There are two situations you are caught in either/or:1 You earn less than you spend, 2. You owe more than you own.
Financial Independence Starts with having control over your money
Short of robbing a bank (and getting away with a couple of millions) or some other form of illegal acquisition, it is impossible to acquire wealth through some “short-term” investment strategy.
How many people do you know who are waiting for “their ship to come in” and then their life will be honky dory. How many people do you know that jump for one opportunity to the next without ever committing, in the hope that one of them will quickly set them financially free.
Well here is the naked truth: For 99.9% of the people, it’s simply not possible to quickly turn $10,000 into $1 million by investing in stocks or bonds or buy resources or precious metals. It took gold ten years to go from $250 to $1,600 per ounce and even though that is an amazing 640% gain, it’s not quick and big enough for most people.
Independently Wealthy is totally different from Financial Independence
And the good news is that anyone can unshackle himself from “financial slavery,” and become financially independent in a relatively short period of time.
If you are in a financial slavery situation, here is what you must do…
First, you must ask yourself if you are willing to give up the hope of getting rich quickly by investing. Are you willing to accept the fact that you won’t go from broke to being a millionaire, by investing in the next Facebook? If you can’t honestly and completely answer “yes” to that question, you might as well go read another news pundit… one who will tell you what you want to hear.
But if you are ready, you need to analyze what you mean by “financial slavery.” What does that expression mean to you?
Here are the two situations you are caught in either/or:
• You earn less than you spend.
• You owe more than you own.
If you earn less than you spend, you are in a constant state of stress. You must put off or partially pay your bills. You must appease creditors. And all the while, your debt is mounting.
If you owe more than you own, you can’t buy a house or lease a car or get a loan from anyone other than your parents or kinfolks. (And what if they are dead or tired of helping you… or simply don’t have the money?)
Because you are in so much trouble, you can’t even think about taking nice vacations or retiring someday. Instead, you have to worry about losing your job. So you keep working and reading investment newsletters and adopt the next fad that comes along. But as each month passes, your financial situation gets worse.
It’s a miserable existence. But it doesn’t have to last. You can break the chains you feel attached to by simply recognizing and reversing the two “facts” mentioned above.
Problem No. 1: You earn less than you spend.
Solution: Spend less and earn more.
You can’t break the chains of financial slavery without hitting them hard with a sledge hammer. Cutting $10 here and $50 there won’t help you gain the independence you want in a few years or less.
Cut your expenses by 30% to 50% – austerity they call that in Europe!
I know that sounds crazy. And it may be impossible in your case. But don’t dismiss the idea until you hear what I have to say about that.
The two primary factors in your monthly spending habits are the neighborhood you live in and your workplace behavior. Neighborhood and workplace environment create the financial culture that presents the spending choices you make. If you live in a community of million-dollar homes, you will be looking at new Mercedes’s, Audis and Lexias when it comes to buying or leasing a car. You’re also looking at substantially higher water bills because of lawn maintenance, higher powerbills because of more space that requires air and heat, and when you go out to dinner, chances are, you’ll be spending a hundred or more dollars per couple. As far as your work environment concerns, a Latte in the morning and afternoon easily amounts to $250 each month and when you add lunch from the deli around the corner, you’re looking at an easy $500 every month. Unless you live in a working-class neighborhood now, you can radically reduce your spending by moving into one and bring your lunch to work. Of course that doesn’t match your status perception, but neither does the current lifestyle match your current financial means.
I have more than a few acquaintances who live in $500,000 homes in beautiful neighborhoods and drive luxury cars. But the sore reality is they are broke and getting poorer every month. They refuse to even consider the idea of reality sizing their life inside of their means, because they are simply too ashamed to do so. What they don’t realize is every month they try to “hold on,” it is making them poorer.
Moving to a less expensive neighborhood would be the quickest, biggest, and surest way to bring their spending down by 30% to 50%.
Now the other thing you must do to improve your situation is to earn more money, preferably from multiple income sources. You should take immediate steps to increase your income by 20% to 50%. Again, I know that seems radical, but if you want a “short-term” solution out of financial slavery, making more money is just as important as radically cutting expenses. It’s kind of a similar situation in macro economic situations these days. Austerity alone won’t do the trick. You also need sustainable growth. Search the Internet for what people need and find ways to satisfy those needs.
Problem No. 2: You owe more than you own.
Solution: Start owing less and owning more.
If you have accumulated a lot of debt, you may not see debt as financially dangerous. However, you must accept the fact that most debt you have is bad for you. There are only a few exceptions: mortgage debt when interest rates are low, and business debt when the business is sound and you are not personally liable.
The first step toward debt management is to get rid of every credit card you have, as well as any credit you have with your bankers. I celebrate 25 years without a single Credit Card this year. Use cash or debit cards for your shopping. Yes, that means there may be lots of things you can’t buy every month. That’s a good thing, not a bad thing, as you will find out.
If you have a lot of existing credit card debt, you need to consolidate it. Then work with a professional to pay it off at acceptable interest rates.
If you are lucky enough to have equity in your home, trading it for a cheaper one (see above) will accomplish two important goals: it will reduce your monthly expenses, and it will give you a chunk of cash that you can use to pay off debt or put aside as savings.
You must also increase what you own. And by that, I do NOT mean cars or boats or furniture or toys. I mean tangible assets that are likely to appreciate. Gold coins, income-producing real estate, and safe – non-speculative -stocks belong in this category.
Every extra after-tax dollar you make by taking on extra work or starting a side business should be devoted to increasing your ownership of such assets. None of it should be spent.
Being financially independent is not about having a big house or driving new cars or taking fancy vacations or borrow money to get breast enhancements or braces for your dentures .
There are millions of Americans in that situation today who are financial slaves, just like you. They are in chains because they spend more than they make and owe more than they own. Their stress is just as great as yours, even if they may make more money or have more toys.
Being financially independent means having more income than you need and owing less than you own.
It means knowing that you won’t be harassed by bill collectors or embarrassed at the supermarket. It means you have money put aside to take care of any emergencies that come up, and it means a savings account or gold coin stack that gets substantially bigger every year.
Becoming a multimillionaire usually takes years, but breaking the chains of financial slavery can be done relatively quickly. If you have the guts to do it.
The hardest part is recognizing the chains that are binding you – the true reasons why you are earning less than you spend and owe more than you own. Second is deciding to do something serious about them and realizing that until you actually do it, nothing will change.
I talk to a lot of twenty and thirty somethings these days who feel trapped in their financial ball and chain. Their relationships bend under the stress and weight of the financial frustration and ironically they “invest” hard cash in their hopes for financial freedom in the Lottery or a “too good to be true opportunity”, if only…!
