand it, so they don’t try. Confusingly, some of these people who are so scared of risk would happily buy lottery tickets. The worst I’ve heard are people who think that investing is in some way ‘cheating’, and that one doesn’t contribute to the economy if they don’t ‘work’ for 9 hours a day. To that, I would say that there are a lot of people who have more to contribute to the world than paper-pushing.
On the other hand, people can have a mindset that money is abundant, and is there for anyone to earn if they have the openness to identify the opportunities, the creativity and tenacity to pursue them, and perseverance when things get difficult. I admit this isn’t the most natural mindset, it’s usually learned out of necessity. My immigrant parents who didn’t go to school didn’t have a choice but to earn money with their own bare hands, literally. They missed out on learning how to read but at least they were never conditioned to follow societal conventions about work. They hustled and worked hard, and did everything themselves until they got to the comfortable lifestyle they have now. I was lucky enough to go to school and college, but it took me years to learn this lesson.
Lest you think I come from a place of privilege, I would like to share that apart from the hustling mindset, I wasn’t given anything above and beyond what most kids my age got (in fact, I would argue with my background I had a lot less) but I have always worked extremely hard. Because of our family’s poorer financial situation while I was growing up, I was always looking out for ways to make money. I started my own eBay wholesale business when I was 15, and have always managed to support myself so that I didn’t have to rely on my parents’ small amount of money. During college, while other students were partying or spending their loans on holidays, I had two jobs and never allowed myself to get into debt.
I am not saying that all you have to do is change your mindset, and you’ll automatically become rich. I know it’s not that easy. You can’t just dream about it and be a bit brave and you’ll be a millionaire. People who truly live in poverty face huge obstacles that aren’t just up to them to ‘think’ their way out of.
But for the majority of people, it’s essential that they have the right mindset because first they have to believe that it is possible for them to be rich, at least then, they can try to do it.
As with anything, it’s it would be almost impossible to accomplish if they didn’t think it was doable from the beginning.
The good news is that your mindset is not set. You can learn to change, for better or for worse. Being rich or poor isn’t a dichotomy, it’s a spectrum that you can move along at different times in your life. Poor people don’t have to stay poor, and rich people don’t necessarily stay rich. People can become rich by work, inheritance, or winning the lottery, or lose it by spending above their means, getting into huge debts, or gambling it away.
Whatever your mindset is right now, without the appropriate one, you’ll never be financially free. That’s fine for some people, but that’s not how I want to live my life. I want to be free so that I can choose what I want to do with my time. Your mindset is your choice. You can choose to be rich.
The other points I want to briefly make are:
- There are a lot of things about money that we are told that are simply opinion, not fact.
- If more people stopped to question their assumptions about work and money, they would be much better off.
- Environment plays a role, but I believe that you decide whether or not you will be rich.
- Investing means ‘using money to make money’, and you don’t need a lot to begin with. In fact, you can start with $10, so there are hardly any excuses.
- People overestimate the risks, and underestimate the potential benefits.
- Money doesn’t make you good or bad, it magnifies who you are—if you are already greedy, you’ll be greedier with more money. If you’re already generous, more money would make you more generous.
- Having money isn’t the aim, having freedom is.
So I adjusted my mindset and went about educating myself about the world of investing. I learned about the different options available, and the risk/reward profiles and advantages and disadvantages of each method. See below for some resources. Knowing the basics, I was able to draw up simple calculations and work out whether or not my business would be profitable. From my research, I identified that there was money to be made, now it was just a matter of going after it…
This post will continue next time with:
- 3—Accumulating Capital and Allocation: how I got the money to get started, and how I decided what to do with it.
- 4—Investing and Income: how I actually went about investing my money, and how I get an income.
They don’t teach you about money at school. I wish they did, a lot of people would be much happier, and would have much healthier attitudes towards money. I’m not a millionaire (yet) but I would have certainly become ‘richer’ earlier and more quickly if I started earlier. Instead of just complaining about it, I went about changing my views, and therefore my life. Here are some of the best books I read that helped me get there:
As I mentioned above, this book taught me that making money was all in your mindset. It’s hard to believe, but how we think about money can hold us back from making it, or push us to find ways to make it even though the odds seem slim. It also talks about how different mindsets aren’t necessarily right or wrong, but work in different ways, and in some cases even complement each other, as in the case of couples/partners. I recommend this book to people who think that becoming a millionaire is impossible without winning the lottery.
This book taught me the basics of liabilities vs. assets. If you don’t know what these mean, you need to start with this book. A lot of things that people are taught about money, like how home ownership is the most important thing in the world has ruined them financially. At the very least, people would have been much better off if they could distinguish between buying things that put money in their pocket, or cost them their long term future. That’s the difference between people who stay poor or become rich. That’s not to say that you can never buy your own home or a nice car if you wanted to, but people do this when they can only just about afford it, and therefore they don’t or can’t invest, which if they did, a few years later they could buy their house ten times over.
If you want to be the best, you have to learn from the best. It might sound cliché, but if Warren Buffet is the most successful investor in the world, wouldn’t you like to know how did he did it? This is the most detailed biography of his life published, it’s a very long read and perhaps you don’t learn a lot as much about how to invest as much as you learn about what investing really means. Warren Buffet delivered newspapers as a boy, and had to borrow money to get his business started, but he never doubted he could be rich. Then he made billions.
More resources to come in future posts, enjoy!