The Road to Financial Freedom

Searching for clarity in my investment plans

Published in

Small Steps

4 min readMar 21, 2024

My last article on investment made me think a lot.

I spent a few hours listing my current monthly expenses to compare them to my investment revenue (this is an idea from the book Rich Dad Poor Dad by Robert T. Kiyosaki). My current result is 3%, which means that in my current situation, my assets (salary excluded) don’t cover one day of my monthly expenses.

When I analyzed my last investment (a bond with an 11% interest rate), I realized that the amount I planned to invest would only cover 2% of my monthly expenses. This came as a harsh truth as I would have to invest, in a perfect scenario without any loss, 50 times this amount to cover them all. This is, of course, impossible and this road to financial freedom seems inefficient.

New plan?

So, I have to make changes to the initial plan. The first change could concern the amount invested. If I multiplied it by four without putting all my money in, my assets would cover 8% of my monthly expenses, which is more than two days.

And this could be pushed further by adding another layer.

My wife is an aspiring photographer and a food lover. I could create a company to manage the investment, and all of the asset revenue could cover the company’s expenses to launch my wife’s career as a food photographer.

The differences between this scenario and the first one are:

Investment in a company that might grow revenues.
Some expenses will be covered by the company so the cash flow won’t be hindered very much by taxes.

First benefit of investing through a company: taxes

Let’s analyze the last point: Usually, the asset’s revenue would imply a flat rate of tax (30% in my country) and buying the photographer’s equipment would imply VAT (20% or less). Of course, there would be new expenses associated with having a company, but the taxes would be paid on the benefits and not on the whole of the asset revenue.

Let’s evaluate these two scenarios:

Scenario 1

Investing €40k in a bond with 10% annual interest would lead to:

a yearly dividend of €4k
€1.2k in taxes

Scenario 2

Invest €40k in a bond with 10% annual interest would result in:

a €4k dividend yearly
If we were to have around €4k of expenses (banking fees: €400, photographer accessories + food: €3k), there would be around €0 profit, which means:
€0 in taxes
€1k for company creation

At first glance, it appears that in the first year, you would save €0.2k and in the second year, the savings would go up to €1.2k. There is likely to be more, as VAT is refunded for a firm for example. I will have to deeply analyze this topic before doing anything.

Milestones

Of course, we won’t invest €40k in one go. The point here is that we could as time goes on, invest more and more in this company and the goal would be this:

Reach €0.5k/month (required amount: at least €60k): in 1 year. The thing is, as a freelancer it’s much easier to invest. So, if I can still find assignments, this is the way to go.
Reach €1k/month (required amount: €120k): in 2 to 3 years

There is no point in planning further, as I’m pretty sure at this point I would have new plans.

Another road?

Listening to a podcast, I heard about another way to invest: buying companies. This could generate passive income, or almost passive income, by putting in work at the beginning.

This idea struck me as this could be something for me: I’ve practiced process optimization for years and I am training myself to be an enterprise architect. This gives me a framework to optimize enterprise processes through operational ways or automation.

In both of those scenarios (investing through dividends or by buying firms), there is still a skill that I need to practice, and this is accounting.

This would help me to analyze the financial situation of companies, do the accounting work (this is legal in my country), and understand which structure is the better one to do so.

In a few words, you can understand how I am slowly starting to become clear on how to put the initial general ideas into practice. But the vision is still blurry at this point.

In the next few articles, I will analyze another financial instrument and determine whether to invest directly or via a firm. If you have already created an investment company or thought about it, please share your experience/thought processes.