Become more Financially Independent with HOT Lifestyle : Happy (Healthy) Opportunity and Time driven
Constant shopping and letting your money roll is very normal, right? Everyone does it and you stimulate the economy! Fun shopping at the weekend, taking out the highest possible mortgage, leasing that fat Audi, or ordering the latest Nike’s or iPhone’s immediately after the launch. So much Fun, …. Or not?
Do you know what another option is? Spend less, more consciously and smarter and invest what you save for more freedom. Freedom to do what you want, because the more you buy or even borrow, the more you have to work to recoup it.
Financial Independence (FI) or Living Financially Independent
It’s very interesting to look more deep into the topic of “financial independence”. In the United States, they call it FI: Financial Independent.
When are you financially independent?
According to the FI community, you are officially financially independent if you can live for a year from the return on your investments.
Financial Independence can be calculated in the 4% rule:
If what you spend annually is 4% of your total invested capital, you are financially independent.
HOT Lifestyle : Happy / Healthy , Opportunity and Time
The term HOT stands for Happy / Healthy , Opportunity-rich , Time-rich). This is a lighter form of living Financially independent and it means that you create more time and freedom for yourself to live happier and healthier lives.
According to Statistics Netherlands, an average household spends approximately 60.000 US dollars per year and therefore needs 1.500.000 US dollars invested in order to be financially independent as a household. As a rule of thumb, you can multiply the annual expenses by 25.
An interesting read is the JL Collins book “The Simple Path to Wealth”
Set your own Financially Independence goals
Is it your goal to be able to say one day: “I am financially independent because I have invested 25 times my annual expenses”? Or is it to become financially independent for more freedom and money for later – also called a pension. The strategy and choice are yours. Nevertheless, there are some tips you can take with you no matter your personal financial independence strategy:
Spend Less to invest more
How do you spend less or smarter (preferably in a sustainable and minimalist way) so that you can save and invest more?
Focus on the largest cost items of an average household:
- Housing, water and energy (30% spending share)
Sustainable housing means living smaller, generating your energy with the sun and wind, and “getting rid of gas”. The future of living is a sustainable house full of solar panels and a garden with space where you can create stuff or enjoy your hobbies, even create an extra source of income like writing blogs, taking interviews, record videos and so much more…
Some advantages of smaller living at a glance:
• Less impact on the climate
• Less maintenance
• Lower mortgage costs
• Less time to clean
• Less opportunity to gather more stuff
• Lower costs for furniture, decorations, etc.
• Less financial risk
A bigger house might help you in your path to live financially independent when it allows you to rent out space and like this you can collect monthly revenue.
Renting a house vs. to buy
“Renting is throwing your money away” I sometimes hear people say. I don’t think you put things in the right perspective. A house is generally not a good investment – if you compare it to other possible investments – but nice to have and to live in. In addition, it is also a large debt to the bank which can be at the expense of your freedom, especially with a high mortgage.
An advantage is that it is a good way to build up capital and I do not rule out that I will ever do it again. That is why I have already read a few things about this subject.
First of all, the location is of course very important. In the larger and more popular cities it is more expensive and it may be more interesting to rent temporarily and buy at a different location later. What is sometimes forgotten are all additional costs. Think of the notary, outbidding in larger cities, costs for the buyer, broker / purchase broker, taxes, maintenance and repairs. After all, the goal was to spend less and invest more, right? Good to repeat this here.
Apart from the location and the additional costs, there are a number of rules of thumb that I bring:
• Make sure that your house never costs more than 4 times the joint income of you and your partner. Read in the book “Millionaire with an ordinary job”.
• Only buy if you plan to live here for ten years or more.
• Do not look at the maximum you can borrow, but how much space is “enough” for you / you.
“A colleague of mine was looking for a house in a neighborhood where the price per square meter is around 4.000 dollars. He had applied for a maximum mortgage, because insisted on living in that neighborhood. ” That’s a choice that defines your Financially independence path in life.
Most often it is a choice to get out of the rat race. Saving and reducing consumption also almost always means less impact on the environment and climate. It also touches on things like self-sufficiency, tiny houses, DIY, healthy living, and becoming happy.
And you have all kinds and flavors among us. The FIRE community is not that easy to pigeonhole. Learn all about FIRE in this Life-central post
Financial Independence: Myths and Frequently asked questions about living Financially Independent
Until a couple years ago, the aim to live Financially Independent was only a topic for the happy few.
In the meantime Books, Blogs, podcasts and online courses are now appearing in the media almost every week. And with that also the misunderstandings arise. Time to answer some questions and clear out some myths about the FI Movement and how to achieve the goals of a financially independent life.
Becoming Financially Independent, means you can keep your own pants on, right?
Yes. Financially independent here means that you no longer have to work for your money. You have your own time and freedom to fill it. By this way you Live Happy (Healthy), Opportunity-Rich and Time-Rich (HOT philosophy) You can live on your assets. It’s best to start this as young as possible. Already in your thirties or forties? Don’t panic: Like Amazon founder Jeff Bezos states in his great business Quote: It’s always day one. (interested in more quotes on business? check here)
Only reserved the super rich can live Financially Independent?
No. To be fair, it is definitely going to be difficult if you earn less than average. But Financial independent living is mainly about spending (much) less than you earn. Consume less, a smaller house, less stuff, lower fixed costs. And invest the money that you have leftover. For example in shares, real estate, crowdfunding, deposits or repayments on your mortgage.
Frugal Living your whole life, you are not going to keep it up, are you?
Most people in the FI community don’t feel like they are sacrificing anything. There’s no fun in constantly being focused on every penny you spend. Aiming for a Financially independent way of life is trading something for something better. No big car, no expensive items and no flying holiday twice a year in exchange for not locking yourself up in an office for 40 hours a week. Consumption makes you happy for a moment. And then we want to buy something else.
What do you need to live Financially independent?
That’s depending on your age, the standard of life you want to have, your family situation. Everyone has to decide for themselves what they feel comfortable with. If what you spend annually is 4% of your total invested capital, you can consider yourself financially independent.
Can you Calculate in advance how much money you need to live financially independent?
Again, it’s a personal choice. But as a rule of thumb, you should consider having 25 times your yearly spending invested to be able to live financially independent. Note that in the meantime you are creating time to do the things you love and this will generate income as well.
What ‘s the difference between FIRE and HOT
The term HOT is gaining more and more attention in the global FIRE community: HOT stands for Happy (or Healthy), Opportunity rich and Time rich. More and more people are not striving for 100% FIRE, but for a lifestyle that offers them as much space as possible to do the things they love to do. Check our post about Financially independent , Reitre Early or FIRE here.
Is Aiming for a financial independent life only for the nerds and excel geeks among us?
Movements like FIRE or HOT are about much more than money, it’s a way of life. People who want to really enjoy life and freedom handle money consciously, but also think consciously.