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1. Financial Freedom – What Is That Exactly?

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You’ve made the decision to tackle this challenge and you want to know how to become financially free. Or, you want to know what I have to say about the topic; want to see if you can still learn something. Or you are just curious if there is something behind the bloomy marketing swirl on my front page? Great. Then let’s get started.

Let’s talk about the most important question first: what is financial freedom actually? Do I have to become a millionaire? How long will it take to achieve this goal? Can I accomplish that, even if I was not born super-rich or don’t (think to) have the ambition of entrepreneurs like Elon Musk or Mark Zuckerberg?

The answer is: it depends entirely on your own lifestyle. My personal definition of financial freedom is the following: you are financially free when you have enough passive income to cover your current spending. Then, you can survive without having to work all the time. You can leave the classic hamster wheel of making money and devote your time to other things. The emphasis in the last two sentences is on the two words “having to” and “can”. If you enjoy your work so much that you can hardly imagine anything more beautiful, you will probably not quit – even after winning a million dollars in the lottery. But shaking off the yoke of “having to” was my personal goal in this matter. And I could imagine that there are more people who want the same. This blog is dedicated to all of you.

Financial freedom not necessarily about becoming a millionaire or about accumulating a specific amount of money with a huge number of zeroes in your bank account. For many, it’s about finally getting some rest. Getting off the money-making treadmill. Finding some time to restore the old sail boat that has been abandoned on the trailer in the shed for so many years and just wants to see some fresh paint and, above all, azure blue seawater again. Or maybe you want to be able to go on vacation three times a year, instead of just sitting around on your balcony all the time because there is no money for a little bit more.

Passive Income and Independence

What do we need for all of that? The most important aspect is passive income. Usually, this is the income from investments. As soon as a profitable investment is built up, the money will multiply on its own… — hmmm, wait a minute. Where is the catch? Investments don’t just fall from the sky. How passive can such an investment get? Can you do the whole thing without spending any further time?

No, of course not. You will always need some additional time to build up these investments and to manage them later on. If you have sufficient investments all going well, you will have to spend time on them. Even if you hire a manager for your assets, it takes time to find and supervise this manager. None of this is 100% passive. But that’s not the point. It’s rather about reducing the “uncomfortable” time required to earn a living so that you have enough time to do what you really want to do.

Financial freedom has always been a goal for me because I didn’t want to be forced to work forever. For the most part, I enjoyed my work, but I often perceived the surrounding conditions as too restrictive. Above all, there was the expectation of superiors, clients or customers that the services I offer, I’ll have to offer tomorrow and the day after. True independence comes when you no longer have to do anything, but you are allowed to do. When you have the freedom to determine your own destiny. For me, this is what financial freedom is about, because it takes away dependencies.

To achieve this independence, three components are necessary:

1. Know Your Lifestyle.

The first thing one should do on the path to financial freedom is to draw up a summary. When I started on this path, I grabbed all my bank statements from last year and opened an Excel spreadsheet. In the columns I wrote categories like “Food”, “Clothing”, “Apartment”, “Hobbies”, “Vacation” and “Luxury” and filled the rows with the numbers from the statements. This classification not only showed me how much money I spend each month on what, but also how much I spend every month at all. That is probably the most important figure of your own lifestyle: how much money do you need to make ends meet the month? The exact number does not matter here. The magnitude order is completely sufficient, that is: how many thousands and maybe optionally hundreds of euros or dollars do you spend each month on average?

Why is this important? We need that number for two things. The first is for safeguarding. Suppose I know that I spend, let’s say, 2,500 dollars a month. Then I also know that – if worse comes to worst – with savings of 10,000 dollars, I can hold out for round about four months. Even if I get fired, the car breaks down and my girlfriend leaves me. I have four months left, where I can easily pay the rent and buy something to eat. Maybe longer if I eat out of cans and abstain from vacations and unnecessary spending. Four months will usually suffice to apply for unemployment benefits, updating my CV, repairing the car and fixing the broken relationship – or, if there is no other way, get on with it and find a new girlfriend. OK, the latter can sometimes take longer. But you will survive. And I hope you understand what I mean by that.

It is incredibly important to take care of your safeguard first. Save and put aside an amount of money which can support your lifestyle for four to six months (eight to twelve months for more cautious natures); preferably in an inflation-proof and low-risk investment. I’ll cover such investments in the fifth blog article of this basics series. With this protection in place, you never ever have to worry when something goes wrong. Not only in your actual life, “before” financial freedom but also when you have “made it”. Even with some high performing investments guarding your back, a lot can still go wrong.

Fortunately, I never had to touch my safeguard. There were one or two situations where I thought I might need to. The last time this happened was, when I wanted to start a new project and had to give up an ongoing job that I was still financially dependent on. In 2018, I gave up my self-employment as a software architect to concentrate fully on stock trading and building up this blog. At that time, my investments could not support my lifestyle completely. If I had continued making money by programming software one to two years longer, I would have played it safe. But I had my reserves and they gave me the support I needed to take the leap into the unknown and run a little bit more risk for a while. And indeed, somehow enough opportunities appeared which provided liquidity, and I didn’t have to touch my reserves. But without them, I don’t know if I would have dared to take this step.

The second reason you should get a feeling for your lifestyle is even more plausible than the safeguard thing. Only when you know your lifestyle and can quantify it with a number, can you know how much passive income you need to finally get rid of the “must”. Everything else is calculated from this basis, as we will see later.

And these numbers can also be flexible. By categorizing your expenses, you can see whether there is margin to maneuver in certain areas. You can reach your goal sooner if you are ready to lower luxury spending or limit vacations. You dial down your lifestyle. Another way to be financially free sooner is if you manage to increase your passive income. This can happen by boosting the return of your investments. The most important thing is to keep an eye on your monthly lifestyle spending and your monthly passive income.

The first step is to become aware of your lifestyle. Keep track of your monthly income and expenses until you get a feeling for the numbers. Until you know how much you use. For me it was quite sufficient to go through the bank statements of the last one to two years and then keep records for about half a year until this feeling kicked in. A spreadsheet with the categories mentioned above can be created in less than five minutes and it only takes a few minutes a week to fill it out. So before you read any further, it is best to take these few minutes to lay the foundation for your new financial freedom: create this table and fill it with the first two or three entries.

If adding the bank statements from the last six months seems too extensive, then do it piece by piece. Spend five to ten minutes on a handful of entries every evening and I’ll bet you will be through with that in a few weeks. Or, you can let the past rest and concentrate completely on the future, and enter new numbers only. It may take a little longer for the above-mentioned gut feeling to kick in, but that will also work fine.

2. Be Ready to Set a New, Long-term Goal.

The road to financial freedom does not have to be super hard and rocky. But most of the time it is longer than you might think. There may be cases where people get rich overnight. E.g. by winning the lottery. However, according to statistics, most of these people return to a low financial level after a relatively short period of time. Usually just a few years later.

There are also the spectacular stories of celebrities like Ingrid Steeger or Roberto Blanco, who were multi-millionaires — and some years later, you’ll find an article in the tabloid press that they were broke. Boris Becker, the former tennis star and Wimbledon winner was declared bancrupt in 2017. Even Michael Jackson had difficulties in maintaining his Neverland ranch. Financial freedom is more than getting money. You have to be able to hold it.

I don’t want to demotivate you with these stories. There are more than enough millionaires who stay millionaires. Permanently. It just takes some time to reach this goal of “financial freedom”. You should be aware that it can take 10-20 years to achieve that. The necessary knowledge to hold and appropriately spend your money needs to be built up properly. There will be mistakes and they will cost you. There will be setbacks which cost motivation and require you to get up again. For me, it was almost exactly 25 years from earning my first money to get to a level where I can say: “Now I’ve made it”. Currently, I still invest a few hours per week to maintain and further expand my investments. And I want to continue investing time to reduce these few hours per week to a few hours per month.

3. The Journey Is the Goal.

Some of you may know the following situation: you set a goal and work with great enthusiasm to reach it. The goal is finally achieved and marking this event as “done” creates a feeling of delight. Unfortunately, this is often similar to shopping: the delightful feeling is relatively short-lived. In the next few days it will evaporate. And if you enjoy the same short-term delight several times in a row, then it lasts even less and less. Somehow you get used to it.

In the case of long-term goals, the path is much, much longer than the feeling of delight upon completion. Anticipation of reaching the finish line can help, but is often not enough to stay motivated in the long term. The best way I’ve found to stay motivated over a long period of time is this: learn to love and enjoy the path to the goal. Reaching the goal and feeling the success of making it is important. But it is even more important to enjoy the path itself. Then, it doesn’t matter how long it takes. When you have a goal that can realistically be reached only in 10 years or so, and the journey is so much fun that you are happy to stick with it, then you’ll never be disappointed, even if you need 12, 15 or even more years.

It helps immensely to be aware of the small successes you experience along the way. It takes a little bit of practice in the beginning to consciously be happy about the individual little things. The “big successes” and milestone completions generate much more endorphin than the little things. But over time this works quite well and helps to keep yourself going.

The best example here is investing in stocks. At the beginning of my career, I teamed up with a good friend. We were always looking for that one big super trade that would make us rich overnight. We also had some nice successes, gains of several 10% in a few days. But compared against the big goal we’d set, namely to become millionaires, all that seemed like small fish. All in all, even the best successes were frustrating if anything and we kept hunting, always in the hope of getting the super deal tomorrow. Of course, it never worked. It does not work that way in principle.

In the meantime, I have built a well-functioning system for investing in stocks. It has an average long-term return of investment of around 8-10% per year. With that, I am extremely satisfied, especially in these days where you rarely get interest anymore. On this basis, I managed to create a second system that yields more than 20% per year. But the road leading to this point was long and consisted of many small steps.

Today, when trading I also focus on the small successes, not only the “big fish”. If I particularly like a certain stock and it actually rises after buying, then I dedicate some time to deliberately look at the chart, briefly calculate the gain I would make if I would sell now, and I’m just happy about it. The fact that I’m not allowed to sell at all because that would violate the rules of my system doesn’t matter. I am happy about the small profit because I know that many small profits bring me closer to my goal. And that’s a good method to program your brain systematically for the success you want to achieve.

Another aspect for reaching a long term goal is that obstacles and failures are inevitable. It is important to not let them kill your motivation. Often these failures are frightening and if you experience a certain type of obstacle several times, it can be incredibly scary when you see the same obstacle looming on the horizon. System trading is a good example here. My system has a loss rate of around 60-70%. That is, approximately two thirds of all the trades I make are sold with a loss. The system works despite of that, because the winning trades yield so much income that they overcompensate for the losses. Still, every single sale of a losing position is like cutting off your nose to spite your face. It is uncomfortable. When the next loss becomes apparent and the stop kicks in, sometimes I don’t even want to look into my trading account.

Here it helps to “turn” the obstacle in your mind so it no longer causes fear. In my case, I did this by trading with toy money until I was relatively sure that the system would work. Even with that, in the first few months it was difficult to execute the trades when I switched to real money. Not only the losers, also the winning trades were a problem sometimes. I regularly asked myself whether it would make sense to let the trade run. Maybe the stock would rise even more. But over time, the numbers convinced me otherwise. Today, I stolidly execute every trade, just as the computer spits it out. I regularly check that my system is making no fundamental mistakes.But I no longer question the rules because I can trust them.

This “mental turning” of the obstacle requires some practice, but it can be done. One of the best coaches who teaches this is Bodo Schäfer. Like no other, he knows how to tackle and remove these obstacles. In his book “Die Gesetzte der Gewinner” he goes into detail on how you can systematically program yourself for success. Unfortunately, I don’t know if there’s an English version of this book or of his videos. But if you understand German or get managed to translate them, have a look into those resources. It will pay off for sure.

All in all, it helps to deliberately enjoy small successes as often as possible and to imagine that you have already achieved the great goal of financial freedom. Follow the slogan “Fake it until you make it”. That may sound a bit stupid, but I know from my own experience that it works. With small rewards, such as a relaxing walk in the park when you have reached a certain savings goal, you can actively “program” yourself to enjoy the path. And then, the big goal doesn’t feel that far away anymore.


Let’s summarize. The path to financial freedom consists of increasing the yield from passive income to such an extent that it exceeds the price of one’s own lifestyle. Usually this is a long-term endeavour. In order to pursue it, you should set a goal and deliberately commit to this goal.

It is enormously helpful to enjoy the path to this goal as good as possible. Not just to make sure that you will finally achieve your goal. But especially in a way that you can feel that you lived by the time you reach your goal — and not just “slaved away” a significant part of your life, so you can enjoy the fruits of your labor only afterwards. The best bet is a smooth transition from working hard to enjoying more and more.

Here, you can continue with the next article from the “Basics” series:

2. The Difference Between Spendings and Investments

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