Financial independence is a big idea with a lot of moving parts. For so many, that’s why it’s more of a dream than an actionable idea. Without a plan and a strong intention, you can get pretty used to talking about it as a project for “someday when….”
Once accepted as futuristic, it’s as likely as that attic cleanout that you always include on your New Year’s Eve list, but never do until you sell your house and have to move the stuff out.
While brilliant to start early, the path to financial independence can be travelled in different ways, and it’s always better to get on the path late than not at all. Here are a few tips to help move most people in the right direction.
They are also the steps you can begin immediately – no waiting to interview financial planners or to coordinate with a partner. These ideas build muscle. When you have done them, you will be stronger on the path and able to move more quickly to that next peak.
- Improve your relationship with money – Take the time to learn about your deep seated beliefs surrounding money. Notice the emotion that you feel every time a money decision needs to be made, and almost every decision has a financial component.
Understanding the role your emotions play in your money habits, conversations and decision-making will reveal patterns that you perpetuate. Awareness allows you to question your own actions and to impose new perspectives that can inform new decisions.
If you don’t like the results you are getting, look first at your thoughts, then examine the actions that you take. What change in thinking would drive a new action. If you know a new action is what you need, find the thoughts that make it easier to take that action. That changes your relationship with money.
- Earn what you are worth – You may not know exactly what your services or talents are worth, but you may have an overall sense that you are not currently earning what you could be. You can check sites like Glassdoor and Payscale compare your salary with current data available.
If you are an entrepreneur, how are you prioritizing paying yourself? Evaluate why you are feeling underpaid. Is it the long hours, the energy exerted or the knowledge that a comparable person is earning more?
First, check the validity of the premise that you are underearning, and then decide on an amount that would be more fair or appropriate. Begin the process of increasing your salary and paying yourself first.
- Exchange value (not time) for money – Particularly important for entrepreneurs, if you are trading time for dollars, you will run up against an earning ceiling that can only be broken by charging more per hour. This too has its limits.
There are many pitfalls to charging by the hour, despite its simplicity. As you acquire more education, experience and expertise, you should be compensated for the value you bring to the table vs. minutes spent there.
Creative ways to package what you do is one of the best ways to bundle value for sale, independent of time. Value may be delivered by others or leveraged in many ways.
- Invest in yourself – I can’t imagine a time when you should not be investing in yourself. Whether in education, mentorship, new tools, or an expanded network. The investment may be in time, energy, cash or a combination of the three.
Investing in your mental and physical health should take precedence over anything else, but we all need to perpetually remind ourselves that that investment will bring the biggest ROI, the one that matters the most to the long term goal of independence on any level.
- Remember cash flow – Revenue goals are important targets, but often increases in income are matched evenly by increases in spending. Unfortunate, but common, is the anxious chase to meet excessive costs with income.
Positive cash flow primes the soil for financial growth. Cash flow enables you to save, invest, and increase your wealth. Creating cash flow requires close monitoring of numbers, predictability of income and expenses, and some sacrifices.
Oftentimes, there is a hope that enough income will solve a cash flow problem and the focus remains there. Consequently, you may miss the bigger picture and spend too long chasing a moving target. Don’t miss opportunities to address problems in other ways.
- Make an investment decision – Investing your money will contribute greatly to financial independence. The passive income that investments provide are important to any freedom plan. The investment options are many, and confusion may stop you in your tracks.
Make a decision to start. Choose an avenue that is aligned with your lifestyle and interests and make the time to set it up. Indecision can go on a long time, so check yourself, and identify what’s stopping you. Everything is set in motion by a decision.
Even if you do not yet have a comprehensive plan, make one decision to invest in a way that either starts the process, or adds one more investment to an existing portfolio.
- Schedule and plan Money Dates – Make a regularly scheduled date with yourself to get together with your money and interact with it. This is another way to create a stronger relationship with your money.
Decide on a focus for each date, and actively pay attention to your money. Spend time getting to know where you are, what you want and how you will improve financial results. You can use this time to check in, review statements and reports, track data, assess what’s been happening, celebrate successes and address challenges.
- Say no or no more – Freedom can come from releasing the things that take your time, energy or money and don’t serve you or your long term goals. You may need to say no to new opportunities that come along.
You may also need to say no to existing situations that are not working for you. Service providers that are no longer needed, contracts or subscriptions that you no longer want or underperforming investments that need to be changed.
- Build safety nets – Security is a building block of financial independence. Security may be in the form of insurance protection, creating trust agreements or other legal documents that will preserve wealth under various circumstances, or even organizing and cataloging assets.
Time spent on creating protections is worthwhile and usually a once a year activity. If I learned one thing during the fires in Malibu in the fall of 2018, it was to make sure your insurance is up to date and the values have been adjusted properly, and you have documents organized and accessible (or safely in a cloud).
- Audit your spending – I left my least favorite for last. For many of you, this is something that comes easily and for others you resist it like the plague. Whether you use an app, a spreadsheet, or a napkin, tracking and reviewing spending is the only way to know where your money is going.
How often have you felt like you don’t know where your hard earned money goes? This is again common, but completely at odds with the goal of financial independence.
Within your expenses you may discover the extra money you need to save or invest. By getting more familiar with how you spend, you will reveal the cash flow pitfalls, find services or products you may say “no” to and understand more about your relationship with money.
There’s a money story that your expenses will tell as long as you are willing to listen. Grab control and rewrite the story with a more desirable ending.
