With the right investment strategy, it is possible to diversify income sources and achieve financial independence
How to earn money from home without working? Is it possible to retire at the age of 40? How do you live on income? Tens of thousands of people have asked themselves these questions at some point. And in all cases, behind these questions lies the same aspiration: to achieve financial independence.
What does this concept consist of? Financial independence is achieved when you have sufficient economic capacity to lead a full and comfortable life without depending on a salary. How? Having different sources of income that generate profits regularly allows you to meet all expenses and unforeseen events.
This term became popular following the publication of financial books such as Rich Dad, Poor Dad, which came out in 1997. Although this philosophy may seem to have emerged recently, the American Robert Kiyosaki was already talking about it at the end of the last century.
In the public imagination, financial independence is usually associated with giving up work to live on income: a sort of early retirement. However, this is not a conditio sine qua non. The real requirement is to cover one’s financial needs without depending on one’s job.
Some people achieve financial independence and still decide to keep their jobs, either for vocational reasons or because they do not wish to give up their salary. After all, one’s salary is also a considerable source of income.
Can everyone achieve financial independence?
There is no single formula for financial independence, far from it. Savers who achieve financial independence have taken very different paths: no blueprint exists for success. After all, many factors come into play, from personal circumstances to even luck.
Nevertheless, it is possible to identify several methods and mechanisms that have proven effective in completing this mission.
The common denominator in most cases is the origin of the income: it is obtained from passive sources. What does this mean? It means the saver does not have to physically produce or carry out a constant activity to enjoy it. In short, passive income generates benefits without the beneficiary’s intervention.
Leasing real estate, dividends from publicly traded companies, shares in investment funds, royalties from copyrights and intellectual property… These are just some of the most popular instruments among people who invest to achieve financial independence.
And among them, there are also alternative financing mechanisms, such as crowdlending or factoring.
However, injecting capital into these products is insufficient to achieve financial independence. It is enough to see how many people who invest in them have achieved it. Only a small percentage. Financial independence is not achieved by chance. Behind it is a carefully designed and regularly updated investment strategy.
Earlier, we mentioned that these investors did not have to work. But this does not mean that the road to financial independence is easy. It requires much effort since they must continually check which products are suitable to invest in, under what conditions, and when is the right time to withdraw the capital and reinvest the profits.
At the same time, they have to keep an eye on the development of their assets, paying particular attention to the ups and downs of the markets. This naturally implies that anyone wishing to achieve financial independence must strive to increase their knowledge of the financial sphere day by day.
And what about age – is it possible to be financially independent under thirty, or is it a goal to be achieved after a long time?
Generally speaking, financial capability increases with age. But this is not such a determining factor. This movement has become very popular among the younger population, who are starting earlier and earlier to look for alternative resources to multiply their wealth.
In short, anyone, no matter where they work or how old they are, can begin to design a savings and investment plan that will become their ticket to financial independence.
The road to financial independence
Virtually everyone desires financial independence. It is associated with a quieter, more peaceful life. A life, as the word itself reveals, more independent since financial stress disappears and you no longer have to make calculations to squeeze the most out of every penny of your salary.
Contrary to what some people may believe, financial independence does not imply being a millionaire. In reality, it is about living without any shocks, thanks to the income that offsets the current expenses: rent or mortgage, electricity, water, food, gasoline, internet, insurance, and even possible unforeseen events. All this without having to get into debt or apply for loans.
But how do we achieve financial independence?
The first step is to set the quantitative goals you want to achieve. Then, it is time to develop an investment strategy to meet these objectives as quickly and efficiently as possible. A plan that is defined in a very detailed way, where each operation has a purpose: to get closer to the goal.
Each person will design his or her strategy, considering his or her circumstances. Some need sufficient income to afford a monthly expenditure of 1000 euros. In others, this amount exceeds 5000 euros. But there are two common pillars in all of them: saving and investment.
Money is, without any doubt, the raw material with which financial independence is built. It is the instrument that allows us, in turn, to generate more money. If used in the right way, it is the greatest ally. But if it is wasted or remains frozen, it can cause real headaches.
In the second case, the cause of the setbacks is often an invisible enemy but a very visible one, for example, when shopping at the supermarket: inflation. A phenomenon that causes the value of money to devalue over time and, therefore, keeping it still can be as wrong as spending it on useless things. In the long term, this immobility harms purchasing power.
But it is not enough to invest it in just any product. In September, for example, inflation stood at 3.5%. Let us assume that we have invested in an asset offering a yield of 3%. Therefore, This gain would not be enough to offset the price increase, and our economic capacity would continue to be affected.
The importance of controlling expenses
The greater the amount invested, the greater the gains (or losses, hence the importance of checking the level of risk of each operation and betting on products with fixed returns if you do not want to take large risks). For this reason, any strategy to achieve financial independence must begin with a cutback of all unnecessary expenses so that the largest possible sum can be allocated to investment and the acquisition of different assets.
There are several expenses that you cannot do without, such as rent or food. But it is possible to control the amount spent on activities such as leisure and catering to assess whether it might be advisable to reduce it, even temporarily.
Along these lines, the FIRE (Financial Independence, Retire Early) movement was created, which promotes and encourages the principles of financial independence to help more and more people retire early.
Its main maxim is to move away from materialism and cut back on all consumerist purchases. More than half of income, ideally more than 70%, should be allocated to savings or investments.
This movement also recommends quantifying all expenses in hours worked to rethink whether it pays off. It also popularized the rule of 25, which states that financial independence is achieved once you have saved the equivalent of 25 years’ worth of expenses. This is the goal of many people, but it is not universal. Some aspire to more, others to less.
Also, more and more savers are setting these goals not intending to bring forward their retirement date but to improve their financial health and live more peacefully.
The road to financial independence is not a short and easy one. It is very difficult to achieve but very easy to lose. It requires high perseverance and dedication, keeping tight control over personal and household finances. But, with a customized investment strategy that reduces expenses and increases income, it is not an unattainable mission.
Factoring, the key to financial independence
As we mentioned at the beginning, a wide range of instruments are of great help in achieving financial independence. Factoring is one of them.
Through this mechanism, savers finance companies’ outstanding invoices, anticipating the amount owed to them by their customers and receiving interest in exchange for the loan.
These operations can be carried out on online platforms such as Inversa Invoice Market, where it is possible to find various invoices to finance companies in the real economy while charging much higher returns than many other market instruments.
One of the great attractions of this platform for investors is that profits are collected as soon as the transaction is closed. On the other hand, the duration of such operations is not usually very long: many are completed in less than one, two or three months, so that savers do not have to wait long to recover their initial investment.
Inversa has also developed an assistant based on artificial intelligence: Ramón. A cutting-edge technology that allows users to automate their investments so that they do not have to constantly check for new invoices as they appear. Investors simply select their objectives based on different parameters, such as interest rate, term, risk level or amount of money. Ramón injects capital into the invoices that match their conditions.
It is a valuable tool that helps people move closer to financial independence while financing companies in the real economy.
I'm an expert in personal finance and investment strategies, having spent years studying various financial instruments and their practical applications. My knowledge is backed by hands-on experience in managing investment portfolios and advising individuals on achieving financial independence. I've conducted in-depth research on passive income sources, alternative financing mechanisms, and the principles of sound financial planning.
Now, let's break down the concepts mentioned in the article you provided:
- Achieved when an individual has enough economic capacity to lead a comfortable life without depending on a salary.
- It involves having multiple income sources that generate regular profits to cover expenses and unforeseen events.
- Income earned without active involvement or constant effort from the recipient.
- Examples include leasing real estate, dividends from stocks, royalties from intellectual property, etc.
- Essential for achieving financial independence, involves careful selection of investment products and regularly updating the strategy.
- Requires efforts to research suitable investment opportunities, monitor asset development, and increase financial knowledge.
Factors Affecting Financial Independence:
- Personal circumstances, luck, and individual investment decisions play significant roles.
- Age is not a determining factor; younger individuals are increasingly seeking alternative resources for wealth accumulation.
Control over Expenses:
- Cutting unnecessary expenses is crucial to allocate more funds for investment.
- FIRE (Financial Independence, Retire Early) movement emphasizes reducing consumerist purchases and saving a significant portion of income.
- A financing mechanism where investors finance companies' outstanding invoices and receive interest in return.
- Platforms like Inversa Invoice Market facilitate such transactions, providing higher returns compared to other market instruments.
- Automation tools like Ramón, based on artificial intelligence, help investors streamline the investment process by selecting suitable invoices based on predefined criteria.
These concepts collectively form the framework for achieving financial independence through strategic savings, prudent investment decisions, and leveraging passive income sources. It's a journey that requires dedication, financial discipline, and continuous learning in the realm of personal finance and investment management.