The book of Nikolai Vladivostok could well be named like my headline. But he titled it:
The poor man’s guide to financial freedom
The introduction contains all the reasons, why you’d want to be financially independent. Could you quit your job anytime? Could you survive for a few months, if you’d loose your job unexpectedly? Could you shoulder sudden unexpected expenses? Are you stressed out about your level of debt, did you plan for retirement or do you still solely rely on government?
Freedom has at least two aspects. The freedom to do whatever you want, like move to another location, another country, to pursue your own interests and so on. In order to do what you want, you first need to become free from. Free from intrusion of other people and government into your life. That’s a challenge, especially in Corona times, but in regular times as well. Nikolai introduces 5 levels of financial freedom. As I’m currently on level 4, and might be back at level 3 or up at level 5 after this current financial crisis, I’ll just have some opinions on this book.
Do not live beyond your means. That seems to be trivial. My grandparent generation, born around WW1 (living through the great recession) and my parents generation born around WW2, raised on African level poverty from today’s point of view, couldn’t even imagine to buy something, they couldn’t afford. But then, I’m an old fart, not a sprucy middle aged guy like Nikolai, also not someone who thinks he can’t survive without a smartphone and WiFi and unlimited data plans.
The only credit card I had during my working life was a company credit card, which I had to use for work related travel (which was a lot). After my early retirement I got a debit card, and the issuer would probably be happy to get rid of me, as it is used for approximately 1-2 transaction per year on average (it’s near impossible to make flight and hotel reservations online without one). As the author describes, there are very few reasons to take on debt. Think about it this way. If you owe the bank some hundred, some thousand, some hundred thousand bucks, you are at the mercy of the bank anytime shit happens. If you owe hundreds of millions, the bank is at your mercy, but then you neither read or write any book on finances (and you should not believe one word of a really rich guy’s book on finance).
Budget. The chapter is on making a frugal budget, but a lot of people are unable to simply write down a monthly budget, although they usually have a lot of month left, after their money ran out. The mathematical skills required are offered to you in grades 1 through 4. You have to increase your income and at least stabilize or decrease your spending – duh. If you’ve done budgeting for a while, you will change your spending habits. That’s my experience. You might stop running around grocery stores to get the lowest prices on meat and eggs, and spend this (often wasted) time rather on checking out rent, property prices, or transportation options. Focus on the big budget items first – if you can’t manage these, you’re hopeless.
I covered most of this in my very first guest blog post, which I re-posted here (from 2015, in German). Nothing new to me, but many readers may find the details in the book helpful. As I said, my upbringing was frugal, and I’m very much used to it. Some Millennials will have a different experience. Or think about it like this: If you can avert spending money for the ball and chain, you’ll have enough left for hookers and some savings 😛
I’ll now jump over chapters 3 and 4. If the importance of an emergency fund has not become obvious to you in the last few weeks of lockdown, try to become a useless politician 😉 It’s way more rewarding and not as risky as being a member of the mafia, and the job is basically the same. The same is true for debts – show me the bank that generously waives interest and repayments, as the world stands still like now. They may allow you to suspend payments, but you still owe them. Apropos Mafia. They may break your leg and may finally shoot you in the head if you can’t pay. I think that’s more merciful, than a bank or government shackling you to your workplace until you die.
Increase your income. Become a women and complain about the pay gap long enough. There you go, problem solved 😛 Anyway, this is not essential, but Nikolai lists a number of opportunities which you may never have thought about and are available to anyone, even w/o a computer.
Step 6 Asset protection?
I’m a bit disappointed by this short chapter. It’s mainly about insurance and my very biased opinion is: don’t sign any insurance, if nobody forces you to do it. It’s incredible how wasteful insurance companies are and how much the friendly guy who promotes and sells it to you gets. Most western governments force you to have some kind of insurance anyway. When the time comes that you actually need the insurance, they will do everything to fuck you over big time. Best protection: Don’t do stupid shit.
Invest wisely (8)
That’s a state of the art overview of low return investments, gold, crypto, bonds. They are often by far not as low risk as most people think. Once, I got out of a large sum of Argentinian bonds just a few weeks before they collapsed. You need your emergency funds as cash. If you’re rich enough, you may want to have some gold for high inflation times. Low return does not equal low risk.
Next, a comprehensive overview for growth investments like stock/shares, real estate, REIT’s, and a few alternatives where you need to do a little more than click on the “buy” button in internet banking.
Everyone has to make his own decisions when it comes to the risk levels he can psychologically deal with over 20-30 years. Maybe it’s better to fail on 10k early in life and remember to not do this again, than to become desperate in your mid 40’s with 200k, because you’ve been too defensive for the last 20 years. My personal experience with real estate is, rent your own home as long as feasible and invest in real estate where you don’t have to deal with individual idiots all the time (it’s sometimes hard to get a tenant out if he can’t pay, there are usually less problems if you rent out parking spaces or commercial property).
Another of my personal experiences: As long as you have no clue what you’re doing when investing in company stock (which may last a lifetime for most), at least start out with index funds and keep it that way until you have a clue. Keep also an eye on the investment costs, one time costs and yearly costs. You’re not a professional investment manager. Buy and sell only if your long term perspective on the assets change.
This chapter is the main part of the book and I don’t want to give a conclusive summary – buy the book! Long time experience is worth more than a short time hype. You can learn it the hard way or follow good advice, which ….. leads to the next chapter.
Step 9 Get advice
Most advisers are simply sales people. They need to sell shit assets to you, because they get high commissions, promotions, bonuses for the sales. In my 40 years of investing, I got good advice ONCE, and this was a newbie in the bank and kind of by accident, as my regular bank/investment manager was unavailable that day. However, you probably want to get some advice on taxes and other government schemes – but this is not specific investment advice. If you do so, pay them for their time, not a percentage of your investments. Do ask yourself: If this guy is able to fish out the most promising investments for you, how come he’s still sitting in his miserable office, instead of slurping Margaritas on his yacht? Exactly.
There are two more chapters I’ll not go into.
All in all, that’s a good book, which doesn’t say “you must do this”, but accompanies you along a path of thinking about savings and investments. You’ll have to do the thinking by yourself. Your bad investments are fully yours, if by bad luck or bad decisions.
PS: Nikolai, as I’ve written this at 36 degC outside and 29 degC inside (most of the day), you can’t even imagine how many beers that will cost you, next time you’re around 🙂