I have been featured by JT Nisay on Business Mirror: you can check their article here or clic on the picture below. I really liked this article as it gives a bit of “reader’s perspective” to my take: much appreciated.
I have been featured by Chris Illuminati on Maxim.com and you can check their article here or just clic the picture below.
I have been featured by Valerija Bebek on 100Posto.hr: if you read Hungarian, you can check their article here or just clic the picture below.
Your mileage may vary, but this is how I recommend you to do (the earlier you start, the better):
A. First: drastically reduce your expenses
- Sell all the stuff you do not need (TV, Xbox, PlayStation, etc.).
- Quit shopping for the sake of shopping.
- Do not smoke, drink alcohol, do drugs, etc.
- Remove the Facebook, Instagram, Twitter, Pinterest apps from your iPhone so that you can only access them via your desktop computer (you will automatically reduce your wasted time by at least 90%).
- Sleep 8 hours a day, consistently.
- Meticulously decide whether you really need new stuff to buy.
- Learn how to do your own taxes. Once you understand how taxes work, you can get an accountant (and be able to check what is he/she doing with your tax filings).
- Ditch fake friends, high maintenance girlfriends/boyfriends, and all other people that actively undermine your efforts. A positive, resilient & optimistic attitude from the people you surround yourself with is essential.
- Never shop for food when hungry. Buy in bulk. Learn how to cook your own meals (do not eat out often). Do not buy bottled water, limit sugary drinks and other sugar-based stuff that only makes you fat. Limit red meat if possible, and prefer beans and vegetables instead.
- If you can, use the public transport or a bike. Accordingly, consider ditching your car. In the rare cases you will need / want to do a road trip, you can easily rent a car for a very reasonable sum without all the hassle deriving from car ownership.
- Do not upgrade your smartphone every year.
- Always pay your credit card in full at end of every month. Avoid loans and credit (i.e. paying interest to fuel expenses) like the plague. If something is out of the budget, you must come to terms with the fact that you cannot afford it: move on. We do not need 90% of the things for sale out there, anyway.
- Get a good health insurance with above-average coverage . Having a good health insurance will shield you (and your bank account) and allow you to avoid going bankrupt in case of medical emergencies (which occur very easily, even at younger age). Exercise (weight-lifting or anything else at least moderately stressful for your body) regularly: at least twice a week.
- Be curious about the world out there. Try to read many books (mostly non-fiction), especially in sectors out of your normal studies. Innovation comes from the ability to correlate information between different realms of knowledge.
B. Second: drastically increase your income
- Study Game Theory before looking for a job. After the Wikipedia page on Game Theory, I recommend you to start from The Joy of Game Theory(I have no affiliation with the author and I do not profit from linking this book in any way): you will understand how in a market of naturally conflicting interests, game theory and strategic moves will allow you to think rationally and achieve oftentimes optimal results with much reduced effort. This will be a critical advantage for you down the road.
- Study and understand the business niches where — based on your skills — you can get a better paying job that does not send you to mental hospital. Acquire new, useful skills (you do not need a degree for many highly important and well paid skills relevant in today’s job market). Relocate abroad if necessary or if your country prevents competition or innovation. Do not be scared. Be available to do risky jobs that your peers are not willing to do.
- Learn how to solve problems at work. While everybody at work just does barely “enough” (and limit themselves to complain when things don’t work), you will quickly become essential as one of the very few who solves problems. This works even if you are fat, ugly, inexperienced, old, young, whatever. Problem-solvers are golden nuggets in any business environment and rewarded accordingly.
- Once you become one of the few “essential” employees, you will employ Game Theory to force your employer to give you a better salary, better bonus, better exposure with clients, etc. Do it nicely but effectively. With a smile, you will be able to submit your employer into a so called “dominated game” where the only possible outcome is for you to get a better salary, etc. If you are an effective problem solver and still do not climb the ladder, it means that the opportunities at your current workplace are hopelessly limited. This can happen: do not lose motivation or settle like most people around you will do, just find a better job.
- Once your salary starts flowing in, immediately set up an emergency fund in cash of approximately 6 months of salary (3-months if you are particularly good at avoiding emergencies). This is cash that must be readily available for emergencies: not to buy you a BMW. Do not stupidly inflate your lifestyle and continue to be cautious with the way you manage and spend your money.
- Open a Stock Account with your bank and every month save 20%/30%/40%/50% of your net income and invest it in a low commission S&P500 ETF by Vanguard (like “VOO” or “VIG”: google them). Never touch this investment for at least the next decade. Save mercilessly and invest every month “no matter what”. Google: “dollar cost average” + “compound interest” in order to understand the benefits of this double-pronged strategy (in short: you will beat 90% of all the professional Fund Managers out there). Set up (both mentally and practically) a bare minimum that you must invest every month and deposit it into your stock account at the beginning of each month so you will not be able to spend it to buy useless stuff. This will do marvel to your sleep and to your income as long as you will be consistent, patient and NOT touch your investments for a decade or so. As soon as your career will progress and you will earn more, this strategy will also prevent you to fall into the “increased lifestyle” trap (where you spend more money on useless items just to show your status to your peers or because you become lazy).
- Once you have 200k/300k USD invested in a Vanguard ETF like VOO or VIG and they are pumping approximately 30k USD a year as compound interest and dividends (which you are NOT touching at any cost), you are able to focus your attention in order to start a side business to corroborate your income.
- Work at night, on weekends and holiday to kickstart your side business.
- Focus on getting the first 3 customers for your new side business (friends and family do notcount). Once you make 3 customers (amazing achievement!), focus on how to make 30. If in 3 months you are not able to reach the 1.000 USD / month threshold, you must focus on finding better cash-flow generating business ideas: don’t fight on price, the margin is essential. Learn from your mistakes (you will do many). Take low hanging opportunities that others don’t see. Study quirky, even awkward & neglected market niches, that oftentimes are a goldmine for those able to satisfy them.
- Once your side business starts making 10k USD / month you can start evaluating if your current salaried job is worth the effort / time / hassle. If not, make the jump to the self-employed world and focus on increasing the income from your side business to 30k USD / month.
- Sooner rather than later you will be a millionaire. The first million is by far the absolute hardest.
Thanks for reading this far. Let me know in the comments if you need any clarification. Good luck.
Thanks for the fantastic comments and suggestions. I am trying to respond to all of them and I have slightly revised a few of the points above to better clarify my thinking. I also added a book recommendation on Game Theory as many asked in the comments for that (no affiliation).
*** 2nd Update***
Re: Real estate investments. I am aware that this may be a controversial point and I purposely did not include the real estate investment among the points above. Obviously there may be exceptions, but I would recommend againstdoing any real estate investment before you have already reached any solid financial independence goal. I am well aware that I may hold a contrarian view on this (we all know that everybody buys a house these days) but I recommend you to check the following factors before purchasing any real estate: a)purchase price; b)mortgage cost for the whole life of the repayment plan (10–30 years); c)insurance cost; d)maintenance cost; e)taxes; f)impact on your financial flexibility for the whole repayment plan and relevant opportunity cost; h)estimated profitability; i) monthly mortgage instalment cost vs. rent. I did these calculations myself and never I could find a real estate investment that could match the profitability of the S&P500 with the same degree of flexibility of investment/disinvestment, coupled with the (priceless) mental freedom coming from the fact that if I want to liquidate my whole investment tomorrow, I can do it in a whim (basically suppressing any opportunity cost). Since most of us have normal jobs and are not real estate professionals with asymmetrical knowledge of our local real estate market, in the long run a real estate investment is normally a bloodbath compared to the stock market. I would thus recommend to stick to the investment plan as outlined in the point 6 above and search patiently for a place for rent that is both cheap and not too far from your workplace.
*** 3rd Update ***
Re: Marriage.I am aware that a marriage may impact on this plan and, potentially, even disrupt it completely. For this reasons, I would advise the following:
- Choose your partner wisely: if your partner is only able to enjoy a lavish lifestyle there will never be a salary good enough for the two of you. This is probably the quickest road to financial and emotional misery.
- Do not marry too early: it is better to be safe than sorry. Be wise, and only marry once you are sure that it is the right thing to do. Postpone if you are not sure. Break-up if your partner is not the right one: being single is an order of magnitude better than being together with the wrong partner for the rest of your days.
- When you do get married, do not feel trapped by the idea that you must impress anyone with a wedding ceremony: be aware that 3 days after your wedding, people will plainly forget about it and move on with their lives. I have read that in New York the average wedding cost is above 70k USD : you will agree that this kind of expense for a ceremony, some flowers and a fancy dinner is totally nonsense. Invest this money wisely instead.
- Skip the whole “diamond ring” scam .
If you follow the above, you will be fine.
This did not happen to me but to a good friend of mine.
She had a boyfriend a bit older than her and they were a great couple. She was a medical student in her mid twenties and had a troubled past. He was a lawyer in his mid forties and was already divorced once. Once they became a couple he quickly turned her life upside down: she was naturally an introvert while he was the star of every party, a fantastic storyteller. He subtly and gradually pushed her out of her shyness egg to try to experience new things together. He taught her to drive and when she finally got a driving license, he bought her a small second-hand Fiat 500. He taught her new recipes to cook and they traveled a lot together across Europe.
They had been together for a bit more than one year when suddenly one day he died of heart attack. Apparently he had an undiagnosed problem with his heart and died in his sleep.
Her life was authentically destroyed. She had been grieving for months until one day she was driving the car and in a split-second of absent mind she crashed into the car in front of her. Luckily she was not injured and the damage to the cars was not really big: she stopped the car on the side of the road in order to fill the joint accident statement.
She struggled to stay calm then opened the passenger seat compartment where she found the car’s hand-book with the form to fill.
Once she opened the hand-book she unexpectedly found a hand-written message from her boyfriend saying something like this:
“Darling don’t worry! If you are reading this it means that you are not badly injured. That’s great! Don’t worry if it was your fault: these things happen! Don’t worry if the car is destroyed: we will buy a new one as this is actually quite old already. Now go ahead and fill this form: write slowly and double-check what you write, even if you are a bit in shock. Also double-check what the other driver writes so that you both agree on how the accident happened. Don’t worry about anythingelse: I’ll wait for you at home. I love you.”
My advice is to stop the following bad habits:
- Stop keeping cash in your bank account: save money and, after you have set up a good emergency fund in cash, invest everything else in one or more low-commission, index-tracking, ETF funds, as soon as possible. The “VOO” (Vanguard 500 ETF) and “VIG” (Vanguard Dividend Appreciation ETF) are two good starting points. This must be a priority. Because compound interest takes time to produce its amazing results, the earlier you start, the better. (Since many asked in the comments, I also recommend to Google: compound interest + dollar cost averaging. In short: if you will be constant with this two-pronged strategy, you will do better than 90% of the fund managers worldwide.)
- Stop smoking, doing drugs, drinking alcohol: they do not add anything to your life, and only subtract cash from your bank account (that you should rather invest in ETFs).
- Stop watching TV: same as alcohol, TV does not add anything to your life. By not watching TV, you can spend more time reading interesting non-fiction books to educate yourself about the most different topics. Knowledge has a powerful compound effect: as you progress putting different knowledge eggs into your basket, your analytical firepower will gradually increase and the benefit that you will derive will be exponential. TV does not add anything to your knowledge basket. Sell it, and invest the money (either by buying ETFs or by buying many interesting books) instead.
- Stop eating outside: learn to cook your own meals.
- Reduce Social Media: remove the Facebook, Instagram, Twitter, Pinterest apps from your iPhone so that you can only access them via your desktop computer (you will automatically reduce your wasted time by at least 90%).
- Stop sitting on the couch playing PS4: it’s probably as bad as Facebook. Every time you want to play a game, go for a run outside instead.
- Stop surrounding yourself with all these fake friends you don’t care about: they don’t care about you either and they will dump you at the first time you will be in need. It is better for you to be prepared not to count on them (or on anyone, actually). Text/call/see your parents/grandparents more, instead.
- Stop shopping to impress or please other people. It doesn’t work. They will still hate you even if you have a new car or some ridiculous Gucci shoes. The rare, true friends will like you and be at your side regardless of what you own. Once you will start doing this you will learn that you are not what you own. Acquiring this mindset will free you from a thousand mental layers that cloud many of our life choices. It feels amazing.
- Stop accepting wrong things in the status quo: you can change things for the better. It just needs a brain and hard work.
- Stop being a cheapskate: show the fewpeople that matter to you how much you care about them. Bring flowers to your girl/wife/mum/grandma. Make a nice wedding gift to your best friend. Offer discreetly to pay a dinner out if your friend cannot afford. Be a gentleman for all people you interact with. Write a thank you card to a colleague who was helpful in a difficult situation. Be grateful, very grateful, for these good people that touch your life kindly. Do not be afraid to spend money for those who are important for you and deserve your attention, kindness and generosity. The sky will not fall if you spend money and give them your attention and, most importantly, they deserve it. I have seen countless of truly good persons being hurt, friendships broken-up in horrible ways, just because of people being outright stingy. Also, remember to give a part of your profits to a charity that is important for you: the good these people do to this world is invaluable.
- Stop not taking (calculated) risks: career-wise,with time we all get lazy and tend to accept the current status quo: our job, our boss, our colleagues, our commuting, etc. This translates into fantastic opportunities being lost because we are too scared to abandon what we consider our current safe harbour (which most of the times is not much more than a steady salary). If you hate your job, if every Monday morning feels sour, if at work you are not respected for who you are, if your boss does not appreciate your efforts, if you are not paid enough, if your last salary increase was ridiculous: these are all signs that should push you to reconsider your career choices and check if anything better is available on the market. Nothing out there? Not all hope is lost: keep in mind that there has never been a better time in the history of civilization to be your own boss and start your own business.
- Stop taking new debt. Ditch your credit cards. Pay all the new stuff you want to buy upfront. No exceptions. If you cannot afford something upfront, simply do not buy it (most likely you will not need it anyway). Same for the mortgage: rent / share a cheap place and invest your savings in stocks instead.
Edit: I revised point 5 in order to also include Instagram, Twitter, Pinterest.
Look: I will cut the story ultra-short (oversimplifying for the sake of brevity).
- Scarcity: there can only be 21 million Bitcoin ever to be mined.
- Security:So far the Bitcoin protocol has been proven unbreakable in its aim at preventing double-spending: the cryptography behind it has been 100% bulletproof.
- Decentralization: Nobody can sue Bitcoin as there is no Bitcoin Corporation: it is fully decentralized and the Bitcoin protocol will be alive as long as there will be an internet connection and some miners keeping the network alive.
- Network effect:Nobody knows for sure what will happen in the future but almost everybody is coming to terms with the fact that Bitcoin is becoming the decentralized, digital version of gold (a store of value accepted from the US to Saudi Arabia, from Moscow to Paris, in Africa as well as in India). No other digital currency has been able to match Bitcoin’s network effect. It is an amazing technological advancement, a generational shift.
If you are able to invest your money during the dips and ably buy at least 1 Bitcoin while everybody else panics, you will certainlybe among the top 21m Bitcoin holders on the planet. This means that you will be in the top 21m holders — on the planet — of next generation’s gold. Even if you are able to buy only 0.1 Bitcoin, you will still be among the top 210m holders on the planet (and there are 7bn people around!). Already an amazing achievement.
People still have not realized how rare Bitcoins are if you think in planetary terms and the fantastic potential of the technology, its decentralisation and its monstrous network effect.
Obviously there are risks but this is an asymmetrical bet, with known, limited losses if the project somehow fails and unlimited potential if it succeeds.
Short term price fluctuations should not distract anybody: there are very few opportunities like it in the market today and if you “get it”, investing in it is a no-brainer.
For a series of reasons:
A. Poor infrastructure quality: the vast majority of the stadiums in Italy are owned by the municipalities. Italian municipalities are highly corrupted entities / do not directly benefit from increased attendances to the stadium (i.e. they get a fixed licensing fee from the Teams, regardless of attendances): for these reasons the stadiums have not been either maintained or renovated in decades and, as we all know, people in 2015 do not accept to go to the same stadium that was considered “state of the art” in 1989 and has been left untouched and decaying since then. The problem is exacerbated by the fact that Municipalities gain money by allowing the teams to play onlyin the Municipality’s stadiums (through a sort of licensing fee which is negotiated on a yearly basis): for this reason, not only they leave their own stadiums to decay, but they also have no interest to allow the Teams to build their own stadiums as the Municipalities would lose an important revenue stream for their finances (e.g. just look at the Naples Municipality and its now-in-ruins San Paolo Stadium: the Mayor of Naples refuses to either renovate it (blaming the lack of budget) or to authorise the Team to build its own infrastructure, otherwise they will lose the licensing fee: this is a disaster for such an ambitious and successful team). Please note that most of the stadiums in Italy have been built/re-built in the late 80s for the Italy 1990 World Championship. These stadiums are architecturally terrible, built at the end of the disastrously corrupted 80s, and they try to do too many things at once without doing anything right. They are also enormous (many of them can seat more than 80k supporters), the supporters are very far from the pitch so the players look very tiny, there are not even comfortable seats. On the opposite, the 40k seats Juventus Stadium in Turin has been completed 3 years ago, it is considered “state of the art” by 2015 standards and is consistently sold-out (even notwithstanding its higher-than-average prices).
B. Bad connections from city centers: the public transports in Italy are pathetic: in order to reach most of the stadiums in Italy you need to take a car or a scooter. This makes things bad on the way tothe stadium but things are utterly deadly on your way backhome at the end of the match. The roads around the stadiums connecting it to the city centers are simply unsuitable for thousands and thousands of cars flooding back to the city so you can easily remain stuck at the stadium for more than 1 or 2 hours after the game has ended. This is unacceptable for modern standards but the Municipalities have simply no interest in fixing this.
C. Violence by Organised Supporter Groups: in Italy (from North to South, East to West) it is still completely normal for a (small but influential) fringe of supporters to go the stadium not to watch a football game but to have an excuse to make riots, destroy everything and beat (sometimes even kill!) the opponents’ supporters. Roma, Genoa, Verona & Lazio supporters are among the most violent organised groups in Italy, and they can take whole neighbourhoods hostage of their riots for a full day: this obviously drives rational and normal supporters (often with kids) out of the habit to go to the stadium.
D. Lower quality of games: many of Serie A’s matches are consistently boring as the star players are going to play in richer championships (but things are improving, especially since 2015).
E. Overwhelming football offer on TV: compared to all the difficulties raised against the legitimate supporters to go to the Stadium, the offer of Football on TV is outstanding. There is simply not incentive to go to an empty stadium, if I can watch the same game from the comfort of my sofa at home.