First steps...

This article is written for someone starting out with little or no money, who may also have a good amount of debt. The good news for those of us starting with zero, is that there is an opportunity to accumulate enough wealth to be able to live off of the interest.

A large part of planning financial independence involves knowing where you spend your money, and transforming undisciplined, impulsive spending patterns into making conscious decisions on purchases. If you think that being financially independent means that you don't have to worry about money, I am sorry, that is not the case. It means that you have to be continuously aware of the purchases that you make, and consciously decide which purchases have top priority. If you follow the program outlined here, you will say no to many, many impulses to purchase an item.

The general principles of planning your financial independence:

  • Identify your life goals and objectives.
  • Maximize your income.
  • Build a frugal lifestyle.
  • Spend less than you earn.
  • Invest the surplus so that it increases.
  • Maintain the lifestyle over a period of 10 to 15 years.
  • Know when to break out of the working life.
  • Get the most out of the money you have saved.
  • Use money as a tool to live the way you want to.

To get started, inventory your financial condition. Collect your receipts, invoices, bills and pay stubs, and start figuring out how much you spent on what. Inventory your debt and know how much you are paying for the cost of carrying debt.

The next step is to assess your current job and where you live. Could you earn more money at a different job? Could you reduce your living expenses by moving to another city or neighborhood? If you get some education will your income potential be improved? Think with a timeline of about 15 years; that is about what it will take to accumulate enough wealth for a modest income from investments.

This article introduces a process of budgeting which is intended to make you think about your priorities when you spend your money. The goal is to bring some clarity into your household economy, and allow you to review purchases and to learn from mistakes.

If you are willing to follow the goal of becoming financially independent, of living off of the interest of your investments, you need to focus on making money available for investments. This means learning to live well on little money. You have to set goals for your life and find ways to achieve those goals by applying your energy, not by buying them. You have to continue to seize the moment and follow your dreams every day. But rather than purchasing your dreams, you have to focus on activities that are less cash intensive, such as self-improvement, creative pastimes, helping others, socializing and learning.

You have to make a list of the things which you need to live. A minimalist's list, just the household items and basic things that you absolutely NEED. Things that will hopefully have a service life of about 15 years. Once you have purchased these items, strictly limit your consumption. Let people think that you are poor, that you cannot afford to buy new, better, bigger, shinier cars, vacuum cleaners and lawn mowers each year. Conserve the things you have. Stre-e-etch that service life out as long as you can.

When you have purchased your list of necessary items, start pouring your income into investments. Within two to three years, you should be able to have purchased all the household and transportation items that you need, eliminated all consumer debt (other than a home mortgage), and have developed a low cost lifestyle. You need to think ahead and save for larger expenses that occur throughout the year, and you need to have a stash of funds for emergencies. If you can maintain that lifestyle for about 15 more years, you will get to a point where you can decide how much retirement income you really need, and you will be able to stop full time work when you feel that the interest income will support you adequately FOR THE REST OF YOUR LIFE.

The concepts presented in this article are relatively simple. The process is easily learned and applied.