You know, not much goes into financial independence.
Yeah, I know, it takes discipline, focus, planning, blah blah blah…
But really it only comes down to three major parts*:
Investing gets talked about a whole lot. And for good reason! It’s a pretty sweet deal – all you gotta do is throw money into your Vanguard account and watch it grow.
Saving is also a popular topic. This is probably because it is the easiest thing to control. Spent too much on underwater basket weaving needles last month? Well, it’s pretty easy to stop. You just…don’t…buy them…soo….
But income. That’s where everyone gets hung up.
As many people as there are in the FIRE community, I haven’t seen very many different approaches. While no one plan is exactly the same, they typically all have the same flavor: save and invest your W-2 income.
Once you get started on the Trail to FI, you can’t stop looking for ways to accelerate your progress. You scour your budget every month searching for inefficiencies, but you realize there is only so much you are willing to give up. You consider adding international exposure to your portfolio when you hear that Zambian stocks outperformed trusty ol’ VTSAX last year.
So you focus on your income. There are the tried and true methods to increase your salary: switch companies, go back to school, simply asking for a raise. But realistically, there’s only so much you can do.
And then there are side hustles. In the FI community, these part-time businesses are viewed primarily as a creative outlet that maybe produces some income…eventually.
And just think of all the different side hustles that smart people out there have thought up! LIST TIME.
- Stained glass
- Music gigging
- Selling on Amazon
- Etsy shop
- Web domain buying/selling
- Picking up trash. Wait, really? Yes.
Clearly, the FIRE community is quite creative, both in content and approach – so why don’t we name these side hustles for what they really are: businesses?
My favorite money book, The Millionaire Next Door, talks about all the different ways that millionaires have amassed their wealth, and one of the most commonly cited methods employed by millionaires is business ownership.
They started a business from the ground up, and now they’re rich. TELL ME MORE.
You have total control over growing your business. Any income you make you can pour straight back into the business. You typically can’t do the same at your regular job where your income is just that – income.
So how do you get started with business ownership? Luckily, the FIRE community is a very diverse group.
Inspiration from the FIRE community
A great example of making a side hustle more of a “center” hustle comes from JW at The Green Swan.
JW and his brothers jointly own an industrial services business (as JW puts it). Instead of building it from the ground up, they identified an existing business in need of rejuvenation. I liken this approach to real estate: it is often much more cost effective to buy a “fixer-upper” than it is to build a new house from scratch.
Why did they decide to go into business? The Green Swan family is no stranger to entrepreneurialism – among them they have a CFA, CPA, and an MBA.
But ultimately the reason they started a business was to build wealth. JW projects that after they breathe some life into the business, their annual returns will be in the low teens.
You can read more about his experiences in these articles:
Lessons from The Green Swan
- Do your research. You should have a pretty good idea of what kind of returns you should expect from your business (hint – since you put time and effort into it, you want more than the approximately 7% that you would get from the stock market). Aside from reviewing the existing business’s finances, JW researched other business practices put in place by an owner of a similar business in a different location. This verified the extra value they expected to add to the business.
- Find a niche, and don’t worry if it isn’t glamorous. Not every business is puppy-sitting (but wouldn’t that would be awesome?!?). Sometimes the most solid businesses are in industries that most people shy away from, for the simple reason that people don’t want to deal it, such as janitorial services.
- It’s just business – don’t let emotion get in the way of transactions. JW and his brothers were interested in buying another business to add to their portfolio, but in the end the price wasn’t right. They really wanted to buy that business, but the seller was asking for too much. They stayed true to their business plan, and it even worked out in the end – the seller came back to them a few months later when another buyer fell through.
- Think of it as an opportunity to sharpen your soft skills! You think dealing with rental tenants is bad? Think about managing employees! JW has had some pretty exciting experiences with employees, ranging from being drunk on the job to serious health problems, like cancer.
- Always be looking for new (business) opportunities. The interesting perspective that JW brings is that you don’t always have to build a business from the ground up. Much like real estate, businesses carry inherent value, so they can be bought and sold. If you are looking to expand, there is no harm in asking other business owners if they would consider selling. You can also use business brokerage services for a more active approach.
Bottom line: don’t expect it to be easy. It takes a time commitment and sweat equity, but if you stick with it, your returns will be higher than you can get from any other investment.
Notice that I didn’t say anything about talent. I think the best advice I can give comes from Henry Ford:
Don’t shy away from (calculated) risk
I’m not saying that everyone should just go out and start a business immediately. Business returns are higher than stock investing for a good reason – business ownership is much riskier, and therefore deserves a higher reward.
But the entrepreneurial spirit of the FIRE community is very much alive! I know we have the ability to build up some pretty cool ventures. So how do you limit your risk?
A great way to start a business is, well, to do it on the side. Since you still have your job, you aren’t under pressure to succeed. If it doesn’t work out, then you brush it off and move on.
If it does work out, then there is the possibility of making it more of a full-time endeavor.
A successful side hustle can easily turn into a “main” hustle. Instead of cranking it out at your 9-to-5 until you reach FI, you could be growing your business and (probably) doing something you find much more fulfilling.
Also, know when to ask for help. Unless you’re an attorney, you probably aren’t an expert in legal matters. Same for tax planning – hire a CPA! Don’t know much about the industry you’re considering? Consult with an expert to learn about common mistakes made by similar businesses. Take the time to invest in your business to ensure that it succeeds.
Businesses have the potential to impact your progress to financial independence exponentially. So let’s talk about it more! There is more to this whole financial independence thing than just saving your money.
Let’s take some risk and get creative!
What are your thoughts on business ownership? Do you have a side hustle that you would like to expand into full-time? Let me know in the comments!
*I guess that’s why there’s an entire blog focused on just that!