My Friend went from $0 to $100K in 5 years

“You want to write an article about me?”

My friend and I were at my place a few days ago, having coffee in the living room, because all the bars and restaurants are still closed due to the pandemic. I invited him over to talk money, because I know him to be pretty wealthy. He doesn’t like to talk about it that much, and I only know he is because we’re friends. I don’t like talking money either (I prefer to focus on making it), but I know I have a lot to learn from him. I replied:

“I don’t want it to be about you specifically, but more about how you manage your money. I won’t mention your name or anything like that if you don’t like it.”

My friend is 30. He doesn’t look rich at all, he doesn’t own any fancy stuff, and he still cleans his own toilet like everybody else. Yet over the course of the past 5 years, he has been able to go from $0 to $100K in liquid cash, sitting on a bank account. That’s pretty neat.

In this article, I want to go over the learnings I got from our conversation a few days ago. I hope it can help you understand how money works better, and maybe even inspire you to gain financial independence.

1. You can do it with a normal salary

“My salary is completely average. I save around 15% of it every month, and I make the rest of my money in different ways we’ll get into. You have to first understand how money works before simply trying to make more, and that’s where a lot of people start wrong.”

My friend lives in a 60-square meter apartment downtown, with his girlfriend, like 80% of the people do in my city. During the day, he works as a graphic designer for a normal-size company, for a normal salary. Outside his working hours (in the early morning and sometimes at night) he manages his own blog, and sells digital products on his website. He’s also thinking of starting his own YouTube channel. He has different income streams, and he saves the majority of what he makes from them, in cash.

2. Create your own company

“Creating my sole-ownership company is the number one reason I was able to save this much money, period. I pay a 20% corporate tax on my company revenue instead of the 36% I pay on my personal income. I can write off all my business expenses, and it’s much easier to save the money, because it’s completely separate from my private account. I would have never, ever reached $100K this fast without setting up my own company.”

Around 50% of my friend’s cash is tied into his business. He created his company around a year after starting his different income streams, and he wishes he had done it earlier. In most EU countries (where we live), creating your sole-ownership company takes less than 24 hours and costs nothing.

You don’t need accounting knowledge either. My friend pays a small accounting firm around 200 euros ($240) per month to take care of everything. All he has to do is collect invoices and receipts, the rest is taken care of.

How much does his business bring in?

Anywhere between $5,000 and $10,000 per month, never more. Surprised at how low this number is? Quick maths: my friend has been generating between $300K and $600K for the past 5 years (salary excluded), and saving most of it with a preferred tax rate. That’s the power of the sole-ownership.

3. Spend money to make money

“So if you look at this way, I “only” managed to save $100K in the past 5 years, but I made between $300K and $600K. How does that happen? Well, the first year I paid over 40% in taxes, the other years I paid 20%, but when I pay myself a salary, I also pay taxes on that. I also spend a lot of the money to maintain the business, and overall you gotta spend money to make money.”

My friend admitted he made a few mistakes along the way, but that’s totally fine. That’s what a lot of people don’t understand about money: if you can afford it, don’t be afraid to make mistakes, you’ll learn a ton.

My friend once set up a referral contest for his subscribers with a $1,000 winning prize. It was a flop, and he still had to pay the winner. Another time, he spent $5,000 on ads before realizing he was driving more traffic to his blog by writing great content and not spending a dime on ads. There is also this one time he overlooked a business expense with his accountant, and it ended up costing him $2,000 in taxes.

“From the moment I started to make “bonus” money, I was never afraid to try, spend it and potentially lose it, because that’s how you learn to make more”.

4. Don’t buy a house

“I agree you can buy real estate as an investment, if you want to rent it, flip it, or whatever. But I don’t subscribe to this school of “paying rent is throwing money out the window”. It’s not at all. Like the stock market, nobody knows where the real estate market is going. Costs add up and your house/apartment won’t necessarily increase in value. Sure at least you have a place to stay “for free”, but now you’re stuck here. Paying rent is the price of freedom, and freedom ain’t cheap.”

My friend is not completely against the idea of buying a place for himself and his girlfriend later on, but he’s not in a rush. A lot of people actually get to 30 years old with a nice savings account, and then they spend almost all of it on a mortgage deposit.

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5. Don’t buy a car

“If I need a car right now, I book it on ShareNow. If I need a car for the weekend, I rent it on Sixt. And if I don’t need a car, I bike.”

Sixt is a classic international car renting company you’ve probably heard of before. ShareNow is a car sharing company that operates in 16 cities across Europe. You can book a car parked in the street with the swipe of a finger, and unlock it with your phone. It’s pretty expensive because you pay for the car by the minute, or buy a package of a few hours. But when you don’t own a car (which costs a ton of money), you can 100% afford that luxury.

“In the 21st century, renting is the new owning. I can book and experience a penthouse on Airbnb without ever being able to purchase it myself. I can drive a fancy BMW on ShareNow without ever having to pay for the car full price.”

6. Don’t spend on fashion

“Did you know the average adult spends $161 per month on clothes? That’s $1932 per year, which is nearly $10,000 over 5 years. I buy the same clothes once every 6 months, and it costs me something like $800 per year.”

My friend is a big fan of the brand Earth Positive, which I wrote about many times. One burgundy sweater, a bunch of black ones, a dozen black t-shirts, sweatpants, Nike Tanjuns all year round, a new pair of running shoes once in a while, 2 pairs of blue jeans, 1 of black jeans… that’s it.

Like my friend, I update a bunch of items around once every 6 months, and I save a ton of money on clothes. Fashion is not a priority for living the good life.

7. Don’t believe the Starbucks rule

“I don’t believe for a second in this concept that Starbucks ruins people. I do think spending $5 per day on coffee is insane and I don’t do it, but I will treat myself to a Starbucks once in a while. I love writing there, it motivates me on bad days, it’s like a mini investment in myself. Yes Starbucks is crazy expensive, but not as much as fashion, and at least it gets you going through your day.”

There’s no point in saving money on coffee if it’s an inherent part of your productivity routine. When he told me that, I replied that a lot of people spend $5 every day, which amounts to $6,000 over 5 years, and always order the unhealthy stuff with a ton of sugar in it. Not the best productivity routine.

“That’s true, but that’s part of a bigger problem. I’m talking about people who have it together, can afford the $100 per month on coffee, and know that they can indulge because they work hard. If you take a caramel latte with cream everyday just to stumble your way to the office and do nothing there, of course you need to reconsider the way you spend your money at Starbucks.”

8. You won’t take it to the graveyard

At the end of our conversation, my friend wanted to remind me of one thing, and he insisted that I include it at the end of this article.

“The thing with money is, people see it as a means to an end. It’s almost as if they don’t care about the money, only the life money can buy you. But number one, most people don’t realise that you don’t need millions to live the life you want. And number two, it’s all gone when you die. Be kind to people whether you have money or not, but especially if you have money. If you’re privileged, it’s your responsibility to take on the greatest challenges humanity is facing as a whole right now, and it all starts with kindness and respect.

Nobody has any idea what the world would look like if the wealthy of this world were more kind and respectful”

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