Financial Independence in Less Than a Thousand Words
Most of us are born under the control of money. We are taught at youth that there are those people with power and those without power. Incidentally, those with power often have great wealth too. The bonds between money and power are as old as life itself.
But no one wants to feel weak and without control. Just as we value our physical and spiritual freedoms, so should we value our financial independence.
Financial independence is when our life choices are no longer constrained by the amount of money we possess. It is freedom and the reclamation of power.
In this article, I will share the summary of my knowledge to date, in less than a thousand words.
Wealth versus income
Earning a large salary is desirable, but it's not the same as being wealthy. Anyone can amass wealth over time.
You may know someone earning a six-figure salary, maybe they drive a nice car and live in a luxury apartment. None of those things prove that they are wealthy. In fact, they are just as likely to be living paycheck-to-paycheck.
Stop living paycheck to paycheck
You only need to save one paycheck’s worth of income, to no longer live paycheck to paycheck. And, if you earn a lower wage, that’s an even smaller amount to save.
This sum of money is commonly referred to as an emergency fund. A small amount of money that can help absorb unexpected life events without negatively impacting your overall financial picture.
There is no defined amount or time frame for saving an emergency fund. If you're uncertain how much, start by saving one paycheck's worth. Life is unpredictable, you just don't want to have to rely on credit cards in the case of an emergency.
Article: Stop Living Paycheck to Paycheck
Debt is negative interest
Without an emergency fund, you may be tempted to rely on credit cards or personal loans when something unexpected arises. This should be avoided at all costs.
Once you have an emergency fund in place, you can focus on paying down any debts you’re holding. It's essential that you do because every dollar paid to interest is a dollar not saved.
For example, paying down a credit card with a balance of $2,000 at 26%, over one year, will cost an additional $262 in interest. Building any real wealth will be impossible with debt working against you.
Of course, when many people think of debt, they think of credit cards and student loans. But really, it’s anytime you make a purchase without paying in full.
Your ego may be keeping you in debt
Why do so many people struggle with debt? There are many reasons, but one reason less discussed, is ego.
Ego is a primary driver for consumerism and is, consequently, why so many of us fall victim to debt. Dissatisfaction with your progress in life, and the notion that you need more, that you deserve more.
But maybe you don’t deserve more, not yet anyway.
Although admittedly less popular, it can be just as rewarding to accumulate things slowly. With practice, you may find that it is just as satisfying to know that you could buy something, rather than to actually buy it.
Starting over with your finances
The hardest part is hitting the reset button on your finances. It’s a decision that only you can make. Are you committed to building wealth?
If so, it shouldn’t take you long to figure out the things that you can live without, to start saving.
Don't forget to invest in yourself
Once debts are behind you, you’ll want to bolster your emergency fund. There isn't a magic number, but three or four paycheck's worth should be enough.
A more substantial barrier between you and life's relentless sense of humor will give you the courage that you need to begin investing. You should start by investing in yourself.
Wealth is not income, but income can seriously expedite wealth if you have the right habits. Investing in yourself, to increase your marketability and potential for earning more income pays lifelong dividends.
Understanding how to get a return on self-investment is a great way to start learning before joining the fray on Wall Street.