"Convince me that this concept of financial independence is not bullshit! I keep hearing that if I save money and put it to work, with the help of compound interest I will be financially independent. I've been doing this for several years, I put some money in the bank every month and I get interest, really, but I feel like at this rate I'm never going to be financially independent.”

I was greeted with these questions by an old friend whom I had not seen for a long time. He had been following my blog activity for some time, the articles on investing and financial independence, but in his mind things were not connecting. So we had as open and honest a discussion as possible, in which I answered all of his questions.

Here are my answers, without embellishment, as to a friend:

What do you mean financially independent? So I don't have to work anymore and I have money to pay for all the things I need?».

Yes, to ensure all the necessities of your current standard of living, without having to work for money. Practically, passive income will cover all your financial needs. Passive income can come from rents, dividends, royalties, interest, and other similar sources.

There is also a formula that quantifies the level of financial independence  : Investment portfolio = 25 X your annual expenses  . In other words, if you need EUR 20,000 per year, you will be financially independent when your Investment Portfolio reaches EUR 400,000 (real estate, stocks, bonds, etc.)

"That? Am I now financially dependent if I go to work? I do what I want with my money anyway.

Yes, you do what you want with your money, but financial independence is about  doing what you want with your time  , not your money. Can you do what you want with your time now?

"Does that mean I'll be rich?"

The term rich is not defined unitarily. The definition of this term is personal and I cannot answer this question for you. Like I said, financial independence is mostly about free time, not expensive cars and villas with pools.

You won't necessarily be rich, but you will most likely be prosperous and free to do what you want with your time.

“Money multiplies quickly? As in the bank, they do not multiply quickly. I would like to put 200 euros this month and next month have 400 euros”.

In investments, you can expect reasonable returns of 7-10% per year.

The vast majority of "investments" that promise astronomical returns (tens of percent per year) are, in fact, frauds.

The exceptions, like bitcoin, are very rare and have a downside. If you don't jump on the bandwagon at first and enter such transactions when they are already popular, you risk losing all or a large part of your money.

The way you can make a lot of money in a short period of time is through entrepreneurship. It is the fastest way, but with the corresponding risks.

The ideal case, if you can  :

Be able!!!!! + Start a business and make it work + Invest part of the profits in investments that produce passive income. In this way, you will be able to become financially independent in a few years (3-7 years). But less than 1 in 10 people who try this method are successful.

Quick case:

Be polite!!!! + Business and/or work that ensures your growing income + Savings of more than 50% of your income + Active investments in your free time (active transactions on the stock market, active transactions in real estate, etc.) + Passive investments.

This way, if you educate yourself a lot on the investing side, whether it's fixing and flipping real estate, trading the stock market, or a side hustle that produces in addition to your basic source of income, you have a chance, by far. work, to be financially independent in 7-15 years.

The case with the greatest chance of success  :

To be disciplined!!!! + Increasingly better paid jobs + Constant savings of at least 50% of income + Passive investments. The chances of success are very high (mathematically, it should tend to 100%). As for the duration, it will take you between 15-25 years.

The slow case:

Be patient and constant!!!! + Regular work + constant savings of 10%-30% of income + passive investments. With patience and perseverance you can become financially independent, but it will take a long time: 25-35 years.

"Well, when will I be financially independent? At 60, when do I retire anyway? I want it now, while I'm young."

Not even if you choose the ideal, fast path or with the greatest chance of success.

Even if you choose the slow path, it's still quite possible to reach "retirement" 10 years sooner than those who don't take either path. There are 10 more years of freedom for you.