Many roads lead to financial independence, so the route to yours lies in your identifying what works best for you. To me, the word ‘financial independence’ is synonymous with lying on the beach in one of the Caribbean islands, sipping a Pina Colada with a miniature umbrella leaning to the side of the glass, the breeze gently blowing against my skin, and at the same time, money flowing into my bank account.
Did I hear someone say “Get real”? I’m being real. Let me attempt to redefine financial independence in a less vivid manner; It is about reaching a place where you don’t have to worry about money, where you are not concerned with how to pay your bills, where if you gave up your job today, you would not have to worry about income, where your money is working hard for you and you don’t have to work hard.
As defined by John Cummuta of Financial Edge, “Financial Independence means the ability to manage your money in such a way that you have sufficient funds to live your chosen lifestyle without assistance from others”. Assistance from others could mean your job or even your spouse.
So, what does financial independence mean to you? To you, it might mean owning your house, maybe having a certain amount of regular income, or just realising your financial dreams. One thing for sure is that, what financial independence may mean to me does not necessarily mean the same to you.
As mentioned earlier, many roads lead to financial independence, some of which include: owning your business, investing wisely, or even marrying into it. All of which involve your making smart decisions. Between you and me, I’d love to marry into it, and so would many. However, I hear that is not always as easy as it sounds, so I suppose I’m going to have to personally travel up the road to my own financial freedom.
As we begin the journey, we need to be very specific as to our final destination. And the earlier we start, the earlier we are likely to reach our destination. So let’s get started by setting very clear goals as to where we are headed. Make sure you set goals that are SMART; you are likely to have come across the acronym SMART – Specific, Measurable, Achievable, Realistic and Time bound. A specific goal could be ‘Early retirement at the age of 40 with a monthly income of $7,000 following retirement’. Setting a goal to retire at 40 is specific, however if you are 35, and without any tested plan or savings, plus you have a sizeable amount of debt, it might be quite unrealistic, except of course you hit the jackpot.
Before setting off to your destination, you need to know your exact location to enable you accurately plot your travel route; have a good grasp of your financial situation. What is your exact: total income excluding taxes; assets including investments, savings & life insurance; expenditures; and financial commitments? Subtract your total liabilities (expenditures & financial commitments) from your total assets to determine your net worth. With this information, you know where to start planning from.
Now you know where you are, and where it is you are headed, next step is to figure out how to get there. Read Part II of this article on planning your journey to financial independence “Financial Independence – How to get there!“.