In this post I want to talk about why a lot of businesses fail and why you should concentrate on building assets with minimum time and effort. I will look at different asset classes and explain which asset classes I used to achieve my own financial freedom.
Perhaps you’ve dreamed of leaving the rat-race and starting your own business. You may have a hobby or an idea that you would love to do full-time. Be your own boss and play by your own rules.
But if you want to go down this path, GET THE RIGHT MINDSET FIRST!
Your business is your asset and your aim is to increase the value of it over time. If you simply want to create a job for yourself doing something you like, the sentiment is admirable but it won’t give you financial freedom. In fact, after a while, you will begin to hate doing what you once loved and start asking yourself if all the hard work is worth it.
Look, I don’t want to shatter your dreams here but I see people working their arses off every waking hour of every day to pay themselves a salary that they could have easily got from getting job. And the job wouldn’t have the additional stresses of business ownership such as tax and managing employees.
They kid themselves that they’re investing their time in building their business but the truth is there isn’t a lot of building going on. They’re so worn out from operating their business that there is no time left for innovation and enterprise. There’s no time to explore new ideas and they’re too knackered to branch out into other areas. They’ve created a job for themselves that probably pays less than the National Living Wage (minimum wage) once they tot up all the hours they put in.
I know a lady whom I will call Anastasia (to protect her real identity). She dreamed of owning and running her cafe. She could think of nothing she would like more than being her own boss and cooking food and building relationships with people. So she poured her life savings into buying an already established eatery in the centre of town. It cost her about £60,000 which she paid for part in savings and part in loans. She did her due diligence and the balance sheet looked good. So she went for it and absolutely loved it…..for about six months. But then, she started to get a bit bored. She had a few customer complaints, which she dealt with well but this knocked her confidence a bit. She was opening the cafe at 8am and working until 8pm almost every day and then in the evenings she was doing her book-keeping, admin and staff rotas. It wore her down and she became burned out. Her love of cooking waned and her love of the job waned with it.
A year after buying her business, she looked back and realised that she wasn’t really earning much more than she did when she had a full time job. And her business took up a lot more of her time and energy. In fact, she felt constantly tired and never seemed to have time to unwind. So she was working harder and for longer hours and was earning an alright wage but not much more than she could’ve earned from a 9-5 job. And on top of that, she had no savings left and business loans to pay. The cafe was doing okay but the profits were flat. The value of her business was pretty much the same as when she bought it. It was obvious to her that her financial situation was heaps better a year ago before she started running her own business.
Before Anastasia began operating her cafe, she had a good work-life balance, a decent wage and savings in her bank account. Unfortunately, she had been blinded by the idea of running her own business without thinking about the long term strategy. Some of the questions she should have asked herself before buying were:
- How can I increase the value of my asset?
- Can this business be profitable without me?
- What is my exit strategy?
Asking these questions makes you start to think about the bigger picture. Financial freedom is all about making as much money as possible for as little time, effort and responsibility as possible. Once you get this stage, you can decide if you love business so much that you want to devote a lot more time to it and become MEGA-RICH or if you’d prefer to just sit back, go on lots of holidays and have your assets pay you salary every month.
You need to think about your business as an asset and you need to think about how your ASSETS are going to work their ASSES off, so you don’t have to. Assets and asses, lol, just thought of that. Maybe I’ll use it again.
Anyways, whenever I am considering creating or buying a new asset, I ask myself:
- How profitable will it be?
- How much time will it take to set up?
- What am I risking and how high is that risk?
- Can it churn out profit without me doing anything?
- What are the upfront costs (in terms of money, time and effort)?
- How long until I can expect to see a return?
The class of assets I like best (and really, the only ones I will invest in) are those that I believe will make a decent return with minimum effort. Assets that fall into these classes are:
- Websites
- High-interest savings accounts
- Peer-to-peer lending
- Index funds (over the long term)
These asset classes also have the added bonus that I don’t have to talk to anyone or build “professional relationships” to use them. I’m a bit of an introvert and don’t really like people much.
Making Money from Websites
| EFFORT: HIGH (initially) | TIME: HIGH (initially) | PROFITABILITY: HIGH | RISK: LOW |
Most of my income comes from my websites. These are websites that I create and optimise for the search engines so that shitloads of people find it and visit it. Having lots of eyeballs on my websites makes them prime digital real estate for advertisers that will pay to have their ad shown to my audience on a per-view/per click/per action/per purchase/per lead basis.
Websites cost very little cash to set up and it is how I first got my foothold on the financial freedom ladder. They can take a fair bit of time and effort to set up and become established but once they hit the big time, they’re cash cows!
Making Money from High-Interest Savings Accounts
| EFFORT: LOW | TIME: LOW | PROFITABILITY: LOW | RISK: LOW |
Some of the earnings from my websites sit in savings account. When I say high-interest, they’re only high interest in comparison to other savings accounts. Compared to the other asset classes listed here, they’re the lowest ROI.
But they’re very safe and there is hardly any chance of losing the capital. And they don’t take up much time to set up.
Making Money from Peer-to-Peer Lending
| EFFORT: MEDIUM | TIME: MEDIUM | PROFITABILITY: MEDIUM | RISK: HIGH |
I invest some of the money I earn from my websites in peer-to-peer lending. This is basically just providing loans to individuals and businesses through a peer-to-peer provider. And then they (hopefully) pay the capital back over time with interest.
There are loads of providers to choose from and the risk is rather high compared to savings account (in case debtors don’t pay back) but the interest rate is higher to compensate for this.
Once you’ve chosen a provider, it’s often just a matter of putting cash in your account regularly to lend out in small chunks to lots of different debtors, although some providers do let you choose who to lend to.
Making Money from Stocks and Shares
| EFFORT: MEDIUM | TIME: MEDIUM | PROFITABILITY: HIGH | RISK: HIGH |
I invest some cash in a single index tracker that tracks the FTSE Global Index. There’s higher risk in this asset and the volatility is also high (so best not to check it every day) but I’ve earned about 30% interest in the last 6 months from this.
Assets I Steer Clear From
I don’t like property/real estate, even if it is leveraged with other people’s money. Compared to some assets, it is a safer bet but unless you get a great bargain, the profit margins aren’t brilliant. And I wouldn’t know a bargain from a barn, so best I don’t get involved. IN addition, you have to manage the tenants, which is something I don’t want to do – I don’t want to be getting calls at midnight that the boiler has broke! Letting agents can do this for you but when there’s a problem, the contact you anyway for a decision. Property isn’t a bad investment for someone that knows what they’re doing but it’s not for me.
Buying or running businesses other than my own is not something that I can get excited about. It’s a lot of grief and stress that I really don’t need. I limit my exposure to businesses by investing in the stock market, where I keep a safe distance from the operations.
In Summary
So, what have we learned?
Really, you can only be financially free if you have passive income streams – you earn decent money by doing virtually nothing.
You can have a decent income but if you are working your bollocks (apologies to the ladies…cunt) off to earn it, you’re not financially free. Similarly, you can spend your time only doing things you like but if this means you are unable to support yourself or your family, or that if you stop then your income stops, then you’re not financially free.
You need to build assets that will be doing the work so that you don’t have to. This could be websites, savings and investments like I do. Or it may be property or business ownership (that’s owning a business but having someone else run it, whilst still making a profit). Or it could be you starting a business, working hard to increase its value for six months, then selling it for a few hundred thousand pounds.
If you want the keys to financial freedom, you must formulate a plan to ensure that you build assets that will pay you without you having to do anything.
And, speaking from experience, I can say it is the best life 🙂