What is financial independence? One author defines it as” having an income sufficient for your basic needs and comforts from [sources] other than paid employment”. It can also be defined in another way: Financial independence means going to work, not because you have to, but because you want to. It’s all about having a choice.
Do you want to have that choice? Here are seven steps to help you reach that condition.
If you don’t know where you are going – how will you get there? Your long-term goal is to be financially independent. But you must also have short-term goals; they will form your stepping stones to your ultimate objective.
Paying off debts, saving up an emergency reserve fund, or a down payment for a car are some examples Improve your plan by putting a time frame on your goals.
Talking about finances, there must be a source of income to start you off on your journey to financial freedom. You must ensure a steady source of income, so the immediate objective is to hold on to your job.
Avoid office intrigues, be hardworking, honest, thorough, the all-around good guy, and honest Jane or Joe.
If you don’t have a job, then by all means find one. Make a job out of finding a job! Even if you only have to grill burgers at McDonald’s, it is better than daydreaming and doing nothing.
Set aside a fixed amount of your salary before you even touch a cent. Ten percent socked away every month would be a good figure. Park it in a savings account, for security and a little interest on the side. At the proper time, you will then move this nest egg into the right investment vehicle.
Supplement your savings efforts. Avoid absences and come to work on time. Save on household expenses. like utilities, groceries, and eating out. Eat at home before you go out shopping to avoid unnecessary purchases.
In his book How to Be Rich, billionaire J.Paul Getty advocates that one should be “cost-conscious and profit-oriented”. This is what points 2 and 3 of the article are all about.
Finally, strive for balance. Reward yourself occasionally to make the whole exercise enjoyable.
Health is wealth. That is never truer than today. With the soaring cost of medicines and hospitalization, getting sick will surely derail your savings program.
If you are a smoker, it might do well if you consider to stop smoking. You save on the cost of cigarettes (and save your lungs too!).Watch your diet (stay away from greasy and salty food), and try to put in some regular exercise. Be safety conscious and avoid accidents. You don’t want to throw away all your hard work in one moment of carelessness.
To protect yourself and your dependents against the element of time and chance, you must insure yourself. An insurance policy pays a sum of money to a beneficiary upon the death of the insured. Get yourself a term insurance- this is the cheapest of the lot.
From the internet, educate yourself about insurance. Then ask advice from an accountant or similar professional on how much coverage you will need.
This is the fun part. By now you should be saving money regularly. Save up the amount equal to about three months of your monthly income
All amounts that you save after this three-month reserve will be your investment funds – the war chest in your financial battle for independence. There are many investment vehicles available.
For a salaried employee who has neither the time nor inclination to track the ups and downs of the stock market, a practical (and profitable) investment vehicle would be mutual funds.
A mutual fund that earns 20% every year would mean that you will double your money in less than four years. Remember that you are there for the long term. Ignore the daily swings of the market. Make regular deposits to your investment. Sit back and in about two or three years, you can see your investment start to grow.
Two things are certain in life: death and taxes. Not really a comfortable subject but you have to cover this base just the same.
Discuss these things with someone who knows, possibly a good lawyer and a tax accountant. That way you have covered all aspects of your financial program.
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