This blog is intended for educational purposes only. None of these posts are meant to give legal or financial advice. If you need advice you should consult an appropriate professional.

Saturday, October 12, 2013

Financial independence should be your first priority

Being financially independent is not achieved often by human beings.  I would define financial independence as meeting all expenses from income not based on employment.  Most of us have to trudge off to work full-time to a job we don't like for the vast majority of our lives.  This is not freedom.  We live in a system of wage slavery.  Most people need their wages from an employer to put food on the table and have a roof over their heads.  How did it come to this?  We used to provide most of our needs ourselves.  We built our own house, grew our own food, and didn't have much need for transportation.  Those days are long gone.  Everything is money now.  So we need money.  I don't like it really, but it's a fact.  These are three ways to speed along the process of financial independence: reducing expenses, increasing income, and building income that is not employment based.

Reducing expenses is my favorite of the three.  It gives you less need for money.  That means financial independence can be achieved sooner.  If you focus on reducing expenses for housing, food, and transportation you will be doing very well.  Another thing about expense reduction is it's tax free.  If you earn more money it will be taxed.  Making expenses lower is not subject to tax.  There's no doubt that we all need some kind of money to survive.  You can lower your expenses though if you're determined to do it.  There are people living at all kinds of levels in this world.  Some live in mansions, some live in a shed or even the woods.  Those are the two extremes, but somewhere in between there are many choices.  Public transportation and walking can save money over car use.  And if you eat most of your meals at home that saves money as well.

Increasing income is not as easy as reducing expenses.  As I said most of us have a full-time job that pays the bills.  That's fine.  Under that system the two ways that I see to raise income is to work more hours or get a higher rate of pay.  You could also get a part-time job on the side.  Another idea is to rent a room in your house if you own one.  Some kind of self-employment is yet another way to generate more cash.  You could mow lawns, walk dogs, blog, take surveys, or clean houses.  These are just a few of the thousands of ways there are to make an extra buck.  Remember that more income means more taxes.  And self-employment is taxed more than being an employee in the U.S.  It's kind of dumb if you ask me, but it's our system in America.  Be on the lookout for ways to increase your income, and then you'll have more money to employ for your ultimate freedom.

Building non-employment based income is the end goal.  This means money comes in without you having to get up, get in your car, and go to work.  My favorite type of this kind of income is stock dividends.  I buy shares in companies that pay at least three percent in dividends and have raised their dividends for a considerable amount of time, say 25 years or more.  This is not the only kind of non-wage income by far though.  You could start a little real estate rental empire, buy annuities, buy bonds, earn a pension, earn royalties, or have some kind of business that runs itself or is run by others.  These are just a few ideas.  This kind of income frees you from wage slavery.  It's very hard to build this to a sufficient level, and there are many distractions along the way.  You have to be determined to escape this rat race system so you never have to work again out of necessity.

So remember:  reduce expenses, increase income, and build non-work income.  We all would like to be free.  It's what we pride ourselves on in America.  Most of us aren't free though.  You're free when money comes to you in a sufficient amount without having to be employed.  We're always dependent on something for money, but the goal is to need the job less and less.  It's a worthwhile thing to shoot for.  Most people won't do it though.  They'll take their wage and blow it on some tv or cell phone and be no closer to freedom the next week when they show up to work.  Don't be one of them.

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