Irish Financial Independence & Personal Finance Podcast

My Financial Independence Interview with Paddy Delaney

Friday 10th May 2019

I was fortunate enough recently to appear on a podcast interview with Paddy Delaney from Informed Decisions - Ireland’s #1 personal financial blog. I’ve been a long time follower of Paddy’s advise, so it was a real privilege to appear on his show.

You can listen to the interview using the link below:

https://www.informeddecisions.ie/podcast134-achieving-financial-independence-with-michael-houghton/

Upon listening to the interview myself, there were a few points that I had wished I had covered better. I am going to covered a few of these below. My all means, take the time to listen to the interview, but do come back to this article, just to get my latest thoughts on some of the questions Paddy asked.

Paddy asked: What are some of the ways you look to build passive income.

To answer this question I mentioned a few things, such as building passive websites and attempting to build passive businesses, as well as investing. The more I reflect on building passive income, the more I have realised that the only true way to build passive income is through investing.

In the interview I mention Forex Trading as a type of passive income. It wasn’t until I recently considered just how many times a day I checked any open trades on my phone, that I realised that Forex Trading is far from passive.

Anything that involves me needing to take action, make phone calls, answer emails, monitor or physically do anything, is not truly passive. I would go as far to say, that for it to be truly passive, you should be able to go on vacation for a year and come back with the passive income still going strong and ideally growing. Therefore, investing really is the only true passive form of income. For me the best form of passive investing is to invest for cashflow - in other words, some sort of regular return that can allow you to see the results on a regular basis. Investing for capital gains is fine, and some part of your portfolio should be invested in long term capital gains, but it needs to be for the long term. Anything shorter is really just a speculation, not an investment.

Why do I build and grow companies?

I love building companies. I cited the hockey company in the interview - I love that company. I started that company for two reasons:

1. When cutting down to part time work, I had the time to look to do more with my time and liked the thought of developing hockey further in the Limerick region. I had been involved with hockey for many years and was passionate about growing the game in Limerick. I got offered the chance to bring an indoor hockey franchise to Limerick and took the opportunity.

2. I wanted to set up hockey coaching so that I could coach my children more and see them enjoy the sport as much as I do.

In many ways, making money from the company was secondary. As the company has developed by focusing on the enjoyment factor and coaching my own kids more, the company has started growing and building its own capital.

Amazingly too, other opportunities have come as a result. I saw an opportunity to form a new hockey club, and I am now looking to develop two other hockey clubs in the Limerick and Clare regions. The hockey clubs are community projects and are allowing hundreds of kids to play hockey who otherwise may never have gotten into the sport. While these clubs have nothing to do with my financial freedom journey directly, they are examples of what having more time have allowed me to do to give back to the community. I’ve brought together adults who will be the coaches of the clubs and have made so many friends along the way.

Because I’ve been coaching at my children’s school, when I go to collect them from school, many kids who I coach say hi to me as they walk out the gate.

When I go out with my family, I see other kids and families from the new club. I get phone calls from people who want to talk to me about other hockey projects and are also passionate about growing the game in Ireland. I’ve been on radio stations to talk about hockey, as well as interviewed by the local paper.

My point is this - I am living my dream! By cutting down to part time work, and starting a company that was initially about just coaching my own children, new opportunities keep presenting themselves. Rather than just working on someone else’s dream, I am living my own dream, and helping so many kids along the way play a sport that they may never have been able to be a part of otherwise.

All the while the company is making money too. I personally don’t take any money out of the company - instead I leave it in the company and have opened new investments in the company’s name. I will keep investing money from within the company and grow my investment portfolio through that company. More than half of my current portfolio is from investments within companies, rather than in my own name.

By keeping money within a company rather than taking it out personally (and losing half to the tax man in the process), I am able to invest any profits directly into investments in the company name. If done correctly it can be far more tax efficient that if I invested from my own nett income. The companies I develop therefore, are a tool to build capital for my investments faster than just through my own wages.

And this is where my forex trading company ultimately fits in. As I mentioned above, since the interview, I now realise that forex trading is not as passive as I had hoped it would be. I now look at my forex trading company as another way to build and grow capital for my investments.

Towards the end of the interview, Paddy asks me why someone with a job should pursue financial freedom.

At the time, I mentioned that if you are in a job that you don’t like, then this should really be an option for you to consider to get out of having to do that job.

Since the interview, I have thought about this more. My own situation, was that I had found myself in a rut with computer programming and for about six months found myself counting down the days each week till the weekend - I had lost all enjoyment for it. Ironically, since cutting down to part time programming, my enjoyment for coding has increased dramatically. Financial independence is not about giving up your job - the same way that some lottery winners still keep their job after they win the jackpot!

So why bother trying to be financially independent? Because it will give you options! In the same way it allowed me to work less and start other projects, it will allow you to start living your own dream, not someone else’s.

Most people can’t change careers because if they changed careers, they would be starting from the bottom and would likely take a massive pay cut. By having an investment portfolio, you have an additional revenue source that allows you to start exploring other options - it acts as a catalyst for change.

What does Financial Independence look like for me?

Honestly, my journey isn’t about financial independence, nor is it about early retirement. Anyone who knows me, knows I can’t sit still for a minute. My journey is about time freedom - having the ability to do what I want with my own time, on my own terms.

Will I ever truly retire? Certainly not in the traditional sense. I started coding as a hobby when I was 15 years old. Programming was a hobby that I turned into a business. Would I code less in retirement - yes. Would I still work for clients - absolutely! Some of my clients are good friends and I love working on their businesses. Even if it was only 10 hours a month working in “retirement”, I still would. Would I give it up when I turned 65 - highly unlikely!

And what about growing businesses? Warren Buffet is 88 years old and he hasn’t retired, and he has a lot more in investment income than I would ever need! Honestly, I don’t like the “RE” side of “FIRE”. For me, the focus will always be on my own time freedom - and this is why I will continue to grow my investment portfolio.

For me to completely replace my non passive income, I would need a portfolio of about €600,000. My current goals are to grow my passive income to €2,000 a month - I could likely achieve this with a portfolio of less than €200,000. Once my portfolio is bringing in €2,000 a month, who knows, I might add new goals to grow my portfolio further. For now I am not looking to replace my non passive income fully - it is just about replacing enough of it to allow me to be far more flexible and give me time freedom.

My inspiration comes from one of the experts in the FIRE space. Checkout MadFientist.com. The author talks about his second year of retirement. In order to retire early, he spent years investing in index funds. Ironically, in retirement he hasn’t had to withdraw any funds from his portfolio because he has a hobby business that has since allowed him to live comfortably. Furthermore, he is now starting another business in retirement. He says it isn’t about the money (and I get that after starting my own hockey coaching business) - but it just goes to show that what retirement really is about is living your own dream.

Conclusion

If your going to take anything away from my interview, here is a summary of the advice I give to people when they ask me how they can start their financial freedom journey:

1. Start reducing debt and needless expenses.

2. Adapt your lifestyle to value your time and freedom more than owning possessions.

3. Education yourself about investments and find investments you’re comfortable putting money into - in my opinion, the best investments are ones that give you regular cashflow and are truly passive.

4. Start building your investment portfolio - the keyword here is to start!

The last point in the interview is that I stress that you will make mistakes. I’ve made so many it is hard to count at this stage. Your ability to be a good investor will be how you handle the learning from those mistakes. Don’t throw all your eggs in one basket and if an investment sounds too good to be true, it will be! Look for investments that return 10 - 15% per year and let compounding interest weave it’s magic over time.

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