Increase your net worth to a point where you can use that amount to become free.
Do you know that if you have enough assets relative to what you want, you can become financially- free instantly? If you have enough money coming in each year to support your lifestyle, you are incredibly free, financially of course.
Have you thought about turning your income from work eventually into income from your investment portfolio? I have. Here are some thoughts.
To get a decent level of income generated from your net worth is harder than you think but very achievable. Let me just tell you, I’m not quite there yet, but I’m doing the things that will get me there.
How do I know what I’m doing is the right thing though to get me there? Well, I stand on the shoulders of giants of course. I find high-quality people that have achieved what I want and look at how they did it. I then extract principles from crossover behaviours and attitudes of other successful people in different areas of life. I then follow these principles which are converted into habits. These habits are the tough bit. I start small and hope I can build on them. I will fail, but I keep trying…until it works.
If you put the work in, I believe anyone can generate about 10% every year on their net worth. Subtract all the liabilities from your assets and you get your net worth. Work to increase that amount every year by at least 10% using a combination of saving, investment, and speculation. The money can be generated internally from your ability to allocate your assets or from income from your job. Eliminate the job part, unless you truly love it obviously. I only want to focus my time on things I truly love and enjoy doing.
Work out what you have and what you owe. The difference is your net worth (assets). Take that number, say £100,000, and aim to increase it by 10% per year. You could save £10,000 from your job to hit your target. Or, you could try and generate 10% off the asset itself (£100,000) which would also be £10,000. You can do both to speed things up.
Whatever the amount, and however you increase your net worth is your choice. But the habit of saving and putting aside some for later is a principle you must follow to see good results.
The results of compounding become more apparent over longer periods of time. More money generates more money, further generating more money. And the more you have, the more you need to think about protection. You protect this money, funnily enough, by holding more money. It’s your handgun. Your financial protection. Gold has served very well over long periods of time. But you can hold whatever you deem to be good money. It needs to be safe and protect you in the event of some catastrophic financial event. You may never need it. But, if it’s cheap historically, after accounting for inflation, then buy some for insurance purposes. The policy can be passed to your kids when you are no longer here if you wish.
Try creating a balanced portfolio based on your personal needs for growth and development, incorporating all the lessons you can learn from others, and just go along for the ride. Add more to the pot to make it grow more and more. Start young. Compounding works better if you are younger. Grow it until you can be truly free, financially.