2 Promises that lead to Financial Freedom in just 13 years
At the age of 26, Mr. Z gave himself two promises in order to achieve financial freedom. Just 13 years later, he was fully financially free!
Mr. Z is a regular joe who achieved financial freedom in his late thirties with a multimillion investment portfolio. He has shared his wisdom in a previous article: 7 Lessons from Portfolios of Financially Independent.
This article talks about two promises that he gave himself during a seminar at the age of 26, and how those promises have shaped his personal finances and paved the path for financial freedom at the age of 39.
A Personal Improvement Seminar
Under the codename, Z is an engineer; an entrepreneur, and above all a great investor. In his humble beginnings, he started working for a software startup after graduation.
“This software company groomed me into who I’m today. I learned from the books and from people alike. I was surrounded by a lot of can-do people. There were some formal training programs that I participated in; I can remember one particular personal improvement seminar that I attended at the age of 26.
The resource person talked about managing one’s personal financials better to live free from the pay check stress. At the end, he asked us to write down two SMART goals that we would commit to.
Writing down key takeaways is a boring part of any seminar — but this one really hit me. It is probably because I saw how my parents ran their life from paycheck to paycheck and I deeply felt that I didn't want to do the same.”
So I wrote:
1. I will manage to live with just 50% of my net income, no matter how high/low my salary is.
2. I will build a passive asset portfolio that can provide passive income equal to at least 50% of my net income.
Living With 50% of Net Income
Mr. Z was earning about LKR 30,000 (about 300USD) net per month at the time he started the journey. Compared to the cost of living in Colombo-Sri Lanka, this was comfortable. But living with LKR 15,000 was not — especially for a recently married couple.
“I was curious about how a proposal to live with 50% net of your salary be taken in by my partner. It was well taken when I explained that it’ll bring freedom to our lives as time pass by. I give alot of credit to my partner as she was managing most of the expenses department”
Few things he learned:
1. Saving & Investing is a Family Game
Mr. Z believes that individuals can’t improve personal finances without family buying, because income and expenses occur at family-level pools; not in individual pools. Winning the confidence of the entire family (including young children) is essential to executing a successful spending strategy.
“You should spend time explaining what those savings are doing; discussing about investments; returns that they generate and how they will contribute to your strategy. There will always be tough times that test our strategies — how good they are! I still can remember times when my Credit Card saved the day as the bank balances were near zero in some months”
2. Starting Early
Those early dollars have the highest value — as time is a sweet multiplier of value as the compound effect kicks in.
I’m fortunate to start investing early — that gave me a head start compared to my parallels who started saving and investing only after completing their newly built homes and buying vehicles etc.
3. It’s Ok to live modestly - If you are getting rich!
Mr. Z did well with his employment where he managed to go up the ladder fast. As a result, he was getting a bigger paycheck every year. But, he didn’t change his original plan — he still saved 50% of his net salary.
“When I was earning LKR 100,000 — I lived with LKR 50,000.
When I was earning LKR 200,000 — lived with LKR 100,000.
When it went to LKR 400,000 — lived with LKR 200,000!”
Result — he lived in a renovated old house when his peers built brand new ones; drove an old Toyota when his peers started buying BMWs. It's a lifestyle that’s 50% within their means. Keeping up with the Johns wasn’t a priority to his family.
“It was a conscious choice. I knew that I was on a special journey! Most of my peers did good and were living expensive lifestyles. It was not something that we (both myself and my wife) were bothered about. We liked life to be simple — yet, purposeful to the goals.”
Building an Assets Portfolio that Brings 50% of Net Income
Mr. Z didn’t know much about investing back then, but he saw investors getting good returns by investing in lands and properties in the Colombo suburbs. So, he bought a property via a property loan by putting almost all he saved as a down payment. He managed to renovate and flip the property and sell it to double the price a year after!
From that point onwards, he tried to apply the success of his first deal to multiply his portfolio.
“It was the post-war period in Sri Lanka and the real-estate market was booming! I become good at what I was doing and manage to multiply the value of my portfolio by a few times during the next few years”
Few things he learned:
1. Using Leverage
Mr. Z didn’t believe in savings and accumulate savings to acquire assets. He was comfortable in going for property and personal loans to buy properties. Essentially, he was paying nearly 50% of his income for mortgage and personal loans. This was good debt as they extended his buying capacity to a level that’s not within his reach.
“It was tight. When I got a big increment after a promotion, I can remember buying a property with a personal loan for that entire increment! It looks risky in my own eyes now, but I was young and determined back then!”
2. Reinvesting Returns
This is critical! He didn’t consume the rent or capital gains generated by his portfolio. Some of his peers have improved their lifestyles by diverting profits to buy new homes and brand new cars. Unknowingly they’ve broken the power of compounding.
“I’ve manage to achieve these two goals in about 8 to 9 years and I give a lot of credit to reinvesting. Without that, its impossible”
3. Try Passive Investments
Passive investments are important due to two reasons:
- They give you the time and freedom to stay committed to your primary income source
- They generate a passive income (e.g. rent, dividends etc) that’ll replace your primary income source one day. Once this is achieved, you no longer have to work to earn money.
“I was a loyal employee and I loved my job! I could earn these properties only due to my job. So — I didn’t want any distractions. And passive investments in properties helped me reduced the dependancy on the paycheck”
4. Wait for the opportunity
We all get great opportunities in life, but most of us are not ready to grab them when those opportunities present.
“When you are doing something right, there comes an opportunity — a golden opportunity that brings things to the next level. When the owners of my workplace decided to sell the company, I and a few of our leadership team members managed to buy out the company that we worked for!”
When this opportunity arises which needed a huge amount of cash, Mr. Z was ready with his portfolio of properties! He sold all the properties to fund the private equity investment in the company he worked for, without any hesitation. And the company grew faster in the next few years as the property market peaked. It was perfect timing for Mr. Z!
“It’s the freedom that matters, not money or wealth. I get to choose what I want to do and when I want to do it. We lived very well within our means throughout this journey and my family truly loves the simplicity of the life that we live. Minimalism is the key to happiness! But, don’t get me wrong when I say that we spend freely on things that we value. for example, I don’t consider the price of a family vacation — it's the experience that matters.”
What are your thoughts? Let me know in the comments below! If you enjoyed this article, please share it and follow for more content like this. Thank you for reading!
Note: Please note that this is not investment advice, the information given above is presented for financial education purposes only.
