Last week, I tweeted:
A successful Indie Hacker has two paths: continued growth or lifestyle preservation.
This is an unroll of that thread with some additional insight based on the comments. The main focus of the thread was to share the personal finance decisions I made which helped me worry less about "if it all goes away".
As always on Twitter, you're going to be misunderstood. Let me try to clarify my intention. The context for these decisions is a successful Indie Hacker. So we have two criteria: successful and Indie Hacker.
Successful in my case being grinding my SaaS to over 1 millions in revenue. Successful could also mean a high paying job. Really any success in a monetary sense.
Indie Hacker is really a way of saying individual. You don't necessarily have to a solo SaaS owner. But these decisions may not apply to a partnership or small business owner. Really anyone with employees.
Ok, back to the thread, there are two paths. I believe you can switch paths. But you can't be on both paths at the same time. Only one. So you can be on the growth path, then switch to the lifestyle path. Or vice versa. But you're always making a choice to be on the one you're on.
I'm on the lifestyle preservation path. For me, the business is a means to an end. A means to provide the life I want. Like any successful Indie Hacker, I worry, "what if this goes away?"
So I try to do what I can to prevent that scenario. That depends on business decisions, but it also depends on decisions around the income from the business.
Managing money as a successful Indie Hacker is not discussed enough. So I'd like to share some personal finance decisions which helped decrease my worry about, "what if this goes away", and increase my chances of continuing (and improving) my lifestyle.
Build a runway
Before I went full-time on Shift I saved a years worth of expenses. This was more than I needed, but it's what made me comfortable to leave a high-salary day job.
After I went full-time, my initial goal was simply to not decrease the runway. Once I proved that, the goal was to double the runway - so I had two years of expenses covered.
If you're an Indie Hacker, two years is a very long time. That's two years to navigate churn, pivot the product, or even build another product before needing to go back to a "day job".
Pay off debts
Next, I paid off all my debt - student loan, car, eventually my mortgage.
Most of my replied on Twitter were in regards to paying off your mortgage. We're often taught a mortgage is "good debt". Sure. From my perspective, "debt" is "debt". I had the opportunity to pay off my mortgage with my extra income. So that's what I did. It took a little over a year.
Another point was, in today's economy, if you have a sub-3% mortgage rate and a 4.8% savings account, why use extra income to pay off your mortgage? You're giving up 1.8%, right? Well, there's more to the equation than just the rates. You also have the principle. It's very likely your mortgage amount is higher than your saving amount. Likely many multiples higher. If so, that 1.8% difference is nothing. Even if they similar amounts, I'd give up the roughly $2,000 in interest (1.8% on $100,000) to know I owned my home, outright (no mortgage).
Paying off debt removed any financial “obligation” I had, which definitely decreased my anxiety about leaving the "stability" of a salary. It also decreased my expenses (no monthy mortgage payment). Which, in turn, increased my runway. So that two years of savings now lasted even longer.
Once I didn't have any debt, I only bought things with "cash". If I wasn't able to pay for it immediately, I didn't buy it. Of course, this may not make sense if you want buy a something big, like a house. But I'd try to practice this as much as I can.
Create a fund
When you have a runway and no debt, I think you truly start to build wealth. For me, that means using money to make money. In a way, it's the ultimate "passive income".
Create your own "fund" - a dedicated amount of capital to invest.
Everyone's investment style is different. If you can create a big fund, then even conservative investments still provide a big return. Or, if you can take the risk, you can get a big return from even a small fund.
This fund is what lasts a lifetime. Maybe more. Now it doesn't matter if the business "goes away". It just has to last long enough for me to grow the fund to a critical amount.
This "fund" is not an IRA. While part of my "retirement plan", it is a separate amount of capital I can access now (not wait until 59). This "fund" serves the same purpose though - ideally, allowing me to continue my lifestyle without the business.
Save for family
This is a sub-step, only if you have a family. I do, so I want to create separate funds for my kids. Mostly for their education. But depending on your goals, you may want to save more for them.
The important part is to keep these separate from the main "fund". I do a "fund" for each child. This not only makes it easier to track, but also manage the risk profile - as I want theirs to be conservative, steady growth over a longer period of time.
Expand your network
Finally, establish and maintain a circle of peers. While I'm mentioning this last, it should happen right away and evolve as your business and lifestyle does.
This is one I haven't done well on, and am now playing catch-up. But having a network of peers can not only provide business feedback, but also provides opportunities. Both of which can increase income.
It also provides a safety net if your business were to "go away". If so, it's likely someone in your network can connect you to your next thing. Having a network is a force multiplier.
It also provides an outlet for you to enjoy your success in a comfortable way. Not everyone understands your business. Not everyone is comfortable talking about money. Being able to do both is important.
So if you're an Indie Hacker who has chosen a lifestyle business, these personal finance strategies may help you "stay calm" and make the most of your success.
- Build a runway
- Pay off debts
- Create a fund
- Expand your network