If you’ve followed my blog lately, you know that I set financial goals for every year. However, I am also a big fan of Tim Ferriss and his book The 4-Hour Workweek. He argues that you shouldn’t set goals for 12 months but better for 3 months because they are easier to follow and are more actionable.
Today, I won’t create another list of goals as I think this is of limited use but I will share with you the action steps I (and maybe you?) want to follow during the next year to achieve my goals.
With that said, I must point out that I am not only a believer in conscious spending, investments, and earning a lot of money but also of enjoying your life at the same time. Early retirement is a good idea but I don’t want to sacrifice a good portion of my life to an unpredictable future. I want to retire some time but I will make sure that at every stage in my life I really enjoy what I am doing and if this costs a little more here or there I’m fine with that.
Therefore, the following post handles both sides. Improving my finances as well as my life.
Without further ado, let’s dive in!
Build an emergency fund
Well, this is actually a no-brainer. Everyone in the personal finance niche is praying this over and over again. You need an emergency fund! Otherwise, you will find yourself in a terrible situation if something doesn’t work out as estimated.
This week, I’ve read the net worth report of my buddy TFE. During his holidays his boiler stopped working and he needed to replace it. Even with the expenses of traveling through Europe, he didn’t need to take a loan or use a financing to fix that. He could just simply use the money out of his emergency fund. Sometimes you can even save money by spending it correctly. I am sure he is glad that he had that fund.
My mini-goal or action step here is to have at least 3 months of expenses covered in the emergency fund. This becomes more important now as I’ve started freelancing last month and I don’t have a reliable income. My expenses will also grow as I move out from home and we need to have a lot of extra insurances.
This action will improve my finances: Because I don’t need to make use of a financing option or taking loans if an emergency occurs.
This action will improve my life: As I will feel much more comfortable than before. I can go on holidays without taking a risk.
Action step for you: Build an emergency fund that covers at least 3 months of expenses!
Buy some stuff
Yes, I’ve told you before I am not just focusing on improving my financial situation. I will also take care of the joy of life. Therefore, I want to buy a good used car in this year. This will not only help us go grocery shopping but also makes me more flexible when it comes to the location of clients. It should increase the number of potential clients a little but most importantly save a lot of time while commuting.
I also want to replace my Mac as I am concerned that I can’t continue to work on that efficiently during the next year. I get paid at an hourly rate, that’s why I need to make sure to have a good working equipment.
Lastly, we need some furniture for our apartment and I don’t want to wait 3 years after we moved in just to have the basic fittings.
This action will not improve my finances: There are ups and downs. More potential clients, less commuting time, and better working equipment. But mainly, this will cause my finances to drop drastically.
This action will improve my life: What can I say? A better PC to work on, a car that adds a lot of freedom and small home improvements. It will definitely affect our standard of living in a positive way.
Action step: Make sure to save money, take care of short-, mid-, and long-term goals and spend your money wisely. However, don’t forget to have some fun while doing it.
Increase my investing and savings contributions
Okay, I have some stuff I want to buy soon like a car, a new MacBook, and furniture. Anyway, after that, I don’t want to continue to spend that much. All of these are things that probably don’t need to be replaced in the next coming years. I was aware of all of them before and well, now it’s time to get them. But I don’t want to get used to consuming much of my income.
That’s actually a common trap many fall into. As soon as they get a raise their expenses grow simultaneously. Robert Kiyosaki describes this best in his book Rich Dad Poor Dad as the Rat Race. As soon as you are captured in it you have to continue to work to cover your expenses. With more work comes more money but with higher salaries, the expenses will rise again and you have to work forever instead of using your bucks wisely to increase your income and work less.
I don’t want to work for my money. I want my money to work for me. That’s why I want to increase my monthly contributions to my savings accounts and my investments as soon as I’ve bought the things listed above.
This action will improve my finances: Sure, more money that generates dividend or interest payments will help me over the long run as I can work less to produce the same amount of income.
This action will improve my life: Not immediately, but after some years this should add up to a nice side income that can replace some of my working hours. The savings can be used to reach my mid-term goals and make my life outstanding.
Action step: Make sure, that with every raise you also increase your savings and investing contributions!
Negotiate a higher hourly rate
Don’t get me wrong on this action. I really like my hourly rate. But every single project increases my experience, though. I’m just starting out and I’ve got the feeling, compared to other freelancers in the project, I could easily charge more than what I’m doing now.
It’s not important to be paid optimally at the start of your career as long as you learn something new. Anyway, I believe at the end of the year, I should definitely be able to add another 5-10€/hour and this will make me more comfortable when I don’t have a project for one month. Again, another great thing here is that you I could remove some weekly working hours. It’s also easier to do things like 1-3 months of mini-retirements. This is what makes the new rich for me. They have both, time and money.
This will improve my finances: Well, another 5-10€/hour. Nothing more to say.
This will improve my life: I can work less and I will be more comfortable to take a break after a successful project. I could (but I will not) even increase my spendings accordingly.
Action step: Even if you are a full-time employee, train your negotiation skills from time to time. However, there are two things required if you don’t want to get smashed out of the room of your boss.
- Make sure you are worth a raise.
- Prepare yourself in the best way possible.
If you are only an average performer, your supervisor has no reason to pay you more money. Try to show him with high-quality work that you are the one who deserves a raise or finds another better-paid job somewhere else. Secondly, make sure to prepare yourself before you talk to your boss. Otherwise, he will, for sure, be better prepared to destroy your dreams of a higher payment.
Outsourcing (a.k.a. Let others do the work I don’t like)
I’m pretty sure, this wasn’t obvious to you. Yes, this will cost me money. At least, I have to pay for it. But again, it’s about having time AND money! Right now, I start having money but ask Mrs. Budget and she can tell you how many hours I use for working (at my freelance job, taking care of my finances, create content for that blog, educate myself, doing exercises, learning a new language, …).
There are great tasks. I like to work on this blog for example. However, do I like to create a social media plan every single week to increase my audience and generate website traffic? No. This is a great task that can be outsourced. My taxes will be done by a tax advisor.
I want to have more time for the things I like to do. Therefore, I let other people do the things I have to but don’t want to do.
This will not improve my finances: Well, you could argue that I have more time to work on client projects and then it should increase my income. However, I want to use this to remove some things from my current schedule.
This will improve my life: Just to make sure, I’ve made that clear: It’s about having time and money! This is what the new rich lifestyle is all about. I don’t want to be rich if I can’t use the money or don’t enjoy my life at all. However, I also don’t want to have a lot of time but be limited in the things I can do as I don’t have money for most things. Outsourcing gives you more time for the things you love.
Action step: Think about things that you would like to outsource and look for a way to do it. If you are fine with having an Indian or Philippine guy do your stuff, you only have to pay $5-10/hour.
Danger!!! Make sure to set a limited amount of time to fulfill your task if you don’t want to get trapped by Parkinson’s Law! This means if you don’t set a deadline and a maximum of used hours, they will probably need more time to finish the task. You should also start outsourcing small things first that doesn’t have a high impact. Try to find a virtual assistant (VA) that can really help you. For further instructions, make sure to check out The 4-Hour Workweek!!!
Build passive income (a.k.a. Remove me from the equation)
Time = Money.
I’ve pointed out before that our most limited and valuable resource is time, not money.
But well, to trade your time for money is just the way it is, right?
No, actually not. With passive income, you do the work upfront and be able to get paid for it months or years later. Think about an information product. You create an e-Book about a topic you already know a lot about. Then this product could generate a steady income for you even years after you’ve published it.
You don’t have to be a writer for that! You could create niche website, make music, sell your pictures online or simply start investing.
There are hundreds or even thousands of ways to make money while you sleep. That’s the reason why I want to add/increase this during the next years.
This will improve my finances: Well, again quite obvious as more money = better finances (if you don’t get caught in the Rat Race and increase your expenses accordingly).
This will improve my life: My dream is, at some point in time, I don’t have to work anymore. I will probably still continue to do so. But I would like to be in the position at the age of 40-50 to just say ‘okay, everything I do from now is a bonus and not required anymore’.
Action step: Start finding a way to make passive income. I’ve created a list of great resources you may want to check out for this task. Not all of those resources cover only passive income streams but also active side hustles. However, I’m sure you will find what works best for you.