1. Financial Freedom – What Is That Exactly?

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: that 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 spendings. 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 that. This blog is dedicated to all of you.

It’s 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. Get out of the hamster wheel of having to make money. Find some time to restore the old sailing 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 sea water again. Or 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 that? The most important aspect is passive income. This usually is the income from investments. As soon as a profitable investment is built up, the money will multiply on it’s 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. Even if you have enough of them and they are all going well, you will have to spend time for them. Even if you hire a manager for your assets. Then 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 actually want to do. Financial freedom has always been a goal for me because I no longer wanted 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 what you offer or do, you’ll have to offer tomorrow and the day after. True independence comes when you no longer have to do anything, but are allowed to do. When you have the freedom to determine your own destiny. For me, financial freedom has always been a component of that, because it takes dependencies away.

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 draw up a summary. When I started going this route, 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 the rows I filled with the numbers on the statements. This classification not only showed me how much money I spend each month on what exactly, but also how much I spend every month at all. That is probably the most important key figure of your own lifestyle: how much money do you need to make ends meet for the rest of 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 in average?

Why is this important? We need that number for two things. The first is for safeguarding. Suppose I know that I use, let’s say, 2,500 dollars a month. Then I also know that – if worse comes to worse – 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. If I eat out of cans during this time, abstain from vacations and unnecessary luxury spendings, I may even last some time longer. That time usually will suffice to apply for unemployment benefit, bring my application papers up to date, take care of the repair of the car and fix the broken relationship – or, if there is no other way, get on with it. 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 own protection first. An amount of money which equals your own lifestyle times four to six months (eight to twelve months for more cautious natures) should be saved up and put aside first of all; preferably kept in an inflation-proof and low-risk investment. What that can be exactly I’ll cover 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 really well-running investments guarding your back, a lot can still go wrong.

Fortunately, I never had to touch my own safeguard. There were one or two situations where I thought about doing that. That was usually when I started something new and therefore wanted to end a running project on which I still depended financially. In 2018 for example, 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 weren’t quite so advanced that they could support my lifestyle completely. If I had been working 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 there were always enough opportunities providing liquidity that I didn’t have to touch my reserves. But without them, I don’t know if I had dared to do this step.

The second reason you should know your lifestyle is even more plausible than the safeguard thing. Only when I know my lifestyle and can quantify it with a number, I know how much passive income I 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 my expenses, you can see whether there is margin for maneuver in certain areas. You can reach your goal sooner if you are ready to lower luxury spending or abstain from some vacations. That is by reducing your lifestyle. You can also be financially free sooner if you manage to increase your passive income, that is increase the return of your investments. The most important thing is to keep an eye on and compare your monthly lifestyle 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 let the past rest and concentrate completely on the future, that is on entering new numbers. Then 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 got rich overnight. E.g. by winning the lottery. However, according to statistics, most of these people are back at a similar financial level as before after a relatively short period of time. Usually just a few years later. And there are also the spectacular stories of celebrities like Ingrid Steeger or Roberto Blanco, who were multi-millionaires — and some years later, there’s 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. There is more to 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. Permanent. It takes just some time to reach this goal of “financial freedom”. You should be aware that it can take ten to 20 years to achieve that. The necessary knowledge to hold and adequately “let flow” your money needs to be built up properly. There will be mistakes that want to be made and they will cost some money. 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 that I can say: now I’ve “made it”. And 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 maybe may know the following situation: you set yourself a goal and work a lot and with great enthusiasm to reach it. The goal is finally achieved and this “done” event 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 be evaporated. And if I have enjoyed the same short-term delight several times in a row, then it lasts even less and less long. Somehow you get used to it.

In the case of long-term goals in particular, the path to such a goal is much, much longer than the feeling of delight after reaching the goal. 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 so far to stay motivated over such a long period of time is this: learn to love and enjoy the path to the goal. Reaching the goal is important and also enjoying the feeling of having finally made it. But it is even more important to enjoy the path itself. Then, it often doesn’t matter how long it really takes. When you have a goal that can realistically be reached only in ten years or more, 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 twelve, 15 or even more years.

It helps immensely to be aware of the small successes that you’ll experience along the way. It takes a little bit of practice in the beginning to be happy about individual little things consciously. The “big successes” and completing a milestone generates so much more endorphin than the little things. But over time this works quite well and helps a lot 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 really nice successes, gains of several 10% in a few days. But compared against the big goal we’ve set us, namely to become millionaires, all that seemed like small fishes to us. 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 a built a well-functioning system for investing in stocks. It has an average long-term return of investment of round about 8-10% per year. With that I am extremely satisfied, especially in these days where you get no interest anymore. On this basis, I managed to create a second system that yields more than 20% per year. But the the road leading to this point was long and consisted of many small steps. Today, when trading, I also try to be happy about 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 a lot of such small profits bring me forward. And that’s a good method to program your brain systematically for the success you want to achieve.

A second aspect is obstacles and failures. There will be some of them on every longer journey and it is important to not let them kill your motivation in the long run. Often these failures are frightening and if you have experienced a certain type of obstacle several times, it can be incredibly scary if another obstacle of the same kind is already looming on the horizon. System trading is a good example here, too. My system has a loss rate of around 60-70%. That is, round about two thirds of all the trades I make are sold with a loss. The system works despite of that, because the relatively few 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 in the long run. And even with that, it was difficult for me to execute the trades in the first few months when I finally switched to real money. Not only the losers, also the winning trades were a problem sometimes. I regularly asked myself whether it wouldn’t make sense to let the trade run. Maybe the stock will rise even more. But over time, the numbers convinced me otherwise. Today I just 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 also requires some practice, but at some point it can be done without any problems. One of the best books I’ve read about trading is Come Into My Trading Room by Alexander Elder. The reason: A full third of the entire book is devoted to the subject of psychology. And this is not the only book about system trading where that’s the case.

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 yourself a goal and commit yourself deliberately to this goal.

And eventually, it is enormously helpful to try to enjoy the path to this goal as best as possible. Not just to make sure that you will finally achieve your goal. But especially so that you can claim to have lived by the time you reach this goal – and not just “slave 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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