Living From Investments – Part 1

I recently got interested in investing and making a living off the same. Due to the lack of clarity on where to start and given the abundance of choice, I wanted to share my findings and takeaways from my research.

Before we begin, there are a few ground rules which I would like to share:

  1. I will not try to sell you anything or ask you for anything.
  2. This guide should not be considered as financial advice. Be sure to do your own research and question everything I say.
  3. Patience and long term vision are required. There is no such thing as a genuine “get rich quick” scheme.
  4. Only invest what you are prepared to / can lose. Do not do anything stupid with your lunch money.
  5. Have fun along the way and realise that everyone will make mistakes. The important thing is to not chase losses but take stock, learn from your mistake and avoid repeating.

With that out of the way, the structure of this series of posts will be as follows:

  1. Mentality
  2. Budgeting
  3. Fixed Income
  4. Variable Income
  5. International Investing
  6. Entrepreneurism
  7. Simplification

Let us (finally) begin with part 1.

Mentality

Before starting to invest, it is vital to have the right mentality and mindset. You need to go into investing with an open mind and be ready for money to flow. Although this might come off as gibberish, having an open mind and being prepared to receive income is critical. If you constantly think you are going to lose, guess what? You will lose.

Just think of Switzerland and Argentina over the past several decades.

The former is a country surrounded by other countries, small and mountainous. The latter is a large country with lots of natural resources and fertile land. In a Top Trump war, the winner in terms of economic value should be clear. However, let’s see what happened.

Did you know that Argentina was once on the path to become a superpower? It was among the top ten richest countries in the world, and the phrase “as rich as an Argentine” was common.  This was less than 100 years ago. From the news stories coming out of Argentina nowadays, the situation could not be more different.

The election of Juan Domingo Peron in the late 1940s, who promised an alternative path between capitalism and socialism, did not go according to plan. With sweeping economic reforms, dubious redistributions and setting up tariff barriers, the country started its steep downhill slide. Although there are many factors at play, the closed mindset of those in charge went a long way to creating problems in the years to come.

Comparing the GDP of Argentina and Switzerland, we can see these remain fairly close to each other. For two countries of vastly different proportions and natural resources, things are not looking good for Argentina.

To put the above into context, this is the UK compared to Switzerland:

Whilst Argentina was going through economic reforms and setting up barriers, the UK was freeing up the market and having an open mindset. This allowed the country to grow and prosper.

We need to the same with our money and investments. We need to have an open mind and let the money flow.

Targets and Goals

It is essential to have an outlook of abundance and remove all the erroneous assumptions that money is evil and creates wars. Yes, money is a potential cause, but there were wars way before money was invented.

Setting Goals

It is important to set targets and goals because if not, we are simply on a road with no direction and are going nowhere, or as Seneca once said:

If a man knows not to which port he sails, no wind is favourable.

Seneca

Life will simply pass us by if we do not define goals. To set goals, these can be either:

  • SMART (Specific, Measurable, Attainable, Relevant and Time based), or,
  • GROW (Goal, (Current) Reality, Options (or Obstacles), Will (or Way Forward).

A goal such as “Save £20,000 in 1 year” is great as this meets all of the SMART criteria.

  • It is Specific rather than being too broad or undefined,
  • It is Measurable. You will know whether you have reached your goal of £20,000,
  • It is potentially Attainable (change the number to your circumstances),
  • It is Relevant. We want to gain financial freedom and can achieve this by saving and investing,
  • It is Time based. Once the year is up, we will know whether we have reached our target.

The above compares to a goal of “Getting rich”. This is unhelpful as it is not specific, it is not measurable, and it is not time based. You can easily kick the can down the road and never reach this target.

Habits

The whole purpose of investing can be summed up as forgoing something now to reap the benefits later on. To reap the benefits, we need to have our lives in order and look after our future self. We can do this by:

  • Healthy eating – This can allow us to prosper and live a full life.
  • Exercise – Make sure that even in old age, we are in control. There is nothing worse than not being able to enjoy ourselves when we can finally step off the treadmill of life and relax.
  • Focus – Focus on what is important. Think of the 80/20 rule and make sure we do not waste time. Do not keep running in the same spot, do something.
  • Prioritise – Make sure we prioritise what is important and start our day with that, get each day off to a good start.
  • Sleep – It is vital to get a decent amount of sleep each night. I like going to bed relatively early and waking up early. Of course, this is not for everyone, so be sure you do what works best for you, but avoid going to bed late to binge watch some nonsense series that will take the time away from investing in yourself.

In addition to getting our lives in order, we have to take responsibility for our actions. There is no point in blaming other people as we do not grow and will not go far. Think back on your life and you should notice that most life lessons were likely because something went wrong, you took responsibility and learned from it.

Practice being grateful and show humility. Like taking the blame when things go wrong, passing the credit on when things go well shows signs of abundance. We need to be thankful for everything we have so that we can receive more.

Never forget to keep investing in yourself and surround yourself with like-minded people.

Story to finish off:

It is said that there once was a tribe that was brought up living in a cave. They got used to it so much that they were happy sitting in the dark and only seeing glimpses of light from the outside. The members were discouraged to go outside as they were comfortable and set in their ways.

After a while, a member of the tribe decided to go outside and explore. He saw that there was so much more to life than the cave. He decided that rather than return to the cave and be convinced to stay there or be killed for talking nonsense, he left and never came back.

The moral is that we need to change our mindset and not be surprised if others do not change or worst still, try to change us back. If this occurs, get rid of these people as they are a negative influence and will only hold you back.

Next up, budgeting.