Many Factors Play Into Reaching Financial Independence
Posted on March 14, 2008
We hear a lot of talk about financial independence, but how do you define the term. Financial independence for someone comfortable with a $3,000 per month standard of living is totally different from someone who wants a $30,000 per month standard of living. I define financial independence as the point where your assets are able to produce enough income to sustain your chosen standard of living without having to trade labor for earnings. With this in mind, achieving achieve financial independence must start by setting a goal for the kind of lifestyle you want to live.
When setting your goal for financial independence, several factors come into play. Among these are, the standard of living you expect to live, the amount of time you’re willing to allocate, the sacrifices you are willing to endure, and the decisions you are willing to make. These factors determine how you will divide your earnings between improving your current standard of living and investing for the future.
You make little decisions consciously or unconsciously every day that have a major impact on your future. Do we eat out tonight, or save money by cooking at home? Do we buy that new pair of sneakers just because our friends have the new style, when we already have a perfectly good pair? Do we trade cars now and get that new one that smells and looks so good, or do we wait a year or two and invest the savings? How many decisions like this, big and small, are you faced with every day? Do you realize that a day’s income invested today could pay for several days 20, 30, or 40 years from now?
Time is the one commodity that is distributed equally to all living creatures. You can’t save time, hoard time, bank time, or accumulate time. You can only spend it. The decisions we make each day are a reflection of the way we spend this time. It’s how you spend time that determines what you accomplish in life and whether or not you achieve financial independence.
There are many ways to spend time. You can spend it usefully, constructively, beneficially, creatively, efficiently, positively, productively, and wisely; or you can spend it wastefully, foolishly, frivolously, extravagantly, lavishly, carelessly, and inefficiently. If you think about it, you can come up with hundreds of other ways to spend time, but not a single way to get more of it.
So, if you can only spend time, what can you do to become more successful and achieve financial independence? The answer is simple: You improve yourself. Through education and practice, you learn how to produce more in the same amount of time. Unlike time, you can save and invest part of the income from this increased production and that’s how you achieve financial independence.
For example, if you are a typist who types 40 words per minute, you can become twice as valuable by increasing your typing speed to 80 words per minute. This translates into additional income which can either be spent or invested. One of the biggest reasons people fail to achieve financial independence is they spend everything they make, which forces them to work their entire lives just to exist. They lack the discipline to regularly invest part of what they earn and allow the investment to grow until it is able to produce enough income to support their lifestyle.
Over the years I’ve heard thousands of people gripe and complain about their jobs, their lifestyles, and other people who seemed to get all the breaks. These people all had a common characteristic. They weren’t willing to take the time they spent complaining and use it to improve themselves and become more valuable to others. I overhead one of these conversations at lunch last week and in the conversation, the man doing the complaining proudly proclaimed that he hadn’t read a book since he got out of school. Umh!
Here’s a tip! Whatever you are doing to earn a living, commitment yourself to get better at doing it. Ignore those who might criticize you and vow to become the best at whatever you do. Whenever this increased performance results in a pay raise, commit to taking half of it and putting into an investment account. Deposit this amount every time you get paid.
Although it will start small in the beginning, you’ll be amazed at how fast your investment account will grow. Do the same each time you get a pay increase throughout your working career and you’ll be surprised how this one simple act will propel you toward financial independence. Once your investment account reaches a certain level, it will open the door to other investing opportunities that were not available when you had very little to invest.
When you make a true commitment to learning, you will become more valuable in the workplace and your compensation will grow exponentially in proportion to your level of expertise. Why do you think the CEO of major public companies makes 100 times as much or more than the production workers? Is his or her time really that much more valuable? You bet it is or they wouldn’t be getting paid that much. Public companies are not benevolent intuitions. They’re in business to make profits for their shareholders and most CEOs are compensated based on the profits they produce. Interestingly enough, so are production workers�it just isn’t stated that way.
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