Achieving financial independence should be the goal of every working adult, be he an employee or self employed. As an income earner, your primary responsibility when it comes to finances is to convert your income into assets and ultimately into wealth. What you convert your income into depends on whether you are a consumer or a producer, spender or investor, farmer or hunter, have a lack mentality or an abundance mentality.
Your wages or salary cannot make you rich. It is what you do with it that makes your poor, rich or middle class. High income earners may appear affluent on the outside but have the cash flow pattern of the poor. They have nothing to show after more than ten years of earning wages. They were busy turning cash to trash.
Very few ever stop to consider the questions:
1) If you are fired or laid off without a severance package today, how long will you last before you start begging?
2) If you are a businessman and the government seals off your business premises and shuts down your web servers, how long will you last before you start approaching friends and family for money to feed?
For many good folks, the answer is in months. If you can last indefinitely, you are said to have achieved financial independence, which means you can do without your salary (or primary income) indefinitely. When cash flow from your fixed income assets equal to or exceed your monthly expenses, you are said to have achieved financial independence. That number (your monthly expenses) differs from person to person, hence there is no right or wrong number. You are the one that decides what works for you. Fixed income assets are made up primarily of money market instruments like high yield savings accounts, fixed deposits, treasury bills, bonds, tenor funds, commercial papers etc. The interest rate is fixed and known at the point of entry. It does not change, even if new rates come into effect, until after maturity. You can then roll over or move your funds into another money market instrument with more favourable rates.
The starting point in your journey to achieving financial independence is to make up your mind to change your mindset. If the road you are travelling is not taking you to the destination you desire, you have to decide whether to keep going and hope for a miracle, or pull over and head in a different direction. You cannot keep doing the same thing over and over again, and expect different results. The moment you decide enough is enough, you are ready to change.
In the next post, I will look at what triggers change.
Usiere Uko is a writer and author of Practical Steps to Financial Freedom and Independence.