A Moment On The Tube. Financial Independence as a Self-Employed – The Discovery.

A MOMENT ON THE TUBE. FINANCIAL INDEPENDENCE AS A SELF-EMPLOYED - The DISCOVERY.

Bankeronwheels.com is dedicated to helping you become Financially Independent.

Some of our readers are also part, or interested in, the Financial Independence, Retire Early Movement (also known as “FIRE”).

When Financial Independence (“FI”) first became popular, most people interested in the concept were engineers or those in stable, high-powered jobs. But in recent years, the movement has attracted more people from all walks of life.

As part of Bankeronwheels.com Lifestyle series, Kathrin will share why and how she started pursuing financial independence and how the concept has shaped her life.

Today, we’ll discuss the discovery process. 

KEY TAKEAWAYS

  • For Kathrin, the key discovery towards Financial Independence was the Mr. Money Mustache Blog and the three concepts he presents.
  • First – Cutting your spending rate is powerful because you instil good habits that will drop your needs in the future. 
  • Second – Focusing on what’s in your control, for instance, cutting costs, what you eat and how you exercise.
  • Last – Making overcome obstacles by other means than through spending a way of life. 
  • If she had to do it again, instead of spending time going through blogs like MMM, Kathrin would pick two books – The Psychology of Money and The Millionaire Next Door.

Here is the full analysis

I wasn’t actively pursuing FI - at least, not until I decided to read Mr. Money Mustache’s blog.I’d heard about him a lot, so one day on a long tube journey to one of my German students, I decided to give the blog a go. As soon as I began reading, I knew I’d found something special. Everything he wrote just made sense to me. “Why didn’t I think of this before? It’s so obvious!” I thought.

My Path to Financial Independence

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My Starting Point

By the time we’re an adult, we all have a “money story”. Some of us grew up in poor families that had to struggle for survival, while others internalised a parent’s spendy ways.

Almost everyone on the FI path can pinpoint the reason why they are interested in being independent from a job. For me, the trigger was becoming self-employed. 

Having a variable income really forced me to focus on my finances and plan for monthly fluctuations in my profits. 

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Growing Up in Switzerland

I grew up in rural Switzerland, and until I was in my mid-20s and independent from my parents for the first time, money wasn’t a big concern for me. 

Because my father was a lawyer and my mother inherited a lot of assets from her family,  there was always enough in our household. What’s more, I’m an only child, so my parents could concentrate all their resources on me.

Fortunately, they are sensible people, and they instilled good habits in me. 

From a young age, my mother spoke to me about moderation and not spending more than you owe. 

“Buy now, pay later” was a shocking concept to her, and she passed this mindset on to me.

The fact that mindless consumption wasn’t a part of my life growing up has helped me internalise the FI concepts very quickly. 

Despite this, I felt afraid. Every month, my earnings fluctuated, and clients could stop working with me at any moment. When you’re self-employed, there is very little job security.So, I decided to set aside my extra money and put it in a savings account. Soon, I became fascinated by the topic and regularly read up on personal finance during my tube journeys to and from clients.

THE WHY - A MOMENT ON THE TUBE

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Becoming Independent

At age 24, my parents would have been happy to keep supporting me and my dreams of becoming a professional contemporary dancer. 

But I felt the need to stand on my own two feet. While I’d worked part-time as a ballet teacher for several years, I’d never fully supported myself. 

So, I moved to England and became a self-employed Pilates instructor and German tutor.

I arrived in London with six months’ worth of expenses and no job. However, the directors of the Pilates teacher training course I attended gave me the names of five studios in London to apply to. At the end of two weeks, I had my first client lined up. 

By the six-month mark, I was fully able to support myself with my freelance work as a Pilates and German teacher.

Self-Employment and Stability

During my university years, I’d built up the habit of limiting my spending. I kept this up throughout my first year as a freelancer, so I soon had several hundred pounds left over at the end of each month.

Despite this, I felt afraid. Every month, my earnings fluctuated, and clients could stop working with me at any moment. When you’re self-employed, there is very little job security.

So, I decided to set aside my extra money and put it in a savings account. Maybe, having several months’ worth of expenses saved up would make me feel better. I began reading about the best accounts and investments. Soon, I became fascinated by the topic and regularly read up on personal finance during my tube journeys to and from clients.

MMM - A Discovery on The Tube

In the spring and early summer of 2018, I consumed a lot of personal finance content while commuting. 

By that point, I knew about financial independence, and I’d heard about some of the big blogs such as Early Retirement Extreme and Frugalwoods. However, I wasn’t actively pursuing FI – at least, not until I decided to read Mr. Money Mustache’s blog.

I’d heard about him a lot, so one day on a long train journey to one of my German students, I decided to give the blog a go. As soon as I began reading, I knew I’d found something special. Everything he wrote just made sense to me. “Why didn’t I think of this before? It’s so obvious!” I thought.

Over the next few weeks, I read every blog post on his site. By the end of it, I was ready to invest, which I first did in October of 2018.

Pete Adeney, the blogger behind Mr. Money Mustache, is a retired 40-something Canadian engineer with a family. So, why did his content inspire me, a single 20-something woman in London, so much?

WHY DID MMM SPEAK TO ME?

Pete Adeney, the blogger behind Mr. Money Mustache, is a retired 40-something Canadian engineer with a family. So, why did his content inspire me, a single 20-something woman in London, so much?

The answer is that his values are almost perfectly aligned with mine. In his blog, he focuses on how reducing consumption benefits you but also the environment and everyone around you. I’ve always been passionate about reducing my negative impact on the world, so this double benefit convinced me.

Additionally, Pete focuses on the community a lot. 

He often states that FI allows you to spend more time with family and friends and to pursue passion projects. 

As an only child from a very small family, I haven’t always had a strong community behind me, so this seemed like a great reason to pursue financial independence.

Reason #1 - The Shockingly Simple Math Behind Early Retirement

Source: https://www.mrmoneymustache.com/

The “Shockingly Simple Math” post was one of the most important reads for me because it explains the relationship between your savings rate and the time it takes you to retire. Pete has created a table that shows how long you have to work depending on how much you save. 

For example, someone saving the standard 10% will need to spend 51 years at work, whereas someone saving 35% can cut it in half to a mere 25 years. Most people in the FI community aim for a rate between 50-60%, which allows them to retire in 12-17 years.

One of the things that struck me the most was that these concepts work at every income level. If I earn £40,000 and save £20,000, I will retire at the exact same time as someone who earns £400,000 and saves £200,000.

This motivated me to focus on lowering my expenses before increasing my income. I learned that earning more is only beneficial if you use the surplus to increase your savings rate. 

Reason #2 – You Can Influence Less Things Than You Think

Source: https://www.mrmoneymustache.com/

How big is your circle of control?” was another excellent article that changed the way I viewed the world. Most people worry about a lot of things that are within their control and even more things that aren’t. 

For example, they closely follow politics and complain about celebrities whom they have no influence over. This wastes a lot of energy and doesn’t accomplish anything.

MMM teaches his readers to focus on increasing their circle of control instead. Instead of spending all your time thinking about things you can’t influence, learn new skills that allow you to change the local or global environment. 

This shift in mindset has prompted me to start pursuing many activities I might otherwise have put off.

Instead of worrying about poverty and the environment, I have started making regular donations to effective organisations and volunteering as a gardener in my local park. What’s more, I have spent time upgrading my writing skills and have been able to start a second business as a writer.

Reason #3 – Frugality Can Be Fancy

In the past, a person’s status was displayed by the clothes they wore, the food they ate, and the house they had. But with debt so easily available, most people nowadays don’t own their assets, and having fancy things has become the norm rather than the exception. 

In “Frugality is the New Fanciness”, Pete argues that real strength of character is displayed by people who lead a non-fancy lifestyle. 

Finding alternatives to spending money takes courage, creativity, and a certain amount of intelligence.

I immediately identified with this concept and took it on board. In my early 20s, I’d bought a lot of unnecessary luxuries, but by the time I found out about FI at age 24, I had realised that none of them brought me lasting happiness. 

The struggle involved in working hard and creating something new is much more satisfying than just going out to the store and buying the item.

For example, I often “inherit” other people’s clothes. My Swiss family members have countless tops they have almost never worn and are thrilled to “declutter”. Since I am handy at sewing, I can easily alter the clothes to look stylish and fit my needs.

Similarly, going to the gym is the easy way to exercise, but I have found several alternatives. I now cycle everywhere on my electric bike, which also cut my transportation cost to almost zero. 

Additionally, I go for walks and do workout videos at home on the terrace.

WHAT YOU SHOULD RATHER START WITH

Fortunately, some of the best online FIRE resources were already available when I became interested in the concept in 2018. I think it would have been much more challenging to get started without the blog posts mentioned above.

But looking back, reading some books could have simplified my journey and sped up my learning process. 

Online resources aren’t compiled as concisely as a book, so they can be more challenging to navigate. 

If I could go back in time, I would give 2018 Me The Millionaire Next Door and The Psychology of Money as a gift. “

Book #1 – To Become Financially Independent You Must Understand Money

The Psychology of Money  by Morgan Housel is a great place to start if you want to understand and improve your relationship with money. 

One of the key takeaways from this book was that it pays off to be humble. Everyone’s past is different, so you shouldn’t judge people for the way they manage their money. Instead, focus on making choices that you are comfortable with.

For example, many people opt for “Barista FI”, which is when you save up enough to cover your basic expenses and then work for your luxuries. Others prefer safety and save up way more than they need to live on. This is called “Fat FI”. In between, there are many variations of FI that suit different people.

Personally, I am unlikely to stop earning an income because I like many of the self-employed jobs I do. At the same time, I enjoy the security of having enough money to live on forever, even if this isn’t strictly necessary. 

Thus, I am likely to aim for Full FI and then reduce my hours significantly or focus on passion projects. Any extra income I have can then be spent wisely or donated to effective charities, thus increasing my positive influence on the world. 

After reading this book, I have the confidence to pursue FI on my own terms instead of following someone else’s ideas.

Book #2 – Average Joe Can be Millionaire by Taking Charge of his Finances

The Millionaire Next Door by Thomas J. Stanley and William D. Danko is a classic that should be read by both beginners and those further along on their FI journey. It deals with similar concepts as Pete’s blog posts but ties them together in one narrative.

The authors have studied many millionaires and determined that most of them don’t spend much money on fancy goods. They are rich because they haven’t spent their income. 

What I found especially encouraging about this book was that it showed that the majority of wealthy people are self-employed and have multiple income streams. 

This confirmed what I had figured out on my own over the months: the more you control your income and your spending, the better you will do financially. The only reason I got into personal finance in the first place is that I had to come to terms with a variable income. While it’s a challenge, this responsibility has been a massive learning curve for me.

Whether you are employed or self-employed, you can implement these concepts by first examining and optimising your spending, then focusing on ways to increase and diversify your income.

Bonus - Learn The Investing Jargon

Personal finance can be confusing, especially if you’re new to it. ETFs, Passive Investing, Bear Market or FIRE – what do all the terms financial bloggers use actually mean?

When I first developed an interest in managing my own money, it took me several years to learn about the various concepts and strategies. I have summarized all of them for you.

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How to implement?

In the second part of this series, Kathrin shares how she implemented her plans.

Thank you for reading.
Good Luck and Keep’em* Rolling!

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