The Key to Success

I bet you all remember the really smart kid at your school when you were growing, the one who was “destined” for great things in life. Well, I bet you twenty years later that the most successful person in the class is not that smart kid but the person who took action, a few risks and was bold.

If you want to reach financial independence, yes you need to build up your financial knowledge, understand different asset classes, understand tax laws and get yourself in the right mindset…but all of this information which makes you knowledgeable is only worthwhile if you take action with this information. That statement is so important I will repeat it again, a person will only be successful if they take action based on the knowledge they have developed. That action could be buying your first rental property, having the confidence to go into a shop and buy your first gold or silver coin, or buying your first share.

Yes, the action may feel intimidating at the time. It may feel as though you are risking a lot and there is a big downside…but if you have done your research and reading, consulted suitable mentors then the chances are that everything will work out. If you’ve been bold and taken action and things haven’t worked out, then dust yourself down and try again with the new knowledge you now have! This is the way things have to be, playing it safe will not get you to financial independence.

The magic ingredient in all of this is finding the trigger that will stick that rocket up your backside and get you taking action now. That rocket has to be something which comes from you. One way I have found to do this, and sorry for sounding depressing, but it really works, is to think about how you want to be remembered. What would be written on your gravestone…do you want to be remembered as a success, someone who lived with no regrets, was able to fulfil all his dreams…if so live with passion, take action and a few risks along the way and I’m sure you will reach financial indendence sooner than you think.

Just remember, life is finite, seize the moment, carpe diem…most importantly take action. Fortune favours the brave and financial freedom will find the action takers! Get off that fence and make some decisions.

The importance of multiple streams of income

As someone who is aiming to reach financial independence within the next five years it is important to think about holding assets which provide multiple streams of income. Remember in the words of Robert Kiyosaki an asset is something which puts money in your pocket!

Finding and Maintaining Financial Independence

The game we are all trying to play is to build up our wealth (ie. assets) such that the cashflows produced from our wealth exceed our living expenses plus a bit for having fun! If this is achieved we are financially free. However, it is also important to structure our assets such that should things go wrong we will still be financially free and don’t need to resort to returning to the rat race! How do we go about doing this?…well we need to diversify our asset holdings.

As a example consider the following situation: I find that I need to hold £1m of assets in order to cover by £40k of annual living expenses. If using my assets I purchased a large and expensive property in central London and rented this out to a family which turned over £40k per annum in positive cashflow I would classify myself financially free but I would still be only one rental void away from returning to the rat race. Alternatively, I could hold a series of flats and properties all around the country which aggregated up to a £40k per annum positive cashflow. In this latter case I would have more security in terms of rental voids, geographical economic differences and regional price variations. Effectively, my portfolio would be better diversified…you get the picture!

A Cashflow Pyramid

So we know that diversification is good, but if we want to build a “cashflow pyramid” with a solid base we need to derive cashflow from multiple asset classes too. The following list gives you some ideas for ways of deriving cashflow:

  1. Rental Income from property
  2. Dividends from shares
  3. Advertising and sales commissions from a website
  4. Owning a profitable business
  5. Interest from bank savings
  6. Spread betting on the financial markets

As always though, the less involvement in deriving the income stream the closer we can say we are to true financial independence. This is why it is important as a business owner to have a hands of approach so you can leave the management of the business to your employees and focus on enjoying the profits!

We are living in extraordinary times

I think it is very important that we remind ourselves from time to time that we are living in extraordinary times. Never before has the Bank of England base rate been as low as it is today. And this exceptionally loose monetary policy is being used in many Western countries.

As you can see from the chart above showing the bank base rate going back to 1694, the previous low was 2%, yet we are currently at 0.5%. This is unprecedented and shows the desperation of the Bank of England to stimulate the economy in what can only be described as a severe financial mess.

The chart clearly shows that the natural level of base rates is around the 5% mark. Normally the base rate is greater than the rate of inflation to encourage prudence and saving but at the moment it is definately not. Historically bank base rates have been around 3.5% above inflation and therefore we can conclude that interest rates, assuming CPI inflation of around 4.5%, should be around the 8% mark!! This would therefore mean that mortgage rates should be 10%, think of the carnage that would be caused if this was the case!

When the Bank of England eventually starts raising the base rate, and they will have to one day, that’s when we will finally see the correction in UK house prices which has been long talked about. And when this correction occurs, that is when some astute investors will pick up some absolute bargains in UK property which will set up them brilliantly for a life of financial independence. I hope I am bold enough to take advantage!

As an aside the gross yield, rent received over price paid for the property, back in the mid 90′s when the property market last bottomed was 9-9.5%. This was in an inflation environment of 1.5% though so the real yield was around the 7.5-8% mark. These days the gross yield is 7.5% but this is on a background of inflation around the 4.5% mark so a real yield of 3%. When real yields get back up to 7.5% mark that will be a reasonable guide to the housing market bottoming out.

Be Your Best

I’m sure most of you have jobs. I myself have a busy job in London which means that I leave the house every morning at 8am and do not return until 7.30pm. At the weekends there are chores to tend too, kids to look after, friends and family to see…so how do you find the time to invest in yourself and enable yourself to reach financial independence. I believe it needs focus and energy.

Set Goals

I have a set of goals which I want to achieve. These are broken down into different categories so that I am not just focusing on financial goals the whole time. I want to have fun too!! The categories I use are:

  1. Financial- where I break them down into short term goals (reach this month), medium term goals (24 month goals) and long term goals.
  2. Family and Friends
  3. Learning and Experiences
  4. Health and Exercise
  5. Career

It is important to then review those goals regularly. I set aside an hour every Sunday morning between 8.30 and 9.30 to review my goals.

Have a vision board

By creating a visual representation of all the things you want achieve and by putting it in a place where you will see it every morning, a vision board can serve as a brilliant pick-me-up first thing in the morning. It will remind you of what you are trying to achieve, help you to focus on the bigger picture, and help to put you in a driven mood for the day.

I created my vision board by searching for JPEGS all over the internet and then printing them all out on a piece of A3 paper. I have stuck it on my mirror to look at every morning! The cleaner may think I’m a bit mad, but it serves an awesome purpose!

How to Raise Your Energy Levels

Exercise it a wonderful way of raising your mood and energy levels. I take a run every morning around the local common, come rain or shine, for about half an hour. This serves as my way of waking myself up for the day ahead, helping to keep me in shape, and raising my mood- exercise releases endorphins, the feel good hormone.

I don’t think it matters what you do, just start doing some form of exercise- preferably first thing in the morning- this could be walking instead of taking the bus, starting to lift weights 3 times a week, or signing up to a local football team.

Food also plays a part

I am very interested in the way food affects our mood and energy levels, and recently went on a course called “nutrition for everyday living” to boost my knowledge.

If you want to maintain energy levels throughout the day and be your best it is important to avoid processed food which cause a spike in blood sugar levels and then a trough in energy levels- foods to avoid includes processed foods such as cakes, biscuits, white rice and white bread. Instead eat lots of raw vegetables and nuts.

Another great thing which I learnt recently is that some foods contain serotonin or help the body to make serotonin. Serotonin is the calming chemical and helps to control stress and boost your mood, so getting lots of it is a good thing! Foods which do this include- oats, bananas and walnuts. So if you really want to start the day off well have some porridge with a chopped up banana!



Financial Education is Priceless

Look around you, look at the number of people who are completely reliant on their jobs for financial security. What if they were made redundant tomorrow, for the majority of the UK population they wouldn’t even have the financial resources to support themselves for 3 months.

The reality is even if you work for a large multinational you could lose your job tomorrow. I’m not trying to say this in a bad way I just want to encourage people to think about the bigger picture.  A “secure” job does not mean you have no risks as we saw with Lehman Brothers when it collapsed in 2008.  A lot of the workers at that large US bank probably thought they had a “secure” job.

In this day and age, jobs for life are harder to come by partly because of the current economic outlook and partly to do with technology. The internet means that jobs can be farmed off to countries like India, China and the Phillipines where jobs can be done for a fraction of the cost of Western Countries. This means that it is more important than ever to have something to fall back on. At the very least everyone should have 6 months worth of living expenses sitting in liquid assets- lets call this a financial security fund.

The other reason why people need to start thinking about their financial arrangements is because gone are the days when individuals worked for a company their whole lives and then got a pension until they died. These days people are living longer, much longer, for children born in this decade it will not be unreasonable to assume they will live to beyond 100. Governments in the Western world, on the other hand, are bankrupt, they cannot really afford to look after their citizens in retirement, what we will therefore likely see is that the value of government pensions will fall and fall in real value pushing hard working pensioners back to work or into poverty.

It is therefore so important that people get financially educated. They need to understand the importance of buying up assets and businesses which will be able to provide a source of income whether they can work or not.  To reach that level of financial education will be a long hard struggle, it will require significant effort and a change of mindset but if you do not start on that path you will be risking having a very poor retirement. As a start have a look at some of the suggested reading on this website. As this portal develops I will eventually have a whole program of assistance that can be offered to help you reach financial independence. It doesn’t matter if you are 20 or 65 years old the most important thing is start taking some action! Good luck.

Welcome to Experimental Investor

The world is in a state of economic deterioration. I think it is inevitable that over the next few years we will see a higher inflation, weakening currencies and further real estate market crashes.

I am the experimental investor, I am seeking out investment opportunities in these tough times which I can use to build up my investment portfolio. Everything I talk about I am investing in myself.

This site will provide you with education, economic and investment news, and access to powerful material to help you realise your investment dreams, just like me!