Growing your capital

I’ve had some thoughts about investing and getting to financial independence. Clearly a key part of this is having enough passive income to cover your day-to-day expenses.

To get passive income, I find that dividends from businesses is a great form. One of the easiest for the average guy to access being via dividends from the share market. Business income through owning shares in the private sector are even better, but not easily accessible outside the industry. Listed companies provide great access to dividends and therefore passive income.

Now, what do you really need to get access to dividends?  Money, ie capital. It’s all very well knowing that you got to get dividends, but actually you need capital, meaningful capital to do so. And the best way for me to get capital has been historically?

To earn it.

The quickest way I got increased capital was through earning more. And not spending it all. It was far quicker than growth from my existing investments, or from building a business. It was just earning more. And I did that by, firstly working and billing more hours when I worked effectively as a consultant. Then it was by switching to a career that paid more. Then it was by adding real value and getting share and equity options. These all helped grow my capital the quickest in the beginning, because I had little capital to begin with.

Once I’d built up decent capital over a period of 10 years (like 5x my gross annual salary), it was much easier to compound it, because now a 10% growth rate on the capital base actually made a difference. Prior to having this, I could’ve made a 100% growth and made the same difference as a monthly paycheck.  Now a 10% growth would equate to half a years pay!

Until you get to any decent scale of capital, the best bang for your buck, in my opinion, is to shoot the lights out on active income, ie job/your time for income.  Heavily invest that capital, spend like a business owner (ie low expenses, high margins) and after 5-10 years have a strong base to take yourself to the next level!