Years after spending most of my money on stuff that simply is fun or made my live simpler I started to realize that this wasn't the way to get financially independent. Everything costs money, and for most of us after the end of the month, we spend it all.
Like you, I started to read a lot about investing in stocks, ETF's, and off course trading in crypto currencies and alt coins. And I finally realized that it is possible to get financially independent. Even with a small income.
As I read a couple of books and received a lot of tips from wealthy family and friends, my financial situation finally got my attention. I started to calculate all my expenses, income and found out that a lot of my money was 'dripping away' off my account. A lot of it went to mortgage, groceries, subscriptions, taxes, traveling expenses and insurance, and so on. I start thinking: How would a millionaire do this? I have some tips:
“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”
― >Albert Einstein
#1 Compound interest
For example. If you save $1000 every month and would invest this monthly into ETF stocks with a revenue of 10% every year? After 30 years you would have saved over $209.000,-. The most important thing to understand is this formula: 12.000*1,10^30. The formula for calculating compound interest. In this example 12000 (1000 * 12 months), times (1,10) 10% interest every year, to the power of (^30) 30 years long.
The most important thing to understand is to reinvest your revenue.
#2 First investing, then spending (Frugality)
What this means is very simple. When you get your monthly salaries. Reserve at least the amount of money you would like to invest monthly. In my example, setup your bank account to transfer $1000 every month to your savings account. Right after you received your salary.
#3 Cut your expenses
This sounds easy, but believe me! We live in a consumer era. A lot of your money is spent because we love to buy, our brain wants us to buy. All the marketing companies know exactly how this works, so it's your responsibility to understand it too. And resist the advertisements.
For example: Are you still smoking? Stop smoking! Pay back your loans and mortgage. Every expense makes your investment position weaker. So make your self more conscious of every expense you make. Ask you self: "Do I really need this?" If the answer is no: stop buying or even sell it!
#4 Start trading ETF's
We all have some need for a solid investment and not too much risk. My advice is simple. Don't invest too much in risky business, spread your investments. A solid way of investing can be ETF's. Aim for a steady increase in the market. Buy for instance a world index ETF and a fixed renting index. In my example: Every month I buy $1000 in ETF stock. 70% goes towards a world tracker and the remaining 30% I invest in a fixed renting market stock index. Use an automated transfer, so you don't forget to wire the money.
#5 Start trading crypto
Most of us are interested in the crypto stock market. And you should be too! It's booming and very fun to trade. And not to forget, you can make a lot of money while doing so. It can be hard at first, but if you train yourself by learning all the basics you will be getting better over time. Start with a small amount first. Buy $250 worth of Bitcoin. Sign up an account on a broker platform. And just start playing around with there basic principles:
Buy when the exchange rate is going down. And sell when the exchange rate is going up. Keep in mind that the trade cost money as well. So try to be on the safe side.
In my example, after a while I started to expand my portfolio. Every month I try to buy another $250 worth of bitcoin and invest in altcoins. After one month I earned $150 revenue with my first deposit. Every month I try to add an other $250 to invest. I’ve been doing this for a couple months now and so my portfolio is just worth about $1000. I believe that this is a good start of becoming financially independent. And in combination with all the above, you are doing all the most important steps to lower your expenses and increase your future income.
For this post I want to thank Floris and Lana for the help with my grammar and English.