Financial Independence 101
One critical aspect that effects everyone, yet no one seems to pay much attention to is… (drum
roll please): Financial independence. It is crucial for our lives, gives us the freedom of choice,
allows us to create our dream life, and most importantly give us a peace of mind. Now, don’t
get me wrong, I am not stating that money is everything, but having financial independence can
definitely have a positive impact on our lives. How many times have we heard someone say, “I
can’t afford that”, “we don’t have enough this month”, or “I wish we can take that vacation”?
Today, over 80% of US families are struggling with their finances. They have no back up plan,
nor proper savings for rainy days, thus struggling to make ends meet.
To be financially independent, we all need to be and stay accountable for our own financial
future; and education is key. Keep in mind, everyone’s financial independence number is
different. No two people are alike.
Have you ever considered the fact that we are not taught much about how to manage our
income, minimize our liabilities, and maximize our assets? Instead, we are thrown into
adulthood and hope for the best. But let’s be real for a moment here, “hope” is not a strategy
to create financial independence, and ignorance is really not a bliss.
I have researched and studied how successful leaders in today’s world have built their financial
independence, and I would like to share some of my findings with you. I am certain that they
will help lead you to your own financial independence if you chose to apply them in your lives.
Following are the top 10 ways on how to create financial independence.
It’s true, we all want to be financial independent, to do what we want to do and when
we want to do them. But how many times have we actually thought about, or visualized
what financial independence looks and feels like? Take some time to really think about
what that means and looks like to you. Visualize your lifestyle, and most importantly,
feel the emotions that come with it. Without a vison you will not have a path.
Sounds simple right? Not so much! 7 out of 10 people don’t do any budgeting.
Furthermore, they don’t know where they stand financially. Scary right? One of the
reasons why we struggle financially is because we don’t know much about our own
finances. We live paycheck to paycheck, spending out money on others instead of
paying ourselves first. Budgeting is a crucial part of financial independence.
3. SPEND LESS THAN YOU EARN
So much of what we buy is unnecessary. Humans in general like to have instant
gratification. When we have a bad moment, we like to fill the “void” that it creates in
our minds, therefore, we go and buy something we really don’t need. We should learn
to become conscious of our bad habits instead and learn to curb our financial
wastefulness. It’s a game between Needs and Wants. There is a very simple way, if
applied, will get you more in tune with your feelings thus training your mind to be more
aware of our spending habits. One trick to try is to simply look at the item you would
like to purchase and leave the store without it. If after 24 hours you can’t get the item
out of your mind, then you can safely go back and purchase it. Also, consider if the item
will fill a basic need before purchasing it. Chances are you will forget it once it’s out of
your sight. The best way to spend less then you earn is to budget properly. It’s one sure
way to put your finances in check.
4. BUILD SAFETY NETS
Safety nets are like cushions for life’s unexpected downturns, such as loss of a job,
health or family emergencies. It is highly recommended to have at least 3 to 6 months
of your income in an accessible account to tap into during financial hardships. In this
way, when the unexpected occurs, you have some peace of mind for a while. It also
gives you enough time to search and find other resources.
5. ELIMINATE DEBT
Easier said than done! We all have it, some of us more than others. The surest way
again is to first pay attention to your spending since that’s where it all starts. But since
we are on the subject of debt, there are many ways you can go about to slowly but
surely eliminate them. Debts come in different forms such as credit card, student loans,
personal loans, mortgage, and many others. Each has to be looked at separately and
planned, preferably starting from the highest to the lowest interest. The goal is to get
out of debt and to stay out of it! I will go more in depth in a future blog.
Once you have started eliminating debt and building an emergency fund, it’s important
to learn how to invest properly. I highly recommend a meeting with a licensed financial
professional to choose the proper plan for your investment options. A fun and
awesome tool you can use now is to play around with the Rule of 72, invented by the
mathematical genius Sir Alfred Einstein. See below an example of how it works…
7. INCOME IS NOT WEALTH
It’s great to have a lot of money. It does bring some financial independence IF you are
financially responsible. But income is not wealth. By this, I mean your income relative
to your spending. The more income we have, we naturally also spend more. To avoid
this trap, we need to have multiple sources of income, as in passive income. For those
of you that are new to this term, it means to make money while you’re not working.
Wouldn’t that be amazing? If you research any entrepreneur, you will find they have
many sources from where they get their income from. It takes a bigger mindset, a
mindset of an entrepreneur to learn how to get yourself in a higher state of mind. Your
first step is to start and making a habit of daily reading personal development books,
and autobiographies of entrepreneurs. Many of whom have selflessly shared all the
secret to their success. But the bigger step is to apply what you have read in your day to
day life. Before you know it, you will find ways to make your single income into several
forms of revenues, and well on your way to your own success.
8. GET CONTROL OF YOUR MONEY
Investing your money in proper investment funds is not enough, it’s very critical to have
your account reviewed and monitored by a financial professional. A financial
professional will help you monitor and keep your money in check making sure that all
your accounts are up to date and performing at its best.
9. PROTECT YOUR ASSETS
You have worked so hard to build financial independence, and if your assets are not
properly protected, you can easily loose what you have worked so hard for to save.
Here are some ways you can protect your assets: life insurance, trust, qualified
retirement plan, and/or long-term care protection. Life is full of unexpected events,
therefore its best to always be prepared and protected for anything.
10. SHIELD YOUR INCOME FROM TAXES IF POSSIBLE
Taxes take so much out of our income, they are a major cut back. The more taxes we
pay the less money we have to invest. There are several strategies you may benefit
from when it comes to taxation which will help you cut back on taxes and have more of
your income invested for your future. Some of the best ways to eliminate taxes is
through retirement plans such as 401(k) and Roth IRA’s. To get more information about
these, I recommend sitting down with a financial professional to help answer your
It all comes down to one thing, and that is creating financial habits that serve us. Get
familiar with your spending habits, be aware of your budgeting, reevaluate your career,
and consider bigger and better opportunities available to you. We are all capable to
build financial independent lives, also to create abundant lifestyle for us and our family.
Becoming financially independent also means becoming financially literate. Educate
yourself about your finances and own your future!