“The goal isn’t more money. The goal is living life on your terms.” –Chris Brogan
I have been talking finances a lot with mates in the past week, trying to see how the post Covid 19 economy would look like. Some want multiple streams of income, some want to finance their dream cars and houses. Others just want to be able to survive post Covid 19. What was apparent to me in these conversations though was we all want financial freedom.
Jay Z put it like this in The Story of O.J – ” Financial freedom my only hope… F*#@ living rich and dying broke…” We often think of financial freedom as having the ability to make certain choices without worrying about being able to financially strain yourself. To reach true financial freedom, you usually need a plan to get there. And this is where we can tend to get stuck. We all want it, but very few of us have the knowledge to execute and achieve it. To me financial freedom means wealthy not rich (that’s a topic for another day).
But if you think of reaching financial independence in bite-size stages, we find that the goal becomes more achievable and realistic. It also makes the journey less overwhelming. If you can manage to pay down an outstanding bill that’s been hanging over your head, that’s great. If you own a credit card and you pay it on time that is great too.
The point is that every action, no matter the size, is likely to lead you closer to financial freedom. The stages of financial independence also lead you to ingraining good money habits – a core part of smart money management. I always find myself drawn to this topic because being born and raised in Africa, financial freedom is hardly a reality. It is hardly even spoken about in a school or family setting.
So it has been my personal journey to try debunk this mammoth and try make head of it. Understanding that financial freedom does not look the same for everyone is an important part of this journey. It is all relative to your relationship with money, this also influences your earning, spending, saving and investing habits.
Research shows that generally poor people are terrible at saving and investing, typically because they earn less and spend more. Rich people on the other hand earn more and invest more, typically because most of their day to day needs are taken care of. That said it shows me that financial freedom looks different from both spectrums, but one constant is that we can all benefit from it.
So regardless of which side of the fence you sit on there levels that we all go through that could help you achieve your own financial freedom.So where does it all start?
At this level, things aren’t easy and you might be unhappy with your financial position. You’re likely financially dependent on others, I call this spending OPM (other people’s money). And at this level, you can probably only continue on in this way in the short term because you have no control over the OPM. Your plan of attack at this level is to skill yourself enough and get the OPM can finance.
Solvency or “survival” is when your outgoings and expenses are lower than your earnings. In this level, you’re likely able to meet your financial commitments, pay all your bills and not rely on someone or something to help you cover your expenses. This is where most people are soon after landing a job or starting a business, the break even space. This a difficult level to navigate but you could start with getting rid of unnecessary expenses to free up some income for savings and investment.
Once you’re able to consistently meet your financial commitments, have paid off some debts, and you’re able to keep your expenses down, then you can start saving. First for your emergency fund (after Covid 19 this is a must), then for your longer term growth. But you’re probably not debt free yet and you still have unplanned expenses popping up. And that’s okay. You may still have some significant debts like paying your student loan or a mortgage, which you’re chipping away at.
Once you have built your emergency fund, we think that it’s time to consider investing. Hopefully, when you have built a solid investment base, you aren’t relying on your income to cover your basic expenses. You may successfully be building and managing your wealth, and be on the path to earning your financial freedom. My personal tip is do not invest money you will need to eat, literally. And also do not invest in to schemes you are not well versed, that is how people get scammed. So educate yourself first before investing, even if you are going with someone else managing your portfolio, get a basic understanding of what is going on.
At this point, you should have made solid, long term investments. And your investment earnings are enough to cover your current lifestyle. At this level your good investments should literally be paying dividends. Key takeaway here is that independance does not happen overnight, so stay away from get rich quick schemes. Especially in Africa, we are prone to ponzi schemes and those “i’m the son of a prince” emails, stay away, you will never build wealth overnight.
This is the stage people often dream about. You can afford the basics, but should be able to afford comforts and luxuries too.
Here, you may be able to take bigger risks and opportunities. Now you can buy that dream holiday home, turn your interior design hobby into a career and travel abroad regularly. Depending on your plan and discipline, this can take anything between 7-20 years research shows. At this level money is no longer an issue, time is. So make sure you manage your time well because it is easy to get derailed here by a false sense of achievement.
Well look at you! You should have enough investment income that you have more than you need. Here your focus should be on sensible stewardship of this wealth for any beneficiaries. The biggest thing about financial freedom is like Jay Z said, you shouldn’t die broke. This is the level where you think generational, how do you set up the next generations to start at a better place than you did.Building wealth is hard, keeping wealth is even harder but transferring wealth is the hardest. Click To Tweet
It will take time to realise financial independence, but the peace of mind, confidence and control over your destiny, will be well worth it.
So there you have it. It’s not easy to reach financial independence, nor is it a well-travelled road.
But it is possible. Many people earn decent money, but never get beyond the first few stages. Remember it’s about the choices you make that will help you to get there.
Don’t get overwhelmed by the thought of financial freedom. If you keep plugging away and make smart money choices, Ithink that you could get there.
Share with us any saving or investment tips in the comments section, we would love to hear from you. As always, hope you and yours are safe.