Many people regard financial independence as an unattainable goal. They assume that if it was easy, more people would be doing it. Also, some people enjoy their work, so they do not necessarily have strong motivation to explore other income streams. In actual fact, financial independence is within everyone’s reach, but you do need to adopt the correct attitude. Unfortunately, in today’s fast paced world, lots of people lack the spare time to educate themselves properly. Moreover, society as a whole tends to discourage people from thinking independently and going against the norm. Therefore, you have to unlearn everything you have been told that holds you back from financial independence, and start afresh. Keep reading to find out how to begin the process of becoming financially free, irrespective of your present financial circumstances.
Sort Your Finances out Before You Do Anything
You might want to fire your boss immediately and start building passive streams of income. However, you might also have sizable credit card bills, car repayments and student loan debts. When you are starting out, it is wise to deal with your costs first. This will enable you to achieve independence quicker.
To take an example, a low paid manual worker with zero debt will be able to retire sooner than a lawyer with four cars and a big mansion, but who is still repaying a $250k law school bill. To replace his salary and pay his bills each month, the lawyer will require a five figure monthly income. The manual worker, on the other hand, will only require two or three thousand dollars of passive income each month, which is far easier to secure. Retirement is your aim, so – when it comes to expenses – the fewer the better.
If You Fail to Plan Then Plan to Fail
There are many ways to become rich, be it in real estate investing or through other ventures. If you put the work in and expand your investments and business, you will eventually find success. Nonetheless, you can not do everything yourself, so good planning should be your top priority. Mastering the art of delegation is vital. Let’s say you are a skilled plastic surgeon and an excellent bookkeeper. You might set up your clinic doing the bookkeeping yourself. Ultimately however, you will spend too much time on admin and end up having to refuse new business. The alternative is to employ someone to do the bookkeeping. They might not be able to do it as well as you, but it will still get done – and you can then concentrate on increasing your profits by attracting more business.
Start Buying Real Estate
Of course, you will not obtain financial independence if you don’t start flipping real estate, however this has to come after the previous two steps – because you have to be prepared to invest prior to taking the plunge. Developing your first passive income stream can be challenging, and you might not get results straightaway. Although you can become financially independent without selling real estate, it is a proven path. Rehabbing properties only requires a modicum of effort, but the profits will continue to come in for years. Not many business models can produce long term, regular income with such a small amount of input on the investor’s part.
Aim to Get Your Passive Income Higher Than Your Expenses Quickly
This is important. The average Joe lives within his salary. The financially independent person lives within his passive income, rather than his salary. This might not be an enjoyable process initially, if your passive income is small. In this situation, you will have to live a modest lifestyle over the short term. Eventually however, your investments will generate more profits and you will have spare money to save and have an improved standard of living.
Being willing to make the sacrifice at the beginning, and adopting a positive mindset, will result in a financially independent existence. After you obtain complete independence, you can sample the finer things in life. More profits lead to more investment opportunities, and your wealth will grow in line with each dollar invested.
Know the Difference Between Liabilities and Assets
Regard each property you buy as an investment, rather than a home. The majority of people think that their home is their largest asset. They purchased it believing it was an investment, but then ended up subsidising that investment for decades. Through time, their property may have risen in value, however typically this is negated by the associated costs. Moreover, to access that equity they need to plunge deeper into debt by taking out a second mortgage, or sell their property. Neither of these options are desirable. Investments should give you a return. There might be a few expenses involved, but if you make more than enough to cover these expenses, you are on the right track.
Don’t Put All Your Eggs Into One Basket
Diversification is a crucial part of achieving long term financial independence. Perhaps you can do well from one type of investment, however if trends shift, economic circumstances change or competition increases, you might come a cropper. Ideally, you should have at least six different income sources. This will maximize your earning potential and safeguard you, in the event that one source falls by the wayside.
The type of income sources you should concentrate on are stock appreciation, dividends, referral income, rental income, passive business income, property appreciation and affiliate income. Within each type, you can incorporate additional diversification. For example, you could acquire industrial, residential or commercial properties, similar to the way you can purchase several dividend creating stocks. Also, you can invest in a range of different businesses, and get referral commission for various categories of services.
Everyone needs money to survive, however there’s no reason why you should earn money by selling your labor. Instead, you can invest a bit of time and effort today, and enjoy the profits long into the future. Having this investor mindset is what separates financially free people from wage slaves. Instead of living off a monthly salary, learn how to live off your investments.