Every 4th of July here in America, we celebrate the adoption of the Declaration of Independence on July 4, 1776 – our independence from the English Monarchy. It’s often met with fireworks, backyard barbeques and parades, but I also like to celebrate it by striving toward my own independence – from debt!
I think if more Americans took the time to become and remain independent in their finances, the country would be a lot better off.
Wikipedia defines Financial Independence as:
a term generally used to describe the state of having sufficient personal wealth to live indefinitely without having to work actively for basic necessities
I don’t really think of it that way. In my mind, that describes being independently wealthy, and Financial independence is not the same as being independently wealthy. I think that most people will never be independently wealthy, but most people can become financially independent. Here’s how.
My definition of Financial Independence is a life free from worry about debt, making ends meet and paying your bills.
Steps to foster financial independence:
Eliminate debt. I’m sure you’ve heard that the debtor is a slave to the lender. Well, I think that’s true and you can’t have independence being a slave. When you’re saddled with debt, you have fewer options and freedom of choice. Get out of debt as soon as you can!.
Diversify. Become less dependent upon a single source of income. Think about it: if your only source of income is your day-to-day job, then you’re dependent upon your boss, or your employer. If the company you work for goes out of business, or your boss is a head case and decides to fire you with little notice then you’re in a pretty tight spot. But, if you can get some extra income on the side, then you’ll be less dependent on that main source of income.
This also helps minimize the financial hit if your employer decides to furlough you (like mine did), and give you a week’s vacation without pay. Things like this can really put you behind in terms of money, but if you are resourceful enough to have a side income, then the impact of that week of unpaid time can be minimized.
Build your savings. This is a tried and true standby of financial planning. If you’re living paycheck to paycheck, then you simply have less freedom in terms of pursuing the things in life you love. For example, it’s extremely hard to find the time to go back to school for an advanced degree when all your money is going to pay off the credit card bill.
Simplify your life. The complexity and distraction you have in your life, the more time you have to focus on the things that really matter. Besides, less stuff means more money and savings which means more freedom.
So while you may never become Warren Buffet, you don’t have to be that guy who’s working all week to pay off the stuff he bought last month and couldn’t afford.
If you have any thoughts or ideas on financial independence, feel free to leave a comment.
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