Last year we wrote our Version 1 of our Financial Freedom Strategy. If you missed this blogpost, you can read it here by clicking the link below.
My Gameplan Version 1 to Financial Freedom
Today I want to update my gameplan version 1 to financial freedom to a Version 2.0. During the past year we attended several FIRE meetings and discussed with many people different ways of passive income streams. Our thinking about financial freedom has slightly changed compared to last year. It is always good to reflect on your game plan and if it is still accurate.
Our Current Perspective
The first thing you need to know when you want to reach financial freedom is how much money you spend each year. This year our family situation has changed from 3 people (divorced with 2 kids) to 5 people (married with 3 kids). As a result our expenses have gone up in the past months. Mrs DividendCake is not working yet as it is extremely hard to find a job when you don’t speak the Dutch language. End of August Mrs DividendCake starts her university studies to learn the Dutch language for 6 months going forward. An intensive course which gives her a university degree level in Dutch language. The first two months are paid by the Flemish government as part of an integration program. The last 4 months we have to pay ourselves. Each month I keep track of our monthly expenses and our potential forward expenses. This allows us to budget and forecast our yearly expenses.
Our forecasted yearly expenses will be around 32.000 Euro. This includes our fixed costs and variable costs such as travel and entertainment costs. Do you know your yearly expenses ? Great if you do !
So in order to reach Financial Freedom in the future, we can do two things. Reduce expenses and/or Increase our Passive Income streams.
Reducing our fixed expenses will be tough as inflation drives up prices. In July 2018 the inflation rate was 2,17%. Currently we have three teenagers of age 14, 13 and 9 (almost 10). School costs are going up each year. Fortunately college school expenses are not so high in Belgium compared to countries such as the USA. We don’t have to start a student loan to pay the education of our kids. According to the website of the Flemish department for Education, the average yearly cost for a college student is around 1200 Euro per year.
If you have read our Financial Strategy, you understand the concept of our Financial Pyramid. We have an emergency fund that allows us to fund our family expenses for 1,5 year. We have a pension saving plan and we do save for a 2019 objective. And most importantly we are building out our investment portfolio to grow our passive income streams.
So if our family wants to become financial free, we need to generate a passive income stream above 32.000 Euro. Simple, isn’t it?
Our Current Strategy
Passive income refers to money that you earn without having to do “anything”. It’s like rental income or dividend income,… Do you know that 65% of self-made millionaires have three streams of income and that 45% of self-made millionaires have four streams of income. The others have more than 5…
Without multiple income streams it will be impossible to achieve financial freedom. That’s why I am focussed on creating those multiple income streams. I am investigating different side hustles and I am currently focussed on Options Investing so I can apply the trading rules of options investing to generate that extra passive income.
The dividend investing strategy hasn’t covered all of my expenses yet. In 2017 we generated around 9.500$ coming from our own investment portfolio.
Below you can see our Gameplan V1 infographic from August 2017 blog post.
Our Gameplan 2.0 to Financial Freedom
As you can read above our current investment strategy is focussed on two passive income streams. Dividend and Options Income. There are of course many other investment strategies. I know investors who focus on value investing, other investors focus only on Belgian and Dutch (family owned) growth companies, others only invest in holdings or REITs. There are more than 100 ways to make money grow in the stock market. If you are not convinced about that fact, keep investing in a savings account and make the calculation yourself how much money you lost thanks to inflation.
Dividend investing has become more difficult today. The new EU ruling on ETFs called PRIIPS has made it almost impossible for the European retail investor to purchase US based ETFS as the Dutch KIID document is missing. This new bank ruling is to “protect” the retail investor but I believe it is more to stimulate investors to buy European based ETFs and create an income stream for European banks. Personally I won’t invest European based ETFs because there is simply no liquidity. What a stupid ruling !
We can still invest in individual US and Canadian dividend stocks and we are evaluating how we can adjust our dividend investing strategy in combination with options investing. Our focus for dividend investing is the constant recurrent cash flow we want. Today our dividend income averages around 500 $ a month. We will evaluate how we can increase that to 1000$ in the coming year.
During the past year I have also followed several courses to improve my investing knowledge and I constantly keep investing in new courses about options investing. I have been exposed to different options trading strategies from different options traders. Options give you risk defined strategies and allow you to scale your investments.
In order to achieve success, it is important to learn from others. Therefor I have taken the decision to surround myself with 2 US based options mentors who will educate, help, support and advice me. I believe there is still no consistency in my options investing. Education and mentor sessions happen in the weekends or late evenings Europe time.
Final Thoughts
Our first objective this year is to achieve a passive income of 10.000$. This is one third of our yearly expenses. If we can generate 10.000$ out of the stock market on a consistent basis each year, we can aim for more going forward. One step at a time. One day I hope to become financially free when our passive income streams exceeds our yearly expenses. First we focus on obtaining the required knowledge to generate this constant recurrent passive income. Increasing our dividend income stream from 500$ to 1000$ would generate in Income Source 2 the 10.000$ that we need as a first objective. Any additional passive income comes as an extra.
Rental income from real estate is not part of my gameplan as the return of 3% net is not rewarding enough for me and my knowledge is inadequate. People with a million can easily add real estate to this drawing and I know people who do this…I simply can’t and I won’t going forward.
We intend to update our financial gameplan on a yearly basis going forward. Mrs DividendCake and myself share the same financial objectives.
What do you think of this gameplan to Financial Freedom ? Did I miss anything? What is your gameplan? Did you take the effort to jot it down on a piece of paper ? Let us know your thinking and opinion. We always appreciate feedback. Thanks in advance
Good luck with your gameplan and your investment strategy ! Thanks for following us on Twitter and Facebook and reading this blog post. We end as always with a quote.
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