All my life I have wanted to be financially independent – a goal that I still have not achieved. But what does it mean to be financially independent. For me, it means not to be burdened by the day to day minutiae of having to work in order to be able to pay for food and shelter.
You are financially independent when you have enough wealth to live without having to work or when you have assets that produce revenues bigger than your expenses. For example, let’s say that you own a home that you have rented out. Your net income from that home is about $2,000 per month and let’s say that you can live with less than $1800 per month, then you are financially independent.
After reading many books and after many years of reflection I have come up with this summary of how to become financially independent:
1. Financial independence is a lifestyle. People can make small gradual changes to their lives which will bring them closer to the goal of financial independence. These small changes could be things like not buying things on credit, driving a bicycle instead of a car, cutting cable tv, not buying designer clothes, etc. Each little contribution can make a big impact in the long run.
2. Become debt free. Other than my mortgage, I don’t remember the last time that I owed money. I have lived all my life debt free, no matter how broke I have been. Every car I have ever owned, I have paid with cash, the last car that I had cost me $3K and it lasted over 5 years. I am what credit card companies call a “dead beat.” By being debt free, you are living within your means and you avoid this horrible expense called “interest expense.”
3. Create some assets. To become financially independent, you have to create some assets. Mr Money Moustache shares the story of how he saved 66% of his income and under 10 years he was financially independent. You don’t have to have any special talent or be super smart, just live frugally, put all your savings away and in about 10 years you can be free. Austin Netzley retired at age 27 from a regular job. These two people saved most of their money and then bought some assets that allowed them to be financial independent. As soon as you buy some assets, then money begins to work for you, the magic of compounding starts working, your asset pool gets bigger which in return produces even more money for you.
4. Make money work for you. The most common ways to make money work for you are real estate and the stock market. I own two rental properties and those properties are helping me achieve financial independence. I recently got started putting money in Tax Free Savings Accounts and I buy shares of the Canadian Market Index every month. Occasionally I get a check from affiliate sales of Amazon, Google and my web hosting company Bluehost. In your case, you can also buy some index funds, or buy rental property. I am not an expert in either one of those investment vehicles, but they have worked fine for me.
5. Start something of your own. Having a job is fine, but when you own your own business, you are in better control of your future. When I arrived to Canada, I worked as a waiter, as a janitor and a few other low paying jobs, but eventually I decided to take control of my income and my hours so I created my own jobs. I became a Spanish tutor, a tax preparer, a dance teacher and now I invest in real estate. I feel like I have better control of my life. Being self employed is not for everyone but if you become self employed, most likely, you will never go back to a 9 to 5 job.
Being financially independent can be scary but not being financially independent can be even more scary. Nowadays, there is no job security. If your job can be replicated by someone else, it will be the person willing to accept the lowest paycheck who will own that job. Many jobs are being transferred to China and to India and even the Chinese are outsourcing their work to Ethiopia.
The best way to be financially secure is by creating your own assets. When you adopt this mindset, this will be the beginning of your journey to financial independence.