Avoiding the rat race (Part 2); How to be truly Financially Free

Financial Independence is not about what you earn. It is about what you do with what you earn. If you are waiting for your income to match your expenses before you decide to start saving, you will never earn enough to match your desires.

Did you know that about 70% of all people who win a lottery go broke within 1-3 years?! So if you are interested in building generational wealth, waiting to ‘hammer’ is not the way to go.

“…unless a single grain of wheat falls to the ground and dies, it remains alone [just one grain, never more]. But if it dies, it produces much grain and yields a harvest” John 12:24

The best time to start working towards your financial freedom is now. Money saved today can be put to work to make more money for you in future.

How can you truly become financially independent? Below are five simple steps to get started.

  1. Give

It may sound counterproductive however giving is the first step to financial independence. To truly live, one must first die to self. To truly be free in your finance, you must first cultivate the habit to give away a part of your earnings. Consistently choosing to let go of a part of your income each and every time removes the power that the value of that income holds over you.

When in doubt, learn from nature. You can eat a single cob of corn and that won’t fill you up for long. However, if you take some kernels from that, give it to the ground, and let time pass as it sure will, you will get multiple returns on your harvest.

  1. Save

You should aim to save at least 10% of your income consistently. If you have never had the habit of saving, you should start now. Bet on yourself by making yourself put away at least 10% of our earnings every month for 12 months.

We have been brought up to believe that you should save with the aim of spending later. Whenever you receive any money, say to yourself: Save first, spend last. Think of it as you are paying your future self first.

A guide to true financial freedom, no matter the level of your income, is to have saved up 3-6 months of your expenses for emergencies only. This is to help you maintain your current lifestyle should there be a change in source of income. Using your expenses as a guide, this means that as your income/expenses grow, your emergency savings should also continue to grow in line with your current expenses.

  1. Invest

While building up your emergency fund, you should begin to explore investment opportunities that are in line with your interests. There’s no excuse for not knowing in this day and age. Knowledge is at your fingertips with Google. I have a policy to earn where I spend. So part of my investment policy is to buy shares in companies where I spend most often.

Research your investments. Write down your goals. When do you want to retire? How much do you expect your expenses to be when you retire? How much income would you like to have before you retire?

Once you have researched your investment options, you would need to decide on the longevity of your investments. Short term, medium term and long term. Putting all your eggs in one basket also applies to investments. Short term investments have expected payouts and returns within 6 months to 2 years, medium term would be 3 to 10 years while long term investments could be 20 to 50 years.

  1. Learn

You’ve learned to give, to save and you know where to put your investments and for how long. What’s next? Now you learn. You build on the skills you have, you acquire knowledge and skills  to improve your earning potential. This is a good time to research and start that business you’ve always talked about. How can you make money from that hobby? An average financially independent individual requires at least 5 to 7 sources of income.

The above is a snapshot of Bill & Melinda Gates portfolio showing how well diversified their sources of income are.

  1. Insure

Did you know insurance also counts as investments? We live in a society where we would rather hope for the best than plan for the worst. Neither is mutually exclusive. Our ‘God Forbid’ attitude can often leave us unprepared when life happens, as it usually does. Now that you have diversified your multiple sources of income, how do you protect yourself and your loved ones?

Here’s where life insurance comes in. If you are young and single, then that’s more reason to take out a policy because it’s cheaper. If you are married, even better to protect your family against the inevitable. Next is a Child Education Insurance. Technical details for this type of policy varies depending on the insurer and country. Protect your children’s education by putting away money towards it each month. Most policies have an option to pay out if anything happens to you before the child comes of age. Other insurance policies that are often underrated and are worth considering include car, property, and business insurance.

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