The Self Sustaining Investment Strategy That Isn’t Biased To Your Income

Over the past few years I’ve become increasingly interested and quite nerdy about personal finance and retirement. It really dawned on me the reason we do what we do within our society. We are all working towards a singular yet different goal. The vast majority of our society only work because they need money.

 

Duh Dillon…….

 

Really think about that and reframe it. This is a very simple goal to achieve yet most of us fail early on and pay for it later in life. If we are working towards this retirement goal, why do we spend the vast majority of our time working towards it? Do we even have to?

 

What if we could create a self-sustaining and passive investment portfolio early on that scales up incredibly quick and the capital comes from somewhere other than our income.

 

I’m never able to save as much as I would like. I know exactly how much money I need to retire and the sooner I get there the better. I believe that our singular goal in life should be to obtain this amount of money as quickly as possible because it grants us complete freedom to do as we wish.

 

My goal in this post is to help you reframe your perception of money, how much you need and a self-sustaining strategy to automate investing capital and decrease your retirement age.

 

With all of that said, let’s dive into the good stuff!

 

Retirement Numbers and Reverse Engineering:

 

Before you can begin to build your strategy you need to know what success is. How much do you need? If you thought $10+ Million, you may find you need a lot less.

 

There are three levels of retirement we are going to focus on in this post. Each one should be considered a milestone and each one grants you 10x the amount of freedom as the previous level.

 

Financial Security

 

Security is ground zero, your first milestone and the least amount of money you need to effectively retire early on.

 

Let’s do a few calculations to see our monthly expenses:

 

Monthly rent/mortgage payments:______ per month

Food, household:______ per month

Gas, electric, water, phone: ______ per month

Transportation: ______ per month

Insurance payments: ______ per month

 

Total basic monthly expenses:______  x 12 =  ______ per year

 

This is your minimum annual income you’ll need to cover expenses for life, without working to be financially secure. If we assume a 5% return on our investment we can run another simple calculation to determine what the total we’ll need to achieve this goal.

 

To do this calculation we take our annual expenses and multiply them by 20 which assumes our 5% return rate.

 

______ annual expenses x 20 = ______ total needed.

 

Financial Independence

 

Now that we know the minimum amount we need to live forever off the interest of our investment accounts we can work a little on lifestyle. Financial Independence is another layer on top of Financial Security.

 

Let’s figure out how much money it would take to maintain your current or ideal lifestyle. This number is more easy to calculate if you track expenses through a tool like Mint.com which allows you to see your spending over a given time.

 

In essence, if you make $100,000 a year and spend $100,000 a year, your annual Financial Independence number would be $100,000 a year. Multiply by 20 and you’ll need exactly $2 million in your retirement account.

 

If you haven’t already, sign up for Mint and begin automatically tracking your spending habits without changing a thing. Financial Independence is about continuing your current lifestyle without sacrifice.

 

______  monthly spending x 12 = ______ per year

 

______ annual spending (including monthly expenses from Financial Security) x 20 = ______.

 

It is important to include everything within Financial Independence. If you have a monthly boat payment and a second home, include it within the calculation.

 

Absolute Financial Freedom

 

This is our final level of financial freedom and it’s mainly suited to calculate your most ideal life. For this level you need to sit down and really think about all of the things you want and their costs. Want to drive an Audi R8? Find out what the monthly cost would be and use it within your calculations. For this formula we will simply call these items Luxuries.

 

Monthly Financial Independence ______  + Luxury #1 ______ + Luxury #2 ______ + Luxury #3 = ______ Absolute Financial Freedom.

 

Absolute Financial Freedom ______ monthly x 12 = ______ annually

 

Annual Absolute Financial Freedom ______  x 20 = ______ total needed.

 

Now you have three levels of retirement; Financial Security, Financial Independence and Absolute Financial Freedom.

 

So, what were your three totals? Was it less than you thought it would be?

 

 

The Self-Sustaining Investment Strategy:

 

Now that we know where we are going, it’s important to create a system that ensures we get there as quickly as possible. I want to retire as early as possible. Not because i’m lazy, but because I want to feel what true financial freedom feels like and be young enough to actually enjoy it with those I love.

 

So, how do you create wealth as soon as possible, regardless of how much money you make? You need to create a system of automation. A system that is self sustaining and in no way influenced by your income. Most books would suggest you start your own business like it is the easiest thing to do. Even if you already own a business, could you invest 100% of your profits and not once pay yourself? Probably not. That’s why you need a separate system all together.

 

I’ve written about profitable websites before, but I’ve never delved so deeply into how huge of an asset they really are.

 

For our system, we will be using three strategies of purchasing these assets and how to scale your investment cash flow.

 

Before we jump into the strategy, let’s go back to our levels of financial freedom. For now, use your monthly Financial Security number and multiply it by 2. If your monthly number was $3,000, your new number is $6,000 per month. The reason we double our monthly number is because we want to reach our total within 10 years instead of 20.

 

This number is our new target monthly cash flow for our system. We want our “portfolio” to scale itself until we reach our monthly number in profits. We scale up quickly by reinvesting our profits until we reach this monthly goal. Once we have reached this goal, we hold these assets for 10 years (or enjoy the cash flow!).

 

How The Strategy Works

 

The current purchasing multiple of a profitable website is 20x of its monthly profits. This means we are able to purchase a $500 per month asset for $10,000. The downfall is that it takes us 20 months until we break even again, however the good news is that once we do reach break even, we can reinvest to purchase another asset to double our cash flow from $500 per month to $1,000 per month.

 

After the next 20 months (with 2 sites in our portfolio), we have enough saved up to purchase 2 more sites which brings our monthly cash flow from $1,000 to $2,000.

 

It is important to keep in mind that the above example is only for $10,000 sites, yet this system can be scaled up by purchasing $20,000+ sites which yield $1,000 or more in monthly cash flow.

 

Starting Where You Are | Three Levels:

 

Strategy Number One: Starting With Nothing

Strategy Number One

 

For a lot of us, $10,000 isn’t just laying around for us to invest so we are left, unfortunately with a prolonged investment strategy.

 

Our goal now is to get our first asset without coming out of pocket. What I found was the estimated monthly payment for $10,000 personal loan was lower than the $500 cash flow and would still be paid off in 20 months. Instead of being able to purchase another site after the first 20 months, you are forced to either replicate the personal loan or simply wait another 20 months until your reserves have built up enough to purchase another asset.

 

From 0 to 20 months you have zero cash flow, but the asset is building. From 20 to 40 months you now have a cash flow asset that will begin building your reserves to be scaled and have the opportunity to replicate the personal loan to purchase your second asset that will payoff in another 20 months.

 

After 20 months you have $500 cash flow and another asset being paid off until profitable after another 20 months.

 

 

From here, you reinvest 100% of your cash flow to as many assets as possible for scale which find you into Strategy Number Two.

 

Strategy Number Two: The $10,000 Investment

Strategy Number Two

This level is basically the same thing as Strategy Number One except you have the capital/cash to invest into your first asset which begins yielding cash flow from month one. After the first 20 months, you purchase your second asset and after the next 20 months, you can purchase two more assets totalling four profitable sites that yield $2,000 per month.

 

You do have the option to invest cash in your first asset and take out a personal loan for a second asset in order to speed up the process from the start.

 

 

Strategy Number Three: The $100,000 Investment

 

Although $10,000 sites would be our focus from the start, it would make more sense to focus on larger assets instead of caring for 10+ assets within our portfolio. Eventually we would want to sell a percentage of our assets in order to replace the income of three sites with one, keeping our portfolio small for easy management yet maintaining the same amount of cash flow.

 

Because we are reinvesting 100% of our profits the system is self-sustaining and easily scalable.

 

Note: For these examples I have not factored in taxes, although I would put aside 30% of all profit each month which would prolong the system, but what can you do.

 

 

Turning On The Cash Flow:

 

This is all well and good, but you may be seeing the cash flow and wondering what it would be like to make $5,000 each month with relatively small effort. The good news is that at any point you can turn off the investing and turn on the income. I would of course suggest that you not do this, but then again this is your life.

 

You may find that your ideal life could be had now instead of later which is a wonderful thing. In addition to that, emergency do come up and disasters happen. Having the cash flow in place to easily shift into income to support yourself is very appealing to many, including myself.

 

This is what true freedom is like. The ability to control your entire livelihood with ease and autonomy.

 

 

Dillon Carter

Hey there! I'm a young entrepreneur who blogs about my personal experiences, hacks and lifestyle while also teaching people how to begin working with virtual assistants.