Creating Routes

How to redefine your identity through your habits

Repetitive actions make your identity. In that way, little daily habits sum up in the long run, molding your identity.

For instance: If you wake up early every day, then you’re a morning person. If you work out regularly throughout the week, then you are an athletic person. If you yell at your kids every day, then you’re a bad parent.

In this article, I will share with you a frame of reference to raise your awareness of your own identity, and to mold it into what you want to be.

I encourage you to personally apply these guidelines in your own life, in your own way should you choose to.

Make your good habits overweight the bad ones

“Once a cheater, always a cheater” (Any “Friends” fan here?)

If you don’t go to the gym one week because you have the flu, it doesn’t mean that you no longer are an athletic person. (Although you probably are going to lose some muscle for being ill.)

That one week doesn’t tip the scale when weighed against all the workout weeks.

Every now and then there will be a more urgent and important task getting in the middle of your routine.

For instance, if your arrive home and find your dog choking with a toy that he found in your son’s room, I’m sure you are going to run to the veterinarian without even feeling guilty of skipping that one-hour meditation that you have planned. 

Even if you skipped a one-hour meditation session that time, you still are mentally healthy. And this can be told by weighting all the meditation sessions that you did against the ones that you skipped.

Don’t let random events define your identity

Improve every day by 1%

Atomic Habits from James Clear taught me that if you improve by 1% every single day, at the end of the year you will be 37 times better:

Giving every day your 101%

This is very hard to internalize because we tend to think the improvement is linear, but as the equation shows you: It’s exponential. This means that you won’t see the results in the short run because the increment is almost unnoticeable.

Image taken from the book Atomic Habits from James Clear

“Patience is bitter, but its fruit is sweet.” Aristotle

Improvement, even if not visible, is compounding just one percent at a time. When the time comes, when the new habits have molded your identity, you will embrace the beauty of delayed gratification.

Don’t rush it

Start with the end in mind

Let your better self in the future take the decisions for you. He/she is older and wiser, so he/she knows better.

Waking up late this Saturday, and spending an entire afternoon watching Netflix sounds like a pretty good deal to your current you. The one that has been locked 10 hours every day in the office last week. So, you think you totally deserve watching The Money Heist, from start to finish, because you worked your ass off.

But, would the future entrepreneur that you want to become, be happy with a decision like that? What would that entrepreneur do if he had 48 hours at his entire disposal? Maybe he would start that market research that he has been postponing because he knows that during the week he won’t be able to do it.

Do you remember when you used to have school/ university exams? What did you do if you wanted to pass the exam? You studied what was needed, just the basics. However, what if you wanted to get good grades? You studied even harder, you set aside non-important tasks to take some time to study.

With that good grade in mind, you were unstoppable and wiser to decide what was a waste of time or not.

I invite you to let your future-self decide what to do tomorrow. If you feel that you advanced towards your goals more than today, I invite you to do it for one entire week.

The decisions taken by your future-self doesn’t have to be life-changing. Even with a subtle 1% daily improvement, you’re going to start having the power to build your own identity.

Sentence to take home: Don’t let stochastic events define your identity, let your future-self define it.

Financial Independence: Investment or side hustle?

“Bip-Bip… Bip-Bip… BIP-BIP…” The soulless alarm indicates that is Monday again. Therefore, the work week starts over again.

But this time, it is different: You get to decide whether staying under the puffy blankets or getting up to take a shower. You know that you have the possibility to work where and how you want to because your investments are passively working for you; Generating enough passive cash flow to cover all your bills.

For me, this is being financially independent.

Being financially independent doesn’t mean that you no longer work as an employee, it means that you can decide whether to work or not. If you really love you job, and you wouldn’t change it, congratulations: You’re financially independent!

However, if you don’t see yourself having a regular 9 to 5 job by the age of 55, you should start looking to generate passive cash flows that allows you to reach financial independence.

WARNING: In case you live paycheck to paycheck, I recommend before you continue reading to:

  1. Restructure your finances.
  2. Save at least 3 to 6 months of your monthly expenses.

If you’re already there: Greetings! You have made the first step towards financial independence.

Although we are going to decide whether to focus our energy on investments or side hustles, it’s EXTREMELY important to highlight that the combination of both is the best.

Still, knowing what to prioritize (investment or side hustle) is going to help us towards our financial independence goal.

The magic 4% rule

Based on historical investment data, a financial rule of the thumb says that: By withdrawing just 4% of your entire investments each year in retirement, you won’t incur in a risk of running out of money. 

For instance, let’s suppose your annual expenses were $24.000 ($2.000 each month). If you managed to have a $600.000 investment portfolio, hypothetically, you could withdraw $24.000 (4% of $600.000) every year for the rest of your life.

Theoretically, you could count on the yearly 4% of your investment portfolio, forever.

Building cash flows towards your future

There are 3 options (usually they complement each other) for increasing the monthly available money for your retirement:

  1. Side Hustle: Leftover from your salary could not be enough. Capitalizing on side skills during your free time can be beneficial for your future.
  2. Higher yield: The bigger the interest rate of your investment, the better for your future cash flows. However, Be careful with the risk associated with greater yields though.
  3. Wait longer before start taking advantage of the 4%. In this case, you could amass a bigger lump of money.

Some considerations

  • The numbers shown in the graphs of the following section are realistic for someone living in Western Europe.

However, the goal is not to look at the numbers, but to identify where to focus your energy: Whether it is in side hustling or investing.

  • The yield of the investment studied herein is a hypothetical one. To make it realistic, the interest rate is based on the average yield that the S&P 500 has had throughout the years.
  • The values of disposable money highlighted in the graphs represent monthly cash flows that allow you to live comfortably in countries like Portugal, Panama, Ecuador, or Indonesia. (For more information related to cost of living numbeo.com).

Running the numbers

John, our hypothetical average European worker, is 26 years old and works as a regular employee.

He is able to put aside $500 on average each month throughout the year. Then, he uses this money to invest in his investment portfolio with a 7% yield.

John knows how to capitalize on his language skills, so he teaches English 20 hours a month, producing a $200 extra cash flow.

From those $200, he spends $100 going out and saves the rest. Being able to save $1200 extra a year ($100 x 12 months) to later invest it in his investment portfolio.

In the end, John is able to invest $7200 each year.

Let’s take a look at the numbers, on a monthly basis.

If John is patient enough, he will be able to retire by his 58, taking advantage of his “eternal” monthly cash flow of $2.787 (4% of $836.088 divided by twelve months).

Savings from income don’t change throughout the years because as John’s salary increases so as well his expenses. 

But what happens if John studies how to invest better and is able to rise the interest rate from 7% to 8%?

The disposable monthly cash flow increases by $625 (22,4%), from $2.787 to $3.412. Not bad for just 1% yield increase.

Let’s suppose that John doesn’t want to study how to invest better. That is too much of a burden for him.

However, he would like to retire with an “eternal” $3.412 monthly cash flow. So, he wonders: -How much more money should I save from my side hustle to reach that figure?-

John would have to work 2.53 times harder on his side hustle to compensate the 1% yield increase.

He thinks that putting $253 aside from his side hustling is too much of a burden. Instead, he would rather wait a couple more years to let the money pool grow.

How much longer should John wait to compensate the 1% yield increase or $153 monthly extra saving?

Working 2 or 3 more years would translate in an “eternal” monthly cash flow of $3.240 or $3.491, respectively.

Drawing conclusions

In the last graph we can see how the phrase “Patience is bitter, but its fruit is sweet” from Aristotle comes in handy, financially speaking.

In case you really love your side hustle, or if it is scalable, focus on it and let the average market yield works on compounding your investment.

If you are uncertain about where focusing your energy, go for learning how to invest.

The second graph showed how powerful that 1% yield increased turned out to be. Imagine if you could rise it even higher, the sky’s the limit. However, remember that the higher the reward, the higher the risk.

Suddenly Growing up

Suddenly Growing up

A new beginning

For certain cultures, it is said that once you reach 18 years old you are supposed to leave your parents’ home. On the other hand, depending on the local economy and mindset it is considered normal to live with your parents until you are around 25 years old.

This was my case, I was raised in a country where you should have 3 to 4 jobs to make ends meet. So, leaving home with just one regular income as the only cash flow entering into the bank account was not an option.

For several years in a row, my home country’s economy did no other that fall sharply, and with that, cultural problems arose, like unsafety on the streets.

During my entire life, I grew up basically just studying hard. Thanks to my middle-class parents I had the opportunity to just focus on my career.

Obtaining a university degree was the safest way to escape from that country since it would increase the possibility of landing a good job in a new country.

One year prior to finishing my studies, I took the opportunity to participate in a student exchange program. This exchange program was my ticket to a new living, where everything was supposed to be easier. Without second thoughts, I filled up my luggage and departed 8000 km away from home.

Adaptation

If your belongings, your economic security, friends, and family are taken away from you, what do you remain with?

The mindset and knowledge is something that cannot be taken away from you. I personally experienced it when I had to work during nights while studying full time in one of the most difficult universities in a new country. Adapting to a new language, culture, and weather was nothing compared to the economic struggle. But those moments, hitting bottom, are special because creativity awakens.

Plato once said, “Necessity is the mother of invention“.

Overwhelmed by the suffocating burden, my brain started figuring ways to escape from that situation. Solutions that I have never thought about, were now possibilities opening up for me.

Sleeping 6 hours a day and living in the living room to save money taught me more than three university careers. Going out of my comfort zone in such a brief period of time made me start watching life in a different way. Thanks to this paradigm shift, I managed to finish my master’s degree in two years and land not one but three full-time jobs within those two years, increasing my income by 500%.

Paradigm shift

It is more than a little ironic that when I look for motivation, I see myself some years ago. When I used to work at a restaurant 16 hours a day, where the bosses were morons that tended to yell at you instead of talking to you. They knew that everybody in their staff was struggling financially, so they could take advantage of the staff because they did not have any other place to go.

When I feel anxious, I picture myself going in tears after the hardest night shift of my whole life: when I regretted every choice that I had made in my life. That night was special to me, it made me realize that there is always another way, another route. But building a new route would require a humongous amount of effort.

Since that night, my paradigm completely changed. I left aside activities such: watching a movie, going out to walk, and sleeping more than it is needed. I knew that to get out of the restaurant, I would have to work even harder on side hustles.

Unstoppable like a truck

Being productive became my mojo. I started promoting myself as a Spanish teacher, and after two weeks, my first client appeared.

Freelancing sites turned into my obsession. As soon as I got home, I started applying for online jobs that could vary from Virtual Assistant to 3D designer. It wasn’t easy in the beginning, but I managed to start a project with a German startup that wanted to build small yard houses on demand.

After that, I did several university-related projects for people in Africa.

During summer, I worked again as a waiter during the day, but in a more relaxed atmosphere. While in the nights, I wrote a thesis for a guy in England that I had found through a freelancing platform. And during my little free time, I looked for white-collar jobs.

I landed my first “normal” job at the end of the summer. I was accepted as a database developer intern in a well-recognized company. It was a full-time paid internship. This was the sweet reward of my paradigm shift.

Then, it came the time to work 8 hours a day and study during nights, but no more economic struggle. Taking advantage of the mindset that I had developed during the previous month; it was easy to study and work. I even arranged my schedule to retake the gym.

Being graceful

I’m happy that I went through that mental and economic struggle. That situation built a solid ground in my mind that I constantly use for decision-making.

Now I read, study, and train my mind to avoid getting into the same overwhelming situation.