Your phone alarm blares, and you stumble out of bed as you prepare to go about your morning routine. Its Monday morning and you’ve got an entire week of work and meetings ahead of you. At the moment, you feel like turning over in bed and going back to sleep.
But you can’t.
There are bills to pay and the rent is due next week. At the rate the economy’s going, chances are you’ll be doing this for the rest of your life. The way things are, it looks like you can’t afford to retire.
If you can relate to any of this, chances are you’ve often dreamed of having enough saved up to enjoy a life of leisure. Or even better, to have a steady source of cash rolling in each month without having to lift a finger. The hardest thing you’d need to do all day is to keep track of the money flowing in.
Sounds like a pipe dream doesn’t it? A steady income without a day job.
Fortunately, this isn’t a pipe dream. In fact, it’s very much possible. With a bit of creativity, plenty of discipline and some hard work, you’d be able to achieve financial independence. For the uninformed, financial independence is defined as being ab
Here’s our guide to how you can achieve financial independence sustainably:
1. Change your mindset - a high income doesn’t equate to wealth
Many new investors often make the mistake of equating their income to wealth. Your income refers to inflows of cash from your salary of side-gigs. On the other hand, your wealth is the net total of your financial assets (cash, stocks, bonds, etc) or physical possessions (think cars and real estate).
From an accounting standpoint, your wealth is defined as your assets minus your liabilities. While you may have a huge salary, things such as expensive mortgages and loans means that you’ll likely have an excess of liabilities.
This is known as lifestyle inflation; a situation where a person’s expenses grows in proportion to his/her income. As you earn more, you may be tempted to splurge on goods and products that you don’t need. This will eventually lead to you accumulating more liabilities as your income grows.
Thus, in order to build wealth, you need to have an excess of assets compared to your liabilities. This can be done by slashing your expenses and living within your means.
2. Set aside an investment fund
Financial independence comes from your ability to develop various secondary income streams. Ideally, these side-projects should be able to generate income on its own without your direct intervention.
Also known as passive income streams, these are crucial if you are to achieve financial independence. Assets such as dividend-paying stocks, bonds and real estate rental are just some examples of passive income streams.
However, before you can get started, you need to have a stash of cash for investing purposes. You can start by putting aside 20% of your salary or income aside each month in a fixed deposit. From here, the cash set aside will allow you to earn a small but steady stream of interest.
Over time, as you put aside more cash, you’ll be able to invest in larger and larger investments. Many have found success by building a portfolio of dividend-paying stocks and bonds which can generate a steady stream of income each month.
3. Avoid debt or get out of it
As Einstein once said, compound interest is the most powerful force in the universe. Being the genius that he was, you should take heed of his advice. While he was likely referring to compound interest derived from investments, the same could be said of interest charged on outstanding debt.
Take credit cards for example, while they’re great if you’re short of cash, when improperly managed, credit card debt can very quickly spiral out of control. A study conducted by the Federal Reserve Bank of New York found that a shocking 55% of Americans had credit card debt of some kind.
Alongside this, many of the respondents admitted that they were not able to fully pay off these debts. With the extortionate interest rates charged by banks, it’s easy to see how these credit card balances can quickly spiral out of control.
Hence being a prudent consumer, caution should always be exercised when using credit cards. Ideally, stick to cash payments where possible and ensure that your credit card balance is cleared at the end of every cycle. Being unable to meet your credit card payments is a clear sign that you’re living beyond your means.
To sum up, don’t let debt overtake your life. With these tips and plenty of savvy, financial freedom can be achieved by just about anyone. Even if you are a horse racing enthusiast and you want to bet on the Breeders Cup races, you can still do it if you wage responsibly and do not spend what you do not have.