- Planning is hard but we need to start
- An example of an adjustment that I made to decrease expenses
- My lesson learned
One thing that I learned from my journey for financial independence is that the path which I started out on is different to the one I am on now. I have noticed that I am constantly making small adjustments, either to increase my income, decrease my expenses, or prevent me from losing money.
For example, my first investment strategy was the dividend reinvestment program (DRiP). The investment method is designed to give a 3% return for life and an increase in total investment pot over time. DRiP is a slow and steady investment strategy that reinvests dividends in reliable companies called aristocrats. An aristocrat is a company that has paid out dividends consistently over the past 25 years and has increased the dividend amount every year, which is usually a safe bet. The investment strategy is to diversify your investments over many of these aristocrat companies and reinvest the dividends back into the company. This reinvestment increases the quantity of shares and at the same time the share price will normally keep increases for these steady, cash-rich companies.
However, I had not considered the tax implications of dividends in Ireland. I was being hit with a 40% tax bill for the dividends that I had received in the year. Obviously, this would put a major setback on building enough quantity to hit my target. After talking to a few people and researching further, I decided to change my strategy. I have now switched to an investment strategy of investing in world index ETFs. I benefit from the 8 year deemed disposal, which means no taxes on these ETF for first 8 years. I also only invest in accumulative ETFs, meaning they don’t pay out dividends instead the divided gets reinvested back in to the ETF. This is different to the DRiP program in that the dividends are never paid out to you as the reinvestment happens at the fund management level. Of course, there are still some downsides but the switch is more financially advantageous to me and it will get me to my goal faster.
Anyone that has been on the path to financial independence or anyone that is already financially independent, will tell you that they didn’t have all the answers upfront. The path that they took was / is different to what they first set out to achieve.
Learning from this, I know that I do not need to have a detailed roadmap of how I am going to get to financial independence; but I do need a rough draft. I also need to accept that there will be minor adjustments along the way. We will make mistakes but as long as we fail early, pivot to another action, and keep on our path then we will get there in the end. The most important thing is to stay on the path and keep focused. We make small adjustments that will save us another few Euros per month or increase our income by another few Euros.
If you are just learning to manage your personal finances and you have discovered financial independence (FI), don’t get overwhelmed by all the information out there. Just start doing a few small actions, even if you are not sure that you are doing the right thing. Doing something is better than doing nothing. Follow the rules; don’t lose your money, increase income, and cut expenses.