Step 100: Stick to Your Mission

Step 100 of the 100 Steps Mission to Financial Independence: Stick to your Mission
Step 100: Stick to your Mission

This is it, you’ve come to the end of the 100 steps mission, you’ve set important new goals, maybe already completed a few along the way, you’ve implemented new habits, have learned a wealth of information on finances (excuse the pun) and most importantly you have started your mission to financial independence, getting closer with each step that you take.

But despite getting to the end of these 100 steps, you aren’t there yet. Financial Independence is not achieved by reading about money, it is achieved by taking action daily and sticking to it. Remember the examples of people who give up smoking or start a new diet and how often they fail and give up their resolutions alltogether? You’ve come to the second most important point on your mission. The single most important one was when you embarked on this mission and decided to take action and change your situation. Your next most important moment is now and it is your determination to continue with your mission, stick to your habits, keep learning and persist progressing towards financial independence.

With all that you have learned til now and everything you’ve started, now is the time to make a new commitment to keep financial independence as one of your top priorities for tomorrow, next week, the next month, next year, the next 5 years and indeed the rest of your life. Don’t let all you’ve learned and done go to waste. Don’t allow for your hard work to have all been in vain. Keep tracking your monthly spending, making a new budget, noting down your networth, reviewing your investment strategy and tracking your progress towards your various financial goals whenever you can. Continue reading

Step 99: Protect your Money Online

Step 99 of the 100 Steps Mission to Financial Independence: Protect Your Money Online
Step 99: Protect Your Money Online

Having money is one thing, but making sure you keep it and don’t lose it on dodgy scams or to people getting access to your accounts is a whole different thing. Now that you can access your accounts via the internet pretty much 24 hours a day, anywhere in the world and from any device you have, it has also become significantly easier for those with bad intentions to gain access to this money if they want to. This steps looks at ways to protect your money online to minimize the risk of you money being taken away from you.

Keep money in accounts with verified or associated accounts access only

Many savings and investments accounts already offer this option, which essentially means that you can’t access your savings or investments directly and instead requires you to transfer money into a regular checking account first before being able to get access to your money. That regular account needs to be validated first when you set up your savings account and it means that others even if they gain access to your savings or investments account, can’t just divert the money into non-associated accounts, but to verified accounts only.

Choose difficult passwords and change them often

Most people have very weak passwords with their pet’s or children’s names, they don’t change their passwords very often and they tend to use the same passwords for several accounts, which makes it them easy target for fraudsters to try to hack. Make sure to choose difficult passwords and change them often. One way of doing this is by using a password manager that lets you store complicated passwords so there is no need to remember each one. Examples of password managers include LastPass, KeePass and OneSafe. When using these password managers you only need to remember one master password to get access to all your other ones. You can use a very difficult one by keeping a long string of random characters saved somewhere of which only you know which chunk(s) actually represent your real password. Continue reading

Step 98: Read Personal Finance Books

Step 98 of the 100 steps mission to financial independence: Read Personal Finance Books
Step 98: Read Personal Finance Books

The 100 steps mission to financial independence has hopefully propelled you into the world of money savviness and wisdom. Every step has taught you a new skill or raised your awareness on a specific personal finance concept and has thereby expanded your knowledge on money-related issues. I sincerely hope that you have been completing every single step along the way and that your efforts are paying off and that you see your debt decreasing, your income increasing, your net worth improving or your financial security in the form of insurance or pensions getting better. The plethora of topics that have been covered in the many steps has made you an insider on saving, investing, pensions, income and much more!

Although we’re getting to the end of this mission, it is certainly not the end of your own financial journey. In order to now stay on top of your finances and to keep putting your financial situation as one of the main focus areas of your life, it is of major importance to keep expanding your knowledge about money and personal finance. Reading books is a great way to do this and offers you all of the following:

  • Provides more (specific) information and teaches you new or more specific skills or habits to implement.
  • Allows you to keep up with the latest developments as new knowledge, information or practices emerge.
  • Keeps your motivation up – the more you know about a topic, the more enjoyable it becomes to put it into practice, the more likely you are to keep budgeting, saving and investing.

With this in mind, I believe reading personal finance books is a key part of achieving financial independence. To start you off, below is my own personal top-5 books on money: Continue reading

Step 97: Sequence of Return

Step 97 of the 100 Steps mission to financial independence: Sequence of Return
Step 97: Sequence of Return

Sequence of return – or sequence risk -can pose a serious threat to you portfolio and is a factor to be very aware of and take measures against when you are planning your retirement. Sequence of return can hamper a secure retirement, whether you plan to retire when you are 40, 65 or 80 and it can seriously increase your chances of outliving your portfolio, meaning you might be left with no income towards the end of your retirement.

So what is sequence of return?

Sequence of return is the risk of your portfolio being hit by bad market returns early on in retirement when you start making withdrawals from your portfolio. Like for anybody a bad market return affects the value of your portfolio, but whereas you have time to recover from a few bad years if you are still building up your portfolio, once you start withdrawing you no longer have this time to recover. The value of the portfolio can be affected (i.e. decreasing) by it so much that it threatens its own chances of survival. Not only does your portfolio reduce in value from your withdrawal but also from the market drop.

Let’s have a look at how devastating this effect can be by looking at the portfolio of a retiree who is hit by this phenomenon Let’s say they have $1,000,000 and that the market returns an average of 8% over the first 20 years. This retiree takes out $40,000 (4%) in their first year and then adjust for inflation by 3% each year. Below is the chart with how well they do.

market returns start portfolio take out Total left over
-10% $              1.000.000 $           40.000 $         864.000
-15% $                  864.000 $           41.200 $         699.380
-25% $                  699.380 $           42.436 $         492.708
5% $                  492.708 $           43.709 $         471.449
0% $                  471.449 $           45.020 $         426.429
-15% $                  426.429 $           46.371 $         323.049
5% $                  323.049 $           47.762 $         289.051
20% $                  289.051 $           49.195 $         287.827
10% $                  287.827 $           50.671 $         260.872
25% $                  260.872 $           52.191 $         260.852
30% $                  260.852 $           53.757 $         269.224
15% $                  269.224 $           55.369 $         245.932
-10% $                  245.932 $           57.030 $         170.012
15% $                  170.012 $           58.741 $         127.961
25% $                  127.961 $           60.504 $           84.322
30% $                    84.322 $           62.319 $           28.604
-15% $                    28.604 $            28.604 $                     0
15% $                              0 $                     0 $                     0
30% $                              0 $                     0 $                     0
25% $                              0 $                     0 $                     0

Despite the average 8% return, as you can see, this portfolio takes a big hit at the start of retirement with big negative returns and therefore a big decrease of value early on. Unfortunately after 16 years this person has run out of money and is no longer able to draw anything out of their portfolio. Of the $1,000,000 they started with, they were only able to take out just over $806,000. Continue reading

Step 96: Dollar Cost Averaging

Step 96 of the 100 steps mission to financial independence: Dollar Cost Averaging
Step 96: Dollar Cost Averaging

Oh go on, one more investment related step before we end the series on investing… Despite its very boring name, dollar cost averaging is a powerful investment strategy that actually makes market volatility work in your advantage.

This is achieved in two ways:

  • When the market is up you buy less shares, thereby avoiding investing a lot of money when shares are overpriced and when a crash might be just around the corner;
  • When the market is down, you benefit by buying more shares, thereby making the most of the shares being “on sale”.

Let’s look at how dollar cost averaging works.There are generally two ways to invest: investing a lump sum or investing a set monthly amount. As we know markets go up and downs all the time and although most markets go up over time, they still experience periods when prices drop.

Lump sum investing

Imagine you have a windfall of say $10,000 that you want to invest. If you invest it all in one go at a time when the market is climbing, this might be a very poor moment to invest this money. Wait a few months and the market might well experience a downturn:

  • Say the average price of shares at the moment is $100 then (costs excluding) you’d get 100 shares for your $10,000.
  • Imagine the prices drop to $80 on average in the next 6 months. If you had held off investing for 6 months, you would have been able to buy 125 shares, i.e. 25% more!
  • Now let’s say that another 6 months later the price of shares is back up to $100 a share again. If you entered the market today, you would have gained nor lost anything in a year’s time. Had you entered the market when shares were only $80 a piece, your portfolio would be worth $12,500 in a year’s time.

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Step 95: Visualize your Dreams

Step 95 of the 100 Steps Mission to Financial Independence: Visualize your Dreams
Step 95: Visualize your Dreams

Today we’ll step away from the numbers and figures and logical planning for a moment and instead focus on a fun step towards financial independence: visualizing your dreams. This step is the ultimate step to all of the following:

  • keeping up your motivation
  • setting goals
  • not forgetting to live in the “now”

We’ve discussed the first two points in detail in several of the previous steps, but the third one we haven’t yet looked at so much. Let’s discuss the importance of that third point through an example: imagine a couple who gets really inspired to become financially independent. They make a budget, cut expenses, start a side hustle to earn some more money to invest and they see their efforts paying off as their bank account increases. So they hustle a little more, cut another few expenses and speed up the process. But with time they become so absorbed by this process that other things are being cut too. Even though they have a fair amount of money, family holidays are “too expensive”, clothes are recycled well past their “best before” date (which makes the children an easy target to laugh at at school) and any real family time is disappearing quickly as the side hustle takes up any valuable time the family might have had together. After many years of dedication and hard work their bank account finally reaches that milestone of $1,000,000 that they had set themselves. The couple gets ready to celebrate this moment and loosen the reins a little – not wanting to retire completely but at least to work less – only to find that their children have gone off to college, friends from the past are have ceased to be friends as they have hardly seen each other in recent years as the couple had either no time or no money to attend get-togethers. They are not longer members of their sport clubs and realize they don’t know that many people anymore. There are no photo albums on the shelves with photos of happy family holidays, no memories of fun days down at the beach or up in the  mountains at the weekends and they can’t really remember having taken the children on any visits to the theatre, a museum or even the cinema. The couple never had time for fun activities and only ever thought of making money and then some more.

And what for? What is the point of having $1,000,000 in your bank account if you can’t enjoy it? What is the value of money if not to use it and enjoy the little things in life? Spending time with the people we love? More than those $1,000,000 isn’t it important to have time to do what you want to do and to make a difference in the world? Continue reading

Step 94: Beware your Credit Score

Step 94 of the 100 Steps Mission to Financial Independence: Beware your Credit Score
Step 94: Beware your Credit Score

Your credit score is important when you want to qualify for a loan, such as a mortgage or a car loan, or many other financial products including insurance policies. Only with a high credit score will money lenders want to give you a loan. If your credit score isn’t high enough they won’t want to give you a loan, meaning you either won’t be able to buy your house, or you might only be able to get loans with high interest rates. Nowadays some employers even check credit scores of job applicants so maintaining a positive score is truly important not just in order to get a loan but potentially also when it comes to applying for a new job.

The importance of having a high credit score:

  • It gives you lower interest rates on loans and mortgages. As you know by now, even small differences in percentages can make a huge difference over time.
  • Landlords usually evaluate rental applications on credit scores as with a higher credit score they believe you are less likely  to default on your payment of the rent.
  • Other financial products such as insurance policies as well as investment opportunities are sometimes only granted to those who have a sufficiently high credit score.
  • Certain companies and employers don’t hire people with low credit scores as they believe these people have less self-control and are less goal-oriented.
  • Higher credit scores increase your chances of getting a higher credit limit. This in turn helps you decrease your credit utilization rate (see further below)

Tips to improve and maintain a credit score:

  • Don’t ever default on a credit card payment. At the end of each month make sure that you pay the minimum you are required to pay.
  • Start paying off your debt, this shows that you are a responsible person looking to reduce your debt instead of constantly living with outstanding amounts.
  • Once you’ve paid off all outstanding credit card debt, make sure to pay off your credit card in full at the end of each month from now on.
  • Maintain a low credit utilization ratio, i.e. the percentage of your credit limit you use. Try and keep it below 30%. For example if you have 3 credit cards with a $1,000 limit, aim to use no more than $900.
  • Don’t apply for credit too often or for too long. A credit company will keep track of any inquiries they receive and if somebody has been marked with having made lots of enquiries or over an extended period of time, your score again goes down.
  • Close cards you are no longer using. This might reduce your credit utilization percentage, but having many different cards also imposes a risk of fraud, theft and temptation to use more than you need.
  • You usually get a better rating for cards that you’ve had for a while, so avoid closing long-term cards.
  • Keep track of your credit score regularly, e.g. monthly. You can easily check your credit score online.
  • Start build your score early on. The longer you give it time, the better your score.

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