It’s a sound you’re not accustomed to. Not the familiar sleep-breaking melody, synonymous with the mundane work, meetings and bureaucracy that await, but something else entirely. This time nature eases you from your slumber.
The chirping birds are more peaceful than you remember. In your haste, you hadn’t paid them such unconstrained attention before.
But this morning is different. This morning you wake up with options. You no longer need to do someone else’s paper pushing to get by.
In this morning’s life, you make enough money while you sleep to support your life choices while you’re awake. And so you can leave waking to nature, or you can set that alarm. It doesn’t matter. The point is it’s up to you.
At last, your passive income exceeds your living costs. You’ve done it. You are financially independent, and the birds know it.
Financial independence isn’t hard
Ok, so it’s a somewhat naïve interpretation of what financially independent life might feel like, but you get the picture. Financial independence provides options: the option to stick at what you’re doing or choose something else – to no longer be dependent on anybody else’s money.
And here’s a terribly-kept secret: it’s not that difficult.
Sure, you’re unlikely to achieve financial independence overnight, nor over hundreds of nights. But you will save yourself thousands of further nights of financial dependence through consistent and simple changes to your approach to saving, investing and earning.
And simple is the magic word. You don’t need to be a genius investor, a high-flying executive or a sleep-deprived workaholic to achieve early financial independence. You just need to prioritise the right income streams and investments.
There’s no need to overcomplicate. When we get to the heart of the how, three simple choices over how we invest our time and money can help ordinary people achieve financial independence extraordinarily early.
#1: Investing in passive income streams
Those that achieve early financial independence most often do so because they have invested in asset classes that produce an income to support their lifestyle. This is a no-brainer. Securing passive income streams should be front and centre of any financial independence pursuit.
Investing for passive income is most commonly done through stocks, property or bonds, which can each provide an income yield. From former to latter, these provide deescalating levels of volatility and returns.
For stocks, a better level of diversification can be achieved through index funds, where your money is pooled with other investors in funds that replicate stock market indexes. Historical data suggests that regular investment in a well-diversified portfolio of stocks over more than a decade should be expected to produce inflation-adjusted returns of around 7%.
But there are no guarantees, and timing plays an important role. If you enter the stock market at the peak of a bull market, for example, you’re unlikely to see that annualised return, even over a decade. For ordinary investors, time in the market beats timing the market.
Investing in property, on the other hand, may provide a slightly lower level of return but has advantages of its own. Property ownership brings more control over the asset and a more stable yield during downturns. But property also carries its own unique risks.
I won’t revisit the trade-off between stocks and property as sources of passive income here, but it’s worth due consideration as you consider your future passive income strategy.
#2: Investing in your career
Your career, even if you’re trying to get out of the rat race, can be the golden goose. Don’t underestimate its importance as your key source of income. By investing time in our career value, we can see our net worth rocket.
Think carefully about what increases your scarcity power. What training, education or additional experiences will make you an indispensable current employee or more sought-after prospective employee?
These are critical questions, not because they make you feel good about yourself, but because they increase your negotiating leverage. In short, they increase your price.
As you focus on increasing your career value, capitalise on it. Your new value puts you in a stronger position for salary negotiations (which are a must) and position you for promotions to higher-paid roles.
It’s easy to lose sight of the benefits of investing in your career while desperately trying to escape it. It’s easy, for example, to focus on cranking up short-term income through ‘side hustles’, but so often this approach misses the bigger picture. The income gains from career progression will in all likelihood far outstrip short-term income from these ventures.
The moral of the story? Keep your eye on the long-term prize.
#3: Investing in passions with potential
It can be hard to invest in a career when we don’t ourselves feel invested in it. I get that. But that paradox can be countered with the superior income gains and the opportunity to develop transferable skills.
The first of these points I’ve already covered, but the second is worth some thought. If we can develop skills that simultaneously increase our career value and grant opportunities to pursue passions outside of work, we’re onto a winner.
And if these passions have the potential to flourish into another income stream, then why not invest more time in them? If you enjoy them, the fact that one day they might produce some money is just a bonus. Besides, when you achieve financial independence, you’ll need something else to do.
That’s one of the reasons I write on this blog. I have no intention of monetising it right now (and frankly, it wouldn’t return much income even if I did) but it’s what I call a ‘passion with potential’. Like a few other passions I’m focusing on, it offers up a creative outlet and contentment, but also a distant potential that it might one day be something bigger.
So invest in passions with potential. Not just because they have potential, but because they make you happier while you’re investing in everything else.
Final comments
The reality is that most of us are already pursuing financial independence, only we choose to defer it through our spending and investing decisions. Simple changes can shortcut the process, without compromising happiness in the present.
Of course, there is more to financial independence than the three aforementioned choices. Our savings habits and our approach to reducing debt can’t be neglected either. But these three simple investments are capable of being the rocket fuel for your financial independence. Don’t overlook them.
