Step 1: Prepare yourself mentally and emotionally for your Financial Independence (FI) journey.
FI is not achieved in a day or a week, it is a multi-year process, an ultra marathon. FI will test your commitment and resilience. Body, Mind and Soul need to be committed to the success of this journey.
Set out, with a clear understanding of what FI is, what are the benefits and what are the changes you need to do to get there.
Emotionally you need to detach from your money wasting comfort providers; we all have them and know what they are.
Mentally set in in the right frame you need your mental strength because your decision to pursue FI will be challenged by your internal voice and those around you who have other goals in life.
If you feel unprepared to start, consider outside help in the form of coaching.
Make sure your FI journey has solid foundations.
Want FI so bad, that nothing will come in between yourself and your final goal!
Step 2: Set yourself up for success
The Environment, you inhabit will influence your decisions and success.
Physical environment: If a coffee shop is an irresistible temptation why not change your route to work. If Amazon is a problem for you, consider installing Cold turkey.
People: If your friends, prefer to adopt a spendthrift lifestyle rather than a frugal one, why not get an upgrade? Family members can be trained into the art of frugality and FI without them ever hearing the words, be tactful.
The right books, blogs, websites, TV: The brain is a programmable sponge, soak it in the stuff you want it to do and eventually it will act accordingly.
Step 3: Learn the hidden secrets of finance and financial independence:
- Saving: The difference between what you earn and what you spend.
- Investing: Money exposed to risks, with the benefit of creating more money.
- Frugal lifestyle: Spending money on the stuff you really need.
- Gratification delay: Delaying pleasure, in order to have more pleasure in the future.
- LifeStyle inflation: Spending more just because you earn more
- Yield: Investments that create cash without the capital changing.
- Inflation: When money loses its purchasing power.
- Dollar Cost Averaging: Spread your investment across time
Why not take the next step and take a free Personal Finance Course at Coursera?
Read the right blogs, Mr Money Mustache (MMM) is a cult among FI practitioners.
Step 4: Take stock of your current assets
Your current assets are the rocket launch pad, they are the stacked brick and mortar with which you will build your FI fortress.
- How much time do you have left, till death?What are the averages in your current demographic?
- How much free time do you have? What can you do with this time? (More on this later)
- Active Income: Salary is probably the most common form of income. Selling time for money.
- Passive income: Current investments
- Network:: The people you know, and their openness to share information, deals, tips that will help you in your FI journey.
- Knowledge: What information do you think you need to make your FI journey shorter and more efficient.
Step 5: Create an action plan
Taking care of the basics first
- Eliminate unproductive debt and consumer debt.
- Create an Emergency fund
Boosting your active income
- Salaries vary astronomically, from a waiter to a brain surgeon.
- How can you upgrade your income?
- Which path is the shortest to a better salary?
- Change career, move cities?
- If you still have time to have a career in which profession do you see yourself?IT, Medical professional, Law, self-employed roofing, construction
Boosting your passive income
- Given your current financial circumstances, how much credit would the bank give you?
- What are your opportunities for investment with this credit?
- Do you have cash assets which can be moves to earn more money?
- Become Frugal, eliminate unnecessary spending, find better deals.
- Creating a budget;
- Optimise Tax bill
Upgrade your investing skills
- Understand investing and investments better
- Understand what is the best way to invest for you
- Read investment books
- Specialise in Niche markets
Having fun along the way
- Probably the most important step. Frugality does not mean boring. Frugality means creativity, prioritising what’s important, and spending money on it.
Step 7: Gain momentum, get to the next milestone, stay the course.
Even when frugal life in the modern society is better than the life of kings in the middle ages.
Gratification delay, does not mean no gratification
Rather than seeking gratification in the trivialities of modern life, those seeking FI are working hard to acquire the one truly scarce resource: Time. Make your goals part of who you are, make them your identity.
Adjust the course as needed
Windfalls and disasters are part of life. New ideas, unforeseen expenses, business opportunities will come along. Sometimes they will push you forward and other times back. Roll with the punches, not knowing what the day will bring is why we wake up with a spring in our step.
Recap, 6 step to plan your Financial Independence:
- Prepare yourself
- Know where you are coming from
- Take stock of your assets
- Use them to set the path to your FI destination
- Understand where you are going and find the shortest path to FI for you.
- Work hard at FI, enjoy the journey.
Your comments are important to me!
Are you on your FI journey, tell me your story I am interested.
What do you like in this article and what is missing?