As you celebrate our nation's independence day, maybe you should be thinking of your own. Are you getting closer to financial freedom? If not, here are some tips that will take you there.
Editor’s note: Some newspapers run “Yes, Virginia, there is a Santa Claus” every Christmas. Here at Money Talks News, we run this column from Money Talks News founder Stacy Johnson every Fourth of July – because this is the perfect holiday to take a look at your financial independence…
Independent: (adjective /ˌindəˈpendənt/) Free from outside control; not depending on another for livelihood or subsistence.
Our nation’s independence is a source of pride for every American, because it marks the day when our nation became the master of its own destiny – free from outside control.
Imagine the day when the definition of “independent” will apply to you – the day you’ll stop “depending on another for livelihood or subsistence.” When it arrives, fireworks won’t come close to expressing the satisfaction you’ll feel. Can’t see it happening? Here’s some advice that might help.
Finding your own version of financial freedom
I’m financially free – able to work because I want to, not because I have to. It’s been a long road, but I’ve learned some lessons along the way that might help you do it faster…
1. Freedom is inversely proportional to debt. It’s fundamental: The more debt you have, the less freedom you have. In fact, while it may sound extreme to compare debt to slavery, in a sense that’s exactly what it is. Every debt you have is an invisible ball and chain. If you owe MasterCard 10 grand, until you pay it off, MasterCard has the ability to influence what you do with your money, which means they also have a say in what you do with your life. (Is that why they call it MasterCard?)
Freedom means not owing anybody anything. If you have debt, read my book Life or Debt, or at least this story: 5 Steps to a Debt-Free Life.
2. Freedom means being rich, not looking rich. See that guy in the Porsche next to you at the red light? He’s not rich. He’s a salesman on his way to the home of someone who is. When he gets there, the house will probably be average but paid for. The cars in the driveway were probably bought used, and the prospect’s entire wardrobe will be worth less than one of the salesman’s suits. If you have time, read 19 Things Your Millionaire Neighbor Won’t Tell You.
Virtually everyone with a job will make a lot more than a million dollars during their lifetime. It’s not what you make that matters, it’s what you keep.
You can either look independent, or you can be independent, but you probably won’t live long enough to accomplish both.
3. If you want to work less, make your money work more. Say you set aside $1,000 a month. If you earn 1 percent on it for 30 years, you’ll end up with $419,628. Earn 10 percent on it and you’ll end up with $2,260,487. The one-percenter has a nice nest-egg, the 10-percenter is not only financially free, their kids might be as well.
“But wait!” you say. “There’s no way to safely earn 10 percent. And if I lose my money, I’ll be worse off than I was before because I’ve also lost all the time it took to earn it!”
True. And the same logic applies to love. If you’re going to find the love of your life, you’re going to have to risk major pain if it doesn’t work out. The solution? Be wise with both your money and your heart: Think it through before you make a move. In short, act cautiously but don’t miss an opportunity by standing there like a deer in the headlights.
The more you earn on the money you set aside, the sooner you’ll achieve financial independence.
4. Think like a hamster, live like a hamster. People who go through life doing what commercials tell them live in a world of instant gratification. They see, they want, they buy. Result? They run like hamsters on a wheel, filling their closet, refrigerator, and garage with impulse buys and struggling to stay ahead of their Visa bill.
A hamster can only think in the present. You have the ability to visualize the future and sacrifice today for a reward tomorrow. When you watch an ad on TV, you might see a funny skit or a cool new product. What I see is an attempt by some company to convert your future financial freedom into their next quarterly earnings statement.
Financial freedom is the result of focusing on the future.
5. Think less about money, more about time. Stop thinking of physical possessions in terms of money and start thinking of them in terms of time.
If you can live on a hundred dollars a day, every hundred dollars you can save is worth a week of free time 20 years from now. Here’s the math: Save $100, earn 10 percent on it for 20 years, and you’ll end up with $732. This “rule of 7” will work with any amount. If you don’t spend $10, you’ll have an extra $70. If you don’t spend $1,000, you’ll have an extra $7,000.
I realize that it’s not easy to earn 10 percent, especially consistently for 20 years, and I’ll also concede that $100 20 years from now won’t buy what it will today. That’s not the point. Here’s what is: The only thing you have that can’t be replaced is your time on the planet. For every $100 you don’t spend now, you could be spending a week down the road doing what you want to do instead of what you have to do.
Mentally convert money into minutes and you’ll achieve financial freedom faster.
6. Where you see yourself is where you’ll be. There are dozens of examples of lottery winners ending up as broke as they started, and dozens more people who lost everything in one field only to regain it another. This offers evidence that the way we visualize our future over time shapes it.
There’s an expression that goes, “If other people thought of me the way I think of myself, I wouldn’t have any friends at all.” Stop beating yourself up and start visualizing a new, financially free you. No matter where you’re starting from, or how bad you’ve screwed up in the past, financial independence is achievable. Picture it, believe it, and you’ll achieve it.
After all, your odds are certainly no worse than those faced by a rag-tag group of freedom-seekers who threw in together about 235 years ago.