# Financial Independance

#### Cognisant

##### Prolific Member
I'm not financially independent (i.e. I have to go to work tomorrow) but it's something I think about a lot, I hate that I only have one life to live and I'm spending most of it in an office dealing with other people's shit.

The first thing to consider is how we define financial independence, as in how much money does someone actually need to live without having to work? I think this is different for everyone, obviously whether you're renting, paying a mortgage or living in your family's home or your own home will make a huge difference to your expenses, as will the country you live in and your personal proclivities, how much do you spend on entertainment?

Lets say you have one million dollars (I don't but still) with 1% interest on an investment portfolio you're getting a $10k/year return, which is about$192/week, that would cover my bills and groceries but not my mortgage. Now 1% is quite a low rate, if you're not actively involved in the stock market and you just want a safe/steady return a broad portfolio across especially safe (low returning) investments would probably give you a reliable 5%, about $960/week. I could live on that quite happily but that's before taxes and I don't really know what I'm talking about so if someone who does accounting wants to fact check me by all means do so. The point I'm making is that you don't need to be a multimillionaire to be either modestly financially independent or close enough to get there after taking measures to lower your expenses like using the interest to pay off a mortgage, and/or moving to another country or a less economically developed part of your country where the cost of living is lower. Of course you still need that initial fortune and I don't think that's something someone can simply get by getting educated, getting a good job and working your way up the corporate ladder, certainly there are people who have done this but if you don't already have friends in high places it's going to be an uphill battle and it's not one you want to spend all your life fighting. I think we live in a time of great opportunity and that opportunity exists on the internet, in crowdsourcing, networking, entertainment and trading: Crowdsourcing Make something, anything, and try to sell it to people and if you fail try something else, if you look on Kickstarter and other crowdsourcing websites there's a lot of stuff on offer and most of it is crap, but a lot of this crap is being funded and the really popular stuff is making hundreds of thousands of dollars. It's not all electronics and apps, a lot of it is art, children's books/toys, music, food, fashion accessories, anything and everything you can think of. Networking Not my cup of tea but a lot of trade is being the middleman between the supplier of something and the person who wants it and this also applies to information, for example create a website that helps people find artists that do commissions and actively seek out those artists, categorize them, write bios about them and be an agent for them, seek individuals and businesses that want to purchase/commission art and be the middleman between them and the artists. Entertainment Start a youtube channel and try to cover something that's new, a lot of youtubers built their channels on niche communities like PhlyDaily and War Thunder, every time a new game comes out or a new fad begins that's an opportunity to jump on. Trading Find or make something that appeals to a very specific kind of person, like a shirt that has a pet iguana meme on it, nothing is ever too niche as long as there's someone in the world who wants it and with seven billion people your chances of finding that someone if you know where to look are pretty good. This is why so many touristy places sell key-chains with names on them, what are the chances someone named Susan will visit that store? Pretty low but when a Susan does come along you've got the key-chain with her name on it and she'll pay a ridiculous price for it because how often do you find something with your name on it and if you're on holiday somewhere this may be your only chance. Just some thoughts, I'm not financially independent so chances are I'm full of shit. #### Ex-User (14663) ##### Prolific Member yeah, if financial independence is the goal, exclusively working a dayjob as a means of income is probably not going to work. Let's say you make$100k per year – a pretty solid salary. So that's $8333 per month. After tax, rent, food, and other expenses like utility bills, clothes, etc, maybe you have$2000 left per month. So to accumulate a million, it would take you 42 years.

now of course, it would be faster if you invest your savings as they are accumulated, but getting a solid interest wouldn't be easy. Stock market worldwide has given about 4.5% annualized since year 2000 – and keep in mind this is an interest rate that comes with considerable risk. On top of that, most countries tax your returns from stocks. Keeping everything in cash probably gives you a negative interest due to inflation + tax. Putting everything in bonds/treasuries probably results in about 0 interest.

#### Cognisant

##### Prolific Member
Just got to rob a bank and get away with it once.

I'm working on a telepresence robot to crowdsource which has been "almost done" for longer than I'd like to admit, really the smarter thing would be to work on something simpler which I can sell much sooner. Then again there's a lot of really simple robots and robotics kits which don't do nearly as well as something that's truly innovative like an underwater drone or desktop robotic arm that can do 3D printing and milling.

It's more of a passion project really, I'm just making what I want for myself and hoping that others will want it too. Someday it could be used for aged care, security, paramedics, tele-tourism, gladiatorial combat, but initially I'm marketing it as a status symbol for early adopters and a toy for people who can afford such things.

#### Minuend

##### pat pat
Find clever people, leech of their insights and invest in whatever they say. Works wonders. Well, if you have the capital to invest, that is.

It is pretty absurd how some people just stumble upon richness and how others suffer their entire lives. When luck separates the poor from rich. Some people are born into inheriting 10 mil to live from, while other have to work 12 hours a day. Some stumble across the perfect financial advice and get rich from nothing. It's just so absurd.

#### Happy

##### sorry for english
This guy has a pretty solid blog on Financial Independence:
https://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/
This is the “start here” blog post.
(The tl;dr of the whole blog is: Get yourself a Vanguard account. Put as much of your income into it as possible. Continually tweak your budget to reduce expenditures.)

Also, read “The Four Hour Work Week” by Tim Ferriss if you’re interested in earning income from other sources. It’s pretty old now and some of the techniques are dated, but the principles remain solid. (Ignore the gimmicky title)

#### Ex-User (14663)

##### Prolific Member
a part of my plan is to gradually build a stock portfolio. If done right it does give you a solid return and doesn't need to entail large risk. It's also good insurance against inflation

as someone who works in asset management, I would say the best strategy for generating high returns is to take the least amount of risk. I.e. picking the least volatile stocks. This is in contrary to conventional wisdom, but paradoxically low-vol stocks have vastly outperformed the rest (known as the "low-volatility anomaly"). Investing in indexes like S&P500 is not a good idea – these are just market-cap weighted portfolios which perform very poorly over time

#### baccheion

##### Active Member
Save half your take-home salary into a high-yield investment account. Retirement is achieved at 5x the price of a house, with 1x buying the house. 7-10x is more conservative. 5x assumes a yearly return 4% over inflation.

#### Helvete

##### Pizdec
Not having debt is a great start, or taking on debt with a negative ROI. You can have positive ROI debt where you expect to make more than the interest owed.

If you have a skill or hobby you can try to monetize it. I've played poker for my income for over 2 years (I only play part time now though). But I also branched out my skills to give me more options to earn by learning to deal and help run games.

I'm also trying toto learn as much as possible about the stock market. Being able to earn passive income seems to be one of the keys to attaining financial freedom, or any level of comfort leading up to it. The average interest which can be earned has been mentioned but more powerful than that is the compound interest that can be earned with time. Slow initial growth which increases exponentially over long periods of time.

If you can manage it, try to diversify your income and have multiple ways of making money. I currently have 5 income streams but a couple of them make negligible amounts. The variety is interesting plus if one or more method fails I'm not reliant on it, if I lose my day job tomorrow I can just focus on other projects instead and find another if absolutely necessary.

#### Ex-User (14663)

##### Prolific Member
yes, debt is pretty much the opposite of financial independence.

debt is justified only if you can make an educated prediction about the near future; say, betting on a rigged boxing match.

#### Helvete

##### Pizdec
yes, debt is pretty much the opposite of financial independence.
No. Debt is a tool which many businesses use to make even more money; as the ROI gained from the availability of extra capital is greater than the interest that needs to be paid back. Thus it's a profitable cycle.
But like any tool, if used incorrectly expect negative results.

We live in a society completely ruled by finance and yet you never actually get educated on how to use it properly. Debt can be an extremely useful tool in profitable situations but it is forever being sold to unfortunate souls for mere convenience as people tend not to have the money available up front. People use debt for terrible investments like student loans which stay with you for the rest of your life. In such a saturated job market people will be lucky to even pay off the student loan using their degree. At least if a business goes broke they can file for bankruptcy and be free of the debt.
Car loans are again a terrible choice for a debt as you're paying a premium for a depreciating asset which maybe near worthless when paid off.

Credit cards are actually quite useful and have some bonuses when paid off on time but are again grossly misused and get people in a lot of financial trouble.

Mortgages is another great example as renting can often be a much cheaper, more flexible alternative which would free up any capital which would otherwise be used for paying off the mortgage to be used in more productive means. Although arguably you can earn rental income plus build up equity.

debt is justified only if you can make an educated prediction about the near future; say, betting on a rigged boxing match.
This would be an extremely poor way to use debt, considering all the extra legal risk involved.

#### Ex-User (14663)

##### Prolific Member
you read my post way too literally

and corporate debt is obviously a completely separate thing. There's a difference between a company issuing bonds and someone having personal debt.

my point is that the only way you can justify personal debt is if you are using it to generate a return, within a certain time limit, and with a certain risk that you have carefully assessed. A mortgage, for example, is not even close to satisfying any of these criteria – you contractually enslave yourself to a bank (and thus not only give up financial freedom but also personal freedom), you take massive risk, you don't really make a return (housing prices have grown at about the same rate as inflation historically), and people usually spend their whole lives paying off the debt. And even if you make a solid return due to a housing boom or whatever, you cannot really capitalize on that investment unless you want to relocate to a cheaper location (since housing usually moves up and down as a whole sector).

so overall, we pretty much agree

#### baccheion

##### Active Member
yes, debt is pretty much the opposite of financial independence.
No. Debt is a tool which many businesses use to make even more money; as the ROI gained from the availability of extra capital is greater than the interest that needs to be paid back. Thus it's a profitable cycle.
But like any tool, if used incorrectly expect negative results.

We live in a society completely ruled by finance and yet you never actually get educated on how to use it properly. Debt can be an extremely useful tool in profitable situations but it is forever being sold to unfortunate souls for mere convenience as people tend not to have the money available up front. People use debt for terrible investments like student loans which stay with you for the rest of your life. In such a saturated job market people will be lucky to even pay off the student loan using their degree. At least if a business goes broke they can file for bankruptcy and be free of the debt.
Car loans are again a terrible choice for a debt as you're paying a premium for a depreciating asset which maybe near worthless when paid off.

Credit cards are actually quite useful and have some bonuses when paid off on time but are again grossly misused and get people in a lot of financial trouble.

Mortgages is another great example as renting can often be a much cheaper, more flexible alternative which would free up any capital which would otherwise be used for paying off the mortgage to be used in more productive means. Although arguably you can earn rental income plus build up equity.

debt is justified only if you can make an educated prediction about the near future; say, betting on a rigged boxing match.
This would be an extremely poor way to use debt, considering all the extra legal risk involved.
If a car loan has an interest rate at around 5% and the markets are returning 8% over inflation (~10-11% overall), then it's better to get a loan than pay cash. If not starting with a balance (in the markets) high enough to pay cash, then it's probably better to save than take out a loan. If the raw return from placing in the markets and taking out a loan isn't much higher than buying cash, then just buy cash. It's all about assessing fees and costs in each scenario, then choosing the one that makes sense. It's also commonly said that buying a car that's even just 1 year old (ie, used) is better than buying new.

#### Ex-User (14663)

##### Prolific Member
If a car loan has an interest rate at around 5% and the markets are returning 8% over inflation (~10-11% overall), then it's better to get a loan than pay cash
a car is not an asset, it's a liability...

so you will be paying 5% interest + the depreciation of the car, and you will not get any of the return which the market provides. The car is not going up in value like the markets, it's going down

i.e. it's not a good idea to buy a car on credit unless you're using the car to generate returns indirectly somehow (delivering pizzas, maybe driving Uber?)

#### baccheion

##### Active Member
If a car loan has an interest rate at around 5% and the markets are returning 8% over inflation (~10-11% overall), then it's better to get a loan than pay cash
a car is not an asset, it's a liability...

so you will be paying 5% interest + the depreciation of the car, and you will not get any of the return which the market provides. The car is not going up in value like the markets, it's going down

i.e. it's not a good idea to buy a car on credit unless you're using the car to generate returns indirectly somehow (delivering pizzas, maybe driving Uber?)
It is a depreciating asset.

Let's say a car costs X + T and there's X + T in the bank. If bought with cash, you are left with $0.00. In addition, it loses D% of it's value and maintenance + insurance + etc sum to M after 5 years. Final amount after 5 years is then (1-D) * X - M - (X + T). If a loan is taken (no down payment) at 5% interest and there's$0.00 in the bank, the car now costs (X + T) * 1.105392. As maintenance and depreciation are the same, final amount is now (1 - D) * X - M - (X + T) * 1.105392.

If the same loan is taken out with the equivalent in the bank, the original balance is able to gain interest while being depleted. Let's say the annualized return from an index fund equals R%. When R is roughly 1.3333 * 5%, final amount is the same as buying cash (ie, absorbs loan interest). If higher, a balance remains that can continue to compound. As the balance compounds, expenses and depreciation are continually offset. That is, the car is then cheaper than if bought with cash.

Paying 1.105392 times the original price results in an effective interest rate of 2.54%, which roughly equals the yearly increase in car prices. That is, buying a car with cash in 4 years costs the about the same as taking out a loan and buying now. If saved into a high-yield investment account, a compounded annual return of ~5.56% or more absorbs the increase in car price (ie, achieves the desired avoidance of loan interest).

I'd still buy with cash (saved into a high-yield index fund to potentially offset any price increase), but it should be understood why.

#### Ex-User (14663)

##### Prolific Member

yes in that case it's just a matter of finding an investment that has a higher return than the interest. The only problem with stocks, of course, is that you risk not getting any return at all, or even losing money.

I have a friend who has earned enough money to pay back his student loan in full, but decided to keep it in cash in the bank instead, to gain whatever the interest differential there is. I think that after all the transaction costs, and all the hassle and work that goes into getting that differential, the result is break-even at best.

the market may not be perfectly efficient, but it's nevertheless quite efficient, which makes it difficult do that kind of interest arbitrage with any profit. If it were easy to just borrow money and invest them somewhere else with a positive interest differential, then everyone would do that and push the interest spread to 0 very quickly.

#### baccheion

##### Active Member

yes in that case it's just a matter of finding an investment that has a higher return than the interest. The only problem with stocks, of course, is that you risk not getting any return at all, or even losing money.

I have a friend who has earned enough money to pay back his student loan in full, but decided to keep it in cash in the bank instead, to gain whatever the interest differential there is. I think that after all the transaction costs, and all the hassle and work that goes into getting that differential, the result is break-even at best.

the market may not be perfectly efficient, but it's nevertheless quite efficient, which makes it difficult do that kind of interest arbitrage with any profit. If it were easy to just borrow money and invest them somewhere else with a positive interest differential, then everyone would do that and push the interest spread to 0 very quickly.
As was also said, car prices go up. $1.105 is paid toward the$1.00 loan after 4 years. After saving 4 years to buy cash, a $1.00 car then costs ~$1.105. Same amount spent in either scenario.

#### Ex-User (14663)

##### Prolific Member
Im not sure how youre getting the 1.105 number, but regardless, what youre essentially doing is borrowing money to leverage your investement in stock or whatever. The car itself is sort of irrelevant in this case. If buy the car with cash, then borrow money to put into stock, the result is exactly the same.

#### baccheion

##### Active Member
Im not sure how youre getting the 1.105 number, but regardless, what youre essentially doing is borrowing money to leverage your investement in stock or whatever. The car itself is sort of irrelevant in this case. If buy the car with cash, then borrow money to put into stock, the result is exactly the same.
Put in a car price, \$0 down, 5% interest, and a 48 month term into the following calculator: https://www.cars.com/car-loan-calculator/. Multiply the resulting monthly payment by 48 to get the total amount paid, then divide by the original car price.

#### templarofdaoism

##### Redshirt
Find clever people, leech of their insights and invest in whatever they say. Works wonders. Well, if you have the capital to invest, that is.

It is pretty absurd how some people just stumble upon richness and how others suffer their entire lives. When luck separates the poor from rich. Some people are born into inheriting 10 mil to live from, while other have to work 12 hours a day. Some stumble across the perfect financial advice and get rich from nothing. It's just so absurd.
THis is actually one issue I have been thinking about, the perception of movement of the market. I mean it is all too easy to say somebody just got lucky when the market works in his favor, but I have realized that I pay too little attention to the market, it's like swimiing in the ocean without paying attentoi to the wave and tide, obviously it's much more efficient to spot the tide and swim in the same direction.

I think financial indepencence has a important timing/market related factor, a lot of people taking early retirement now probably profited off the tech boom in the last couple of years. So I belive the path to retirement is NOT just saving wages, and/or investing in index fund with the saved wages over time, but also paying attention to the movement of the market, and attempt to profit in accordance to it

Exactly what kind of signal to catch , and how to act when you spot the signal, I dont' know, I am still trying to learn this.

#### Minuend

##### pat pat
THis is actually one issue I have been thinking about, the perception of movement of the market. I mean it is all too easy to say somebody just got lucky when the market works in his favor, but I have realized that I pay too little attention to the market, it's like swimiing in the ocean without paying attentoi to the wave and tide, obviously it's much more efficient to spot the tide and swim in the same direction.

I think financial indepencence has a important timing/market related factor, a lot of people taking early retirement now probably profited off the tech boom in the last couple of years. So I belive the path to retirement is NOT just saving wages, and/or investing in index fund with the saved wages over time, but also paying attention to the movement of the market, and attempt to profit in accordance to it.

Exactly what kind of signal to catch , and how to act when you spot the signal, I dont' know, I am still trying to learn this.
Well, obviously there are stuff you can pick up on, and some people build their fortune by cunning, not luck. Gradually, maybe more safely than risking. But in a way, being in a place where you understand that path is viable, having the ability to learn it etc could be a result of luck. Being born into a position where you're able to get and invest capital is in a way luck. Which is pulling the expression to maybe an absurd level.

My point wasn't that you can never profit from experience and learning how to use your money, merely how coincidental make or break can be. You have people who accidentally had valuable resources on their property, people who randomly bought valuable antiques or paintings which made them a fortune, there's probably a few who randomly bought bitcoin and gained from it massively. And it's not always because they realize what they see will be gold, but for other reasons.

#### gilliatt

##### Active Member
In the market almost everyone wants to know 'what' and 'when'. If I were to give you a tip on a stock and it did good, I would not be doing you a great favor. If I can show you how to trade successfully without asking for tips, I would have accomplished something worthwhile.