How to Become Financially Independent
1. First of all you don't have to have a lot of money to be
financially independent. You only have to have enough. The
question then becomes, what is really enough? The next question
you have to ask yourself if you're working is "Am I earning a
living" or "Am I earning a dying"?
2. To begin with, you have to take stock of what you now
possess. That is, you have to prepare a balance sheet of your
personal possessions. In other words you should determine your
assets ( what you own ) and your liabilities ( what you owe )
and then subtract your liabilities from your assets to figure
out what your net worth is. In this way you might find out that
you're richer than you thought, poorer than you thought or just
about where you thought you were. In fact one person found out
when he did this that he really was a millionaire and didn't
have to worry about being financially independent anymore. But
in any case it's important to know where you stand at this point
in time.
3. As an aside here, I have to say we don't prepare budgets. We
found that budgets are very much like diets and they usually
don't work.
4. The second step you should take is to determine how much
money you're really making on an hourly basis at your present
job, or how much you're looking for hourly, if you are out of
work. Now in determining this, you should not only figure in the
hours and money that you receive while you're on the job, but
also any time and deduction in expenses that have accrued to you
that are really work related (travel to and from work, work
related illnesses, costuming, decompression time and expenses
related to work, etc.). In fact, one employee found that he was
making a minus income if he stayed at his current job any longer.
5. The third step that you should take is to start keeping track
of every cent that comes into and goes out of your life and to
categorize each cent according to your judgment as to what
categories or subcategories are essential in determining where
your money is actually going and coming from. Then at the end of
each month you should total all the categories or subcategories.
After this you should subtract the expenses from the income.
Then you can add or subtract the result depending upon whether
there's a gain or loss for the month to a beginning cash
balance. The result should equal the actual closing cash balance
for the month plus or minus a human error in calculations. A
gain for the month would be a savings.
6. Next you have to start by defining what money really is. Most
would define money as a medium of exchange, but I would like to
offer another definition. Money is what you trade your life
energy for. And in looking at this definition you have to match
the life energy that you're using with the totals in each of the
categories or subcategories that you're listed to record your
money spent. To do this you should use the formula; Dollars
Spent / Real Hourly Wage = Hours of Life Energy Used.
7. The next step is to determine your goal or goals that you
might have for the rest of your life. And in order to do this
you might have to ask yourself a number of important questions.
For example; 1) What did you want to be when you grew up? 2)
What have you always wanted to do that you haven't done yet? 3)
What have you done in your life that you're really proud of? 4)
If you knew you were going to die in a year, how would you spend
that year? 5) What brings you the most fulfillment - and how is
that related to money? or 6) If you didn't have to work for a
living, what would you do with your time?
8. Now once you've determined what your goal or goals are, you
should match this purpose with the totals in each of the
categories or subcategories to see if a particular expense is
really in alignment with your purpose or not. If not, you might
ask yourself how might that expense be adjusted accordingly. In
doing this though you should also be aware as to whether your
purpose is in alignment with what's good for the planet as well.
9. Now here I doubly want to emphasize, and historical evidence
seems to back me up, that unless your basic priority is the
welfare of the planet, you will normally not be financially
independent.
10. Next draw a wall chart indicating the trend upward or
downward that your income and expenses are taking over a certain
period of time. Use the vertical side of the graph to represent
the money and the horizontal side to represent the movement of
time. Also use different colored lines to distinguish between
the income and expenses on the graph. Notice the trends. Within
three months your expenses should decrease by 20%. Unusual
expenses could be prorated or balance each other out. And
eventually this wall chart should be made public for mutual
encouragement.
11. Tips on how to start being frugal: 1) Stop trying to impress
other people. 2) Don't go shopping unless you really need
something. 3) Avoid using credit cards as much as possible. 4)
Do it yourself. 5) Look for bargain quality. 6) Use your
possessions efficiently. 7) Watch out for unnecessary interest
payments and financial charges. 8) Check out your transportation
costs. 9) It would be helpful if job and home were close
together. 10) Go to a four day ten hour workweek. 11) Comparison
shop for good medical services. 12) Reduce Stress. 13) Rent out
unused space in your home. 14) Explore living in a commune where
people have similar life-styles. 15) Live in a mobile or motor
home. 16) Share your possessions. 17) Share yours chores. 18)
Vacation near home. 19) Have potlucks rather than dinner
parties. 20) Develop inexpensive hobbies , 21) Do you need as
much insurance as you're carrying and 22) Continue to use your
imagination.
12. Now you should really start to redefine work as something
you actually love to do rather than something you have to be
paid for. In this way you can maximize your income while
minimizing your time in acquiring it, so that you can value your
life energy more effectively until you reach your goal or goals.
In other words, you could work for pay for a limited period of
time just to earn enough income to support yourself in the work
that you really love to do.
13. With your new definition of work and your new scheme in how
you should spend money, you should start your savings. I would
say here that you might need a cushion of at least 6 months in
savings with some interest being paid, for emergencies. After
this, you should call your savings "Capital" which is the money
you should put into long-term investments for making money.
14. Now these long-term investments should be as close to the
following criteria as possible: 1) Your capital must produce
income, 2) Your capital must be absolutely safe, 3) Your capital
must be a totally liquid investment, 4) Your capital must not be
diminished at the time of investment by unnecessary commissions,
5) Your income must be absolutely safe, 6) your income must not
fluctuate so that it would be the same each month, 7) Your
income should be payable to you in cash at regular intervals, 8)
Your income must not be diminished by unnecessary charges, and
9) Your investment must require no maintenance charges of any
kind. In the U.S. at the moment only one category of investment
fits into this criteria and that is "Long-term U.S. Treasury and
U.S. Government Agency Bonds".
15. And finally, along with your working income and expenses,
with a third different colored line you can record your steadily
rising gains from your long-term investments on the wall chart
as well. When this line eventually crosses over the expense line
(called the crossover point), you can then consider yourself
financially independent because your needed income is basically
acquired through money, rather than through your individual work
effort. I know that there is one 4 member family that discovered
by using this approach that they could live on $300.00 a month
comfortably.
This summarizes a book entitled "Your Money or Your Life" by
Joe Dom