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10 Practical Tips for Financial Independence

10 Practical Tips for Financial Independence

Money is such a complex issue that many people have a different definition for financial independence. This is due to the complexity of our monetary system, due to individual circumstances and due to the many ways a person can create an income and retain their capital. Therefore, for the sake of this article, here is definition of financial independence that most people will agree with (in uncertain terms).

Financial Independence

Means living without having to actively work to provide for the basic necessities of life. This includes most circumstances except when regarding charity or government assistance. A person must have access to enough wealth to cover the basic necessities of modern living, or have some other method of being able to pay those expenses on demand (again without relying on charity or payments from the government).

1 – Save

If you save up enough money then at some point you will have enough money to live a number of years without having to actively work to pay for life’s necessities. Saving is the first step to financial independence and yet so few people even get to this stage. Saving is not really the point of “Saving” up for financial independence. It is more about learning not to spend, which as a byproduct means that you save.

2 – Learn how money works

The people who have financial independence will often have a deep understanding of how money and economics works. They will understand that even if they put their money into an interest-earning savings account that their money may still be worth less in a year than it was when they first put it in. They understand how having money and holding onto it is like feeding a bucket that has holes in. The person can plug up the holes as new ones appear or the person can increase the rate at which water enters the bucket. In other words there is very rarely a point at which you can add water into your bucket and keep it there for a long time without it moving.

3 – Set up insurance, even if it is self insurance

A large part of being financially independent is knowing how to protect your money. Going back to the water and bucket example, it is your protection against your bucket being knocked over. Financial ruin can come from lots of places, including yourself or your family members becoming ill.

Learn how to protect your money and investments with contingency funds and with insurance. You do not even need to pay for traditional insurance. You can direct debit a set amount out of your account every month and have it put into a savings account. This lump sum is only to be used in an emergency. Technically, you are setting up a contingency fund, but it is far more apt to call it “Self Insuring”, especially since if you have to make a “claim” it takes nothing more than removing the money from your savings account.

4 – Save quickly but spend slowly

This should become your motto. You should have it stenciled across your bedroom ceiling, your toilet door and your wallet. Any decision you make to spend money should be taken at a slow and careful speed. You have to be aware that commercial marketing has an effect on you. You must take into account that your desire to spend your money (make a purchase for example) is based upon the influence of commercial marketing. The only way to circumvent this influence is to spend a lot of time and consideration when spending money.

Saving quickly involves your first reaction when you receive money that you were not expecting. Most people will start planning how they are going to spend it within minutes of receiving it. Your job is to decide to save the money before any thoughts of spending it enter your head (which takes seconds). You must save the money quickly in a savings account until the desire to spend it becomes too much.

5 – Take a long time to make any financial decision

Taking a long time will help you to make more rational and logical decisions. It also weakens the affect of any form of commercial advertising, and weakens the influence of sales people on your decision. Companies and con artists will try to make you spend quickly by imposing time limits. These people know that the longer it takes you to make your decision, then the more research you will do, and the higher the chances that you will find a cheaper/better alternative, or simply decide not to buy.

6 – Look at money like a commodity that you must both share and horde

People who view money as a ticket for the thing they want will never reach financial independence. You must view money with a cold and logical eye, and know that when you buy something that you have to give up a portion of your stored commodity.

7 – Spread your investments for security, but not too thinly

Spreading your investments across multiple investment plans within different industries is a good idea, but spread them too thinly and you will have trouble getting a return that is any bigger than the ones you get with your savings accounts. Don’t forget that spreading your investments is not always safe, such as when the global economic downturn started and all industries were negatively affected.

8 – Learn about your local and national tax laws

Uncle Sam can be your friend if you learn his laws. We all have to pay taxes, but there are plenty of rules that allow you to keep hold of your money and move one step closer to financial independence.

9 – Never lend money unless you are willing to write it off immediately

Unless you are in the business of lending money and you are a registered and licensed company, you are a fool to assume that money you lend will come back to you. Never factor any repayment into your budgets.

10 – Take risks in life and go all or nothing, but not with your money

Always make sure that your monetary risks are always calculated risks. Make sure that you can never lose everything. Make sure that you have both a backup plan and a contingency fund. Make sure that all your “What If?” questions are answered before spending or investing your money in a risky venture.

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Published by Sonia Jackson

My name is Sonia Jackson. I represent the web-site www.essay-bag.com. We’ll help you to solve all problems with writing different dissertations and research papers in a short time; we’ll answer all your questions and give you useful advice.

1 Comment

  1. financial accounting services · May 9, 2013

    Money is such a complicated problem that many individuals have a different meaning for economical freedom. This is due to the complexness of our financial program, due to personal conditions and due to the many methods a individual can make an earnings and maintain their investment.

    Therefore, for the benefit of this content, here is meaning of economical freedom that most individuals will believe the fact with (in unclear terms).

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