Life Lessons 101

Everything you needed to know, but was never taught in school.

Financial Freedom Types: Investors

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The third type of financial freedom one normally finds, is in Investing. This is the Warren Buffets of the world, and many more who aren’t quite as famous, but still doing really well for themselves.

The idea of putting your money in a company or other entity by buying stocks and/or bonds, or other type of financial product, in an effort to see a positive return and have your money grow.

This is similar to the idea of putting your money in a savings account earning interest, however because savings accounts pay so little now a days, you have to find other methods.

There are various financial tools you can use for investing. Some have more risk than others. I’ve listed common financial tools from low risk to high risk below. Note that the lower the risk, the lower the reward, and that there is not a direct line from risk to reward, nor is everything risk free.

  • Savings Account
  • Certificate of Deposit
  • Treasury Bonds
  • Municipal Bonds
  • Bonds (high grade)
  • Bonds (junk)
  • Large Cap Stocks
  • Growth Stocks

Note: I didn’t include mutual funds as they are just collections of bonds and/or stocks usually. That means instead of buying a single stock, you buy into a “fund” which has dozens of different stocks. The idea being rarely would they all go up, or all go down. Some will go up, and some will go down, hopefully more positive than negative overall.

How much money you make is dependent upon two things. First the rate of return. On savings accounts, CDs, Bonds, they are typically fixed. However on stocks they vary quite a bit of their life time, sometimes having a positive rate of return and sometimes having a negative rate of return.

The other variable to how much you make, is how much do you invest. The more you invest, the more you can earn, or lose. The difference in money you at the beginning and end of the period of time of an investment is considered the return on investment. Your return may be positive (you make money) or negative (you lose money). Generally, the higher the risk, the more potential for return, as well as loss.

If you put those two elements together, you can see how your investment works, or doesn’t work. If you put in $10,000 and get a 2% return, you make $200. Put in $100 with a 20% return, and you’ll only make $20. So even though you had a much higher return, because you couldn’t invest as much, you didn’t make as much.

Pros

With the rise of Internet Investing firms, there are lots of low fee or no fee investment firms that allow you to buy stocks and bonds with little overhead.

Investing allows you to earn “passive income” i.e. to keep earning without direct constant input from you.

The rise of mutual funds allows you to not have to know as much about direct companies, investing itself, and provides some safety in investing.

Investment gains (especially through dividends and when bonds and CDs mature) can be rolled into more investment, to increase the amount invested.

Cons

As with some Hustler examples, you can lose money, especially as you take on riskier investments hoping to make better money.

You must have “seed” money. That is, you must have a certain amount of money to start with to invest, in order to make any money.

Many investments are long term, so you may not see a return on investment for a while.

Many books/articles on investment quickly go out of date because of changes in the financial environment between rules/regulations, market forces, etc.

Investing in an individual company can take lots of time to research and you may have found you pick a loser, and have to start all over again.

Financial Freedom Types: The Hustler

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One of the easiest things to do, is also one of the hardest. And that is make more money. But that’s exactly what the hustler does.

There are several sub-categories of hustlers in my opinion, each of them has their own merits and detractors. But all of them are focused on making more money.

The basic idea is, if you make enough money, you’ll be financially free.

There are three common ways that people will attempt to make more money.

First, getting a better job. They might get an MBA to qualify for that management position. They might work hard to be the senior sales person, or “job hop” to a new company so that they constantly increase their salary. I worked for my first company right out of college, and increased my salary by almost 50% within the first year by working hard and making the boss look good.

Each of these has their own pros and cons, but eventually they will hit some type of limit. Either because they simply cannot meet with more clients in a day, the company only pays so much, etc.

Second, they work the side hustle. Hustlers are those people who are always working, moving, etc. This means working a side job, whether as a freelancer, a second job, or working one of the popular gig-jobs like fivr, Uber, etc. Some of the people will work to build passive income, that is something that earns you money, even if you aren’t working the job. This could be designing t-shirts on a print on demand company, writing a book to sell on Amazon, etc. Regardless, they’re going to work to bring in extra money.

Finally, the third type is the one you hear people mention a lot, but is actually rare. The people who build a successful company. Think of the Jeff Bezos, or Elon Musks of the world. People will try to tell you it’s simple. Step one, build something that is successful, step two, enjoy being a bazillionaire. Of course, in reality, there are hundreds of steps between the two, and why there are entire books written on the subject of starting a business, but that’s a different story…

So let’s look at the pros and cons of being a Hustler. Because there are different types of hustlers, some of the pros and cons will be specific to some of those types and not others, so please, bare with me.

Pros

Working for a promotion, or changing jobs is one of the easiest things a person can do to earn more money. Especially when you are just starting out. In fact, many people only stay at a job early on for a year or two because you can easily make more money when you are at the floor level. Depending upon the size of the promotion and jump n pay will change how easy or difficult that next jump is.

Because of technology, working in the gig-economy has never been easier. It used to be difficult to break into freelancing, finding clients, having an ability to bill them, but now you can quite easily, and you don’t necessarily need any extra special skills.

This is especially if you are younger, you will find you have energy earlier in your career to make those advancements, to hustle along.

Due to changes in healthcare laws back in 2010, more companies have started offering part time jobs, which means picking up a semi-steady, semi-reliable job is easier than when those jobs were handled by full time personnel.

Due to technology, starting a company is easier than ever before, especially if you have some technological skills. You don’t have to have as much inventory and a large staff to create a workable business.

Cons

Just like with saving, noting can be all positive. So let’s look at some of the hustler cons.

If you are looking at promotions and/or job hopping, you’ll find that as you become more senior, it is more and more difficult to get promoted as there are not as many of those positions. I knew a carpenter who worked really hard as an apprentice, and then got an early jump to journeyman. Unfortunately, there were only about 1/10th the number of journeyman positions open as there were apprentice positions. And the promotion actually cost him work, even though he was scheduled to make more money.

If you are working on a promotion/new job, and it takes a new degree, that slows your progress right out of the gate. Often a new degree will take between one and four years to realize, and a lot of money if you can’t convince your current work to pay for it.

Excessive job hoping is usually looked on negatively by new companies, which means they may not want to hire you. Now the definition of “excessive” varies by industry. In some industries if you are with the same company more than a few years, they begin to wonder about you, but in any company you can run into too much hoping if you are not careful.

There are only so many hours in a day, and you can only do so much hustling. So no matter what you might want, working a full time job and a part time job might be all you can physically do. (Working an additional part time job might be tough depending upon your regular job.) This will negatively affect your attempts in the gig-economy as well as other places, so be mindful of your time.

If you’re “hustling 24/7” are you really “free” or are you working yourself to death without enjoying your life. One has to be careful of taking anything to extremes.

If your hustle type is starting a new company, note that most people have started multiple companies which have failed before succeeding. In fact, most companies who start, are closed within 3 to 5 years, depending upon your industry. Some close even faster than that.

Hustling by creating a company, is often dependent of factors that you cannot control, and thus has a huge risk factor associated with it. Timing is often considered the most important element of any new business, and trying to time something is really difficult. That includes timing when your competitors come after you. Consider MySpace, Friendster, and other… all supplanted over the years. And while Facebook seems like the 800 lbs Gorilla right now, it too could be supplanted in the future…nothing is guaranteed.

Conclusion

For any success, there has to be some hustling involved. Where, and how much is up to you. If you’re willing to assume the risk, it can turn the fastest reward (especially with a good promotion or side job) that will start you on your way to financial freedom.

Financial Freedom Types: Savers

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The first type of financial freedom I want to look at is savers. Mostly because this is the easiest one to implement. However, some may also say it also takes the longest to achieve financial freedom and won’t necessarily make you “rich”.

The saver is the person who creates a budget and sticks with it. This lets them control money instead of letting it control you.

By using a budget, they have money they can put into their savings account and use for either a rainy day, or to make that bigger purchase they want, like vacations, etc.

Because they budget and pay cash (i.e. not take out a loan) for most items, they pay less overall since they are not paying interest on their purchases. This means they typically have strong wills, forgoing impulse buys, because they are delaying their gratification to save, knowing not today, but tomorrow will be better because of it.

They will often shop sales ads, clip coupons, and know what items normally costs and it’s associated value. Because they know the value of an item, they often buy higher quality goods that cost more, knowing purchasing something once is almost always better than buying it again and again when it breaks.

This methodology is often touted by the likes of Dave Ramsey and his crew, as well as books like The Millionaire Next Door, people who belong to the FIRE (Financial Independence, Retire Early) movement, and others.

Pros

The great news is anyone can be a saver. You don’t have to earn a certain dollar amount a year to get to that point. Additionally, you don’t have to have a certain skill, possibly outside of basic arithmetic.

The other pro, is that you can start at any time. My wife and I sat down and budgeted our honeymoon before we were married, so we didn’t go into debt over it. It meant we didn’t go on a fancy trip to Paris, or Hawaii, but we stayed someplace nice, that we could afford, and still had a great honeymoon. It was a nice early on step, and while we only had a little saved, we worked at it, got better, and before long were able to save more.

The more you do it, the easier it is. If you’ve never had a budget, writing one and following one will be hard. But with each month, and each year, it gets easier and easier until you don’t even think about it. It’s just natural. With the other methods, you see coming up, there tends to be some up and down motions that you can’t control.

With each year, because it’s easier to follow, you’ll notice your savings will increase. Sure, a large expense will come up, just as it would with any person, however, you have the money ready for it.

The more money you make, the more you can save. This is where if you are also part hustler, or you have a good paying job, get an unexpected windfall, you are just that much further ahead. But it still works even if you only have smaller salary than others.

Saving is a perfect choice for someone who is risk adverse. As we’ll see in with Hustlers and Investors, they all take risks…risks that could cost them their money and they can’t recover. Saving money by buying frugally and budgeting takes no risks.

Cons

Let’s face it, not everything can be a pro, no matter how much I like it. (And as a saver myself, I like it and have my biases.)

Clipping coupons means you can live within your means and being financially free, but is rarely a way to being wealthy.

Some of your friends might make fun of you for not being willing to splurge on expenses today, because they don’t see a reason to live for tomorrow.

Because you are saving your money, it only grows slowly, especially at first, and especially as you have to pay down and finally off any outstanding debt.

Shopping for the best deal can take time. It takes time to clip coupons, comparison shop, and prepare a weekly meal plan, time that some people don’t want to put into it.

An unexpected major expense can side track your goals. As much as I hate to admit it, bad things sometimes happen. And sometimes they are outside of our control. One bad illness, losing your job, etc, can cause a financial problem that you can’t just budget around. Now as a saver will have a good budget, they should have insurance to help protect and cover problems like a car accident, or getting sick, but that doesn’t necessarily solve all of your issues – but they can minimize them.

The biggest con I see to be a saver, is for those people who take it to an extreme. I personally see this with some people in the FIRE movement, where their sole focus is on saving money, and to keep from spending anything. It causes them to sometimes be too focused, and they forget to have fun, and relax as they’re so focused on having money to retire early. You need to make sure you’re willing to live your life.