I define financial independence as having sufficient income from your assets, business(es), and investments to cover all of your monthly living expenses. Based on that definition, I’ve been fortunate enough to observe many people becoming financially independent while working directly with them.
I also believe that financial independence should be your end goal when it comes to your money. The more freedom your money provides, the more fulfilling and generous life you can live, which is what it’s all about!
So how do you get to financial independence? Follow these five keys and you’ll be on the path far sooner than you might expect.
Key #1 – Build your knowledge and situational awareness
Knowledge is the foundation to all (correct) action. If you don’t know what you need to do and what your targets are and should be, you’re unlikely to accomplish your goal, whether that be in life, aviation, or in reaching financial independence.
To build this knowledge, start by understanding what an asset (something that appreciates in value or makes you money) is and how it differs from a liability (something that steals resources from a productive use) and an expense (something that costs you money with no return to you).
Once you have a foundation of knowledge, you need to know how and where to apply it. To do this, you must have a very strong situational awareness of where you are now. If you know you need to have $2,000,000 for your financial independence goal, you need to know where you currently stand.
Once you know the gap (the difference between where you want to be to where you stand now), you can build out a plan to close the gap and reach your goal. (For more on building a plan, see the July 2017 column).
Key #2 – Think “right” about financial independence
Before you can truly accomplish anything, you need to believe that you can accomplish it. As you look to build financial independence, realize that it is 100% doable for you and for anyone. Lacking certainty on this? Take a look at some of the most financially successful people in the world and see where they started.
To think “right” about financial independence, you must be willing to reject society’s way of thinking. Today, some will tell you that you’re greedy if you want to build wealth and that it’s luck, not skill or work, that determines your ability.
This is completely false, and you need to be willing to forget that faction of society’s view and focus on what you know you can accomplish. Complete financial independence in a matter of years, not decades should be your goal, not working 40+ years in the holds of accumulating enough to “get by.”
Key #3 – Free up at least 30% of your income
As you will see in Key #4, to reach financial independence, you must have plenty of cash to put away each month toward assets that produce income for you. For many, saving 30% of their income seems impossible, but it isn’t! Here are three strategies that always work:
Increase your income. Start a side business or create another income stream in your spare time. (We all have some spare time.)
Cut back on your expenses. Are there things you can cut out each month? Consider not just Starbucks, but bigger expenses such as car payments, large mortgages, etc.
Save more tomorrow. Commit to saving 50% of every single pay raise or bonus you get until you’re saving 30% of your income.
When you have 30% of your income free each month, you’re ready to start buying assets.
Key #4 – Buy assets that generate income
Assets are things that generate income for you either now or in the future. They are not luxury cars, more house than you need, or expensive toys. Assets make you money, everything else costs you money.
Buying assets with freed cash flow each month is how the rich keep getting richer and how you can start or accelerate your path to financial independence. Common assets are: real estate, dividend paying stocks, certain bonds, scalable businesses (online courses, books, etc.), and anything that can generate income without you being there full-time.
Key #5 – Don’t stop!
Is building significant wealth and reaching financial independence hard? You bet! So is anything worthwhile in life. The good news is that it gets easier and easier every single year and eventually becomes so second-nature that you wake up at your goal one day and don’t even realize it.
To reach your destination of financial independence, you have to practice persistence. As time goes on, you will start to see the power of compounding working for you as the income generated by your assets is available to purchase more assets that generate more income, and so on. This type of compounding is the most powerful force in the financial world and the true key to you building the wealth you want.
Not being financially independent is simply not an option. You are the only person looking out for your financial life and now is the time to start or accelerate your journey to complete financial independence.
Build your knowledge up, learn what you need to know and increase your situational awareness in your financial life. Know that you can obtain the wealth you want and shun society’s views on money and wealth.
Free-up cash each month to buy assets that generate income and use that income to buy more assets. This is how you build massive wealth that allows you to live a fulfilling and generous life!
PS – Want a free copy of my book: Million-Air: Strategies For Pilots To Build Significant Wealth? Head to AirspeedAndMoney.com/freebook.