Financial independence is more a feat of lifelong behaviour – and less a function of instant riches, amassing possessions or playing the markets. Many highfliers never attain true financial independence. The following seven suggestions, if applied consistently, are universal precursors to financial freedom at an appropriate time in your life:
• Define it correctly. To be financially independent is often confused for being ‘wealthy’, earning a high enough salary to cover your expenses, being debt free, or even having access to ample credit. Affluence doesn’t equate to financial independence. Start your journey by outlining financial independence as: ‘Securing a sufficient amount of capital, invested in a format whereby it can provide me with a reliable stream of income, to pay for the lifestyle I choose, for as long as I live’. Every word in this definition matters.
• Be debt averse. You cannot borrow prosperity. If this tends to be your go-to proclivity, stop immediately. Lifestyle debt invites future poverty. Have a plan to repay your debt sooner than the bank expects you to – and once the goal is met, start paying with real money for what you need. And be on high alert when someone advises you to borrow money to invest in a scheme of some sort.
• Save a notable portion of your income. Financial independence is closely correlated to consistent underspending. You can predict someone’s propensity to achieve financial independence by monitoring the monthly percentage of income he saves – in an authorised retirement product. As boring as that. However promising your business venture or career prospects – save a notable portion of your income, as if it will be your only source of future financial comfort. To build your primary capital in this ‘conservative’ way is the surest way of keeping financial hardship at bay when you are older.
• Be serious about the quality of your work. The demand for your skill determines the potential of your income. Invest in your capacity to do sustained great work – and be committed to what you do. Build reputation. Be consistent in the value you offer. Become an expert.
• Don’t waste money. Whatever your spending power, refuse to pay for what you don’t get. Need less; pursue your happiness in non-materialistic ways. Resist sweeping lifestyle changes as far as possible – radical decisions carry a big price tag. And don’t live through the eyes of others. When you compete and compare, the consumer economy will entice you to buy what you shouldn’t, impulsively so.
• Stay out of courthouses. Conflict is an expensive habit. Prevention is always better than cure, harmony always more economical than feuds. Live your life and organise your affairs in a way that you avert the occurrence of catastrophic legal battles. Courtrooms are the graveyard of many people’s potential financial independence.
• Don’t be fixated. Beware of exotic investment offerings, big bets, the lure of unrealistic returns, or keeping all your wealth locked up in your business as you become older. Poor investment decisions are always accompanied by emotion or bias. When you set money aside for your financial independence, invest it in a diversified portfolio of quality assets, under the guidance of a reputable, licenced financial advisor. And as for every rand you invest in this way – make a commitment to ringfence these savings – and allow it to be the source of your income when you reach financial independence.