At some point in life, most of us want to have enough money for things that are really important to us. I do not believe this is often done quickly. Rather, I believe that disciplined saving and long-term investing is the way to financial freedom.
To get rich, all you have to do is to do only two things right:
- Get access to cheap money
- Invest cheap money for profit
Yes, it is that simple. Everybody does it: hedge funds, banks, and companies. Hedge funds and banks have their investors and companies place their shares on the stock market to get access to cheap money. Investing that money for profit makes them rich. This is exactly what we private small investors should do as well.
1. Get access to cheap money
How can we small investors get access to cheap money? Our savings is the first source of that money. It is not exactly cheap money in the sense of earning it. We pay for this money with our time, which is a very expensive resource. Once we save money we do not pay any interest on it, and therefore it is cheap (i.e., any profit earned with this money goes directly to our pocket).
Of course, if you are able to set up a successful business and issue shares to the stock market, that will be your access to cheap money. If not, like most of us, saving money is a more realistic option.
There is another option for cheap money: real estate property appreciation at a time of low interest rates. If you own a property and its value has appreciated, you can borrow the difference at cost of mortgage. Usually, when interest rates are low, money at mortgage rates will be cheap.
Another source of money is dividends. Owning shares of a company that pays dividends will provide additional money for investing. Utilizing a dividend reinvestment plan (DRIP) will automate this process. Here is our dividend portfolio, which generates about $800 monthly.
I heard that some credit cards may provide loans at almost no interest or at a very attractive interest rates. This is an option that I have to explore.
2. Invest cheap money for profit
Now, when we have affordable money, it’s time to invest it and make a profit.
Where to invest?
Why do we not do it like big player hedge funds and banks do?
All right, for some type of investments we do not have enough money, but we do have other investments we can take part in.
Banks loan money as mortgages so their customers can buy homes.
We can invest in private mortgages at very attractive rates. Buying homes? Banks see this as a safe investment. We should, too, and therefore we should wisely invest in real estate. We invested money into a private mortgage vehicle received from our property appreciation. Here is more about my positive experience lending money for private mortgage.
Hedge funds/banks invest in businesses by loaning them money.
Doing the same, we can buy shares of companies and invest on Lending
Loop. I prefer dividend-paying stocks because they provide an income
stream regardless of Mr. Market’s mood.
Accelerate your income by reinvesting dividends received from companies, and increase your overall investing portfolio with diversification in mind.
Is the author of this post rich?
The short answer is no, I am not yet. However, our passive income from various income streams rose from $1,537 in 2015 to the expected passive income of $30,000 in 2019. This is an impressive increase of 1851.85% within four years. All money received from our investments and saved from our salaries is immediately reinvested, fueling and accelerating future income growth and our projected financial freedom (i.e., being rich by 2025). It might happen even earlier.
It is definitely worth getting your hands on these two items, because the reward is so huge. For us, it is our time to spend with loved ones.
“Do not save what is left after spending, but spend what is left after saving” -Warren Buffet