Wouldn’t it be nice if you didn’t have to wait until payday to write a check for your bills? What if you could just pay for stuff and not have to worry if the money was there? What if you no longer enjoyed your job and you could just quit and not have to worry about how you’re going to eat? Financial independence is something that we’ve all dreamed of, but very few of us ever attain this lofty goal. Instead we continue to live paycheck to paycheck hoping that our money problems will just go away. It’s hard work to get there, but the reward is greater than you could imagine. Take this five step challenge and make yourself financially independent.
1. Make a Commitment The first thing you have to do is commit to yourself to the goal. You know that becoming financially independent is going dramatically decrease your stress about money problems, allow you to spend more time with your family, and allow you to do a lot of things that you never could be fore. You have to be able to commit to yourself that you will do what it takes to get there, and not just throw up your hands and quit when it gets hard. Commit to yourself that you will do what it takes to achieve financial independence.
2. Do the Research Having a goal is not enough; you have to determine what you need to do to get there. If you want to be financially independent, you how you’re going to make extra money, how much you plan on investing, and how much you need to become financially independent. This is just as important the actual work. If you make a bunch of money and invest it poorly, your efforts will go to waste. If you quit before the race is over because you think you have enough money, you’ll be back at square one.
So how can we figure these things out? The definition of financial independence is when your money makes more money than you do. If you make $50,000 a year, you need investments which make you at least that much. If the stock market averages an 8% rate of return after inflation, you would have to have $625,000 in mutual funds before you were financially independent. That’s a lot of money, but don’t worry, it’s not an insurmountable feat. You have the power of time and compound interest on your side.
Coming up with extra ways to earn money and save money are up to you. You know what your skills are and are able to figure out where your excess spending is better than anyone else. You have to look deep within your finances and be able to cut the fat and find ways to bring home more money to create additional cash flow.
3. Execute Your Plan This is where the really hard work begins. You know how much money you need to have invested and where you’re going to invest it in, and now it’s time to make it happen. This is where you’ll begin working a part-time job, opening a small business, selling stuff that you don’t need, and making yourself more valuable to your existing company all that you can make some more money.
Don’t be fooled, making more money is not enough. Anyone who has studied economics will be able to tell you that as your income increases, statistically your expenses will increase in a likewise manner. You’re making more money, but you actually have to spend less money for this plan to work. It’s all about making additional cash flow for investing in good mutual funds and other investments.
4. Don’t Give Up After working on such a plan for a couple of years, most people get exhausted and go back to living paycheck to paycheck. They can’t see the light at the end of the tunnel, and quit sacrificing. They end up back in their same habits which left them in a bit of a financial mess and nothing’s been accomplished. You can’t let this happen to you.
Remember that this is not a short term game plan, you’ll need at least 10 or 15 times your income in good mutual funds to be financially independent, this a marathon, not a spring. Let’s face it, it’s going to take a while, probably a decade or so, but it can be done. Keep working, keep spending less, and keep investing.
If you find yourself in a situation like this, it’s okay to slow down a bit, but keep moving in the right direction. Maybe you spend a little bit more on fast food and work a few hours less, but keep making progress towards your financial independence!
5. Victory You’ve done it. You’ve sacrificed for a long period of time, and now you can pretty much do whatever you want. You could take out 8% of your nest egg each year and retire if you wanted to. If you enjoy your job, keep working. The important thing is that it’s your choice to do whatever you want now! You don’t have to worry about the bills being paid or whether or not that next paycheck is going to come in, because you actually have some money!
Walking on the road to financial independence is certainly not an easy journey to make, but the reward at the end is worth it more than you could imagine.