There is no doubt that the dream of many people is financial independence - achieving a level of well-being that will allow them not to fight for every penny and not think about how to provide for themselves in the event of force majeure life circumstances. It is possible to achieve similar results if you follow simple strategies that have long been developed by the pioneers of this path. I am sure that understanding the nuances of forming reserve capital and other stages of achieving the goal makes sense for everyone, regardless of the level of their material well-being and the size of their current income. The unpredictable vicissitudes of life's collisions never cease to convince us of this every day.
Financial Wealth Levels
I'll start with the hardware. The classics identify only five financial “levels”:
- Financial pit
Expenses exceed income, the missing amount is borrowed or borrowed. A financial hole is a lot of debt and no savings. It is extremely difficult to get out of such a hole, but it is possible.
- Financial instability
In such a situation, a person spends almost everything he earns (income is equal to current expenses). In fact, he is still below the poverty line. In the event of dismissal or force majeure, he will have to borrow the missing amount. In this case, the person automatically slides back into the financial hole.
- Financial stability
Regular budget revenues exceed current expenses. A person already has the opportunity to create a “safety cushion” in case of unforeseen situations. The poverty line has been passed, but financial status still directly depends on active earnings.
For some time a person can live on his savings, but without a permanent job he will sooner or later return to the level of “financial instability”.
- Financial independence or freedom
The highest degree of prosperity in any country in the world. At this level, a person’s financial capabilities are practically unlimited. His regular income seriously exceeds his expenses. A person does not need to actively earn money. He has not only savings, but also capital, which provides most of the cash flow.
What level are you at now?
An exercise to understand your attitude towards finances
Most often, we ourselves stand in the way of our financial independence, sometimes without understanding the internal fears that stop us from achieving. Ask yourself the question: “If I have more money, what will I lose?”
Listen to the answers that arise, allow yourself to reflect, and believe me, some of the answers may surprise you, revealing the true cause of your money difficulties.
For some, it is the fear of losing self-respect, for others, family or friends, for others, their freedom or reputation is too valuable... You may have a completely different option, different from the examples, but at the same time limiting opportunities and the path to material well-being.
What is financial independence for me personally?
In short, financial independence is living the way you want, without worrying about your “daily bread.” We often imagine a financially independent person with a glass of cocktail in his hands and certainly on the shore of a warm ocean. For some reason, for many, FN is associated with wealth, idleness and doing nothing.
And for me, financial freedom is, first of all, freedom of choice. You can work or travel, do business or devote time to your family, participate in a community project or write a book about some bullshit.
The trick is that such a person chooses what and when he will do. How many of us can boast of 100% freedom of action?
A Russian spends most of his time “earning a living” (almost like in primitive times). He needs to pay his mortgage, buy food and clothes, and repair his car. There is usually no money, no strength, no desire left to live “for the soul.”
A financially free person lives, not survives. He does not have to actively work 40 or more hours a week to provide the family with the desired standard of living. For some it is $2000 per month, for others it is $20,000, for others it is $200,000 or more.
Empirically, I determined that my FN level is approximately 1,200,000 rubles per month. I am sure that any of us can reach the level of physical fitness! The question is not whether it is real. The question is: how long will the process take, and will you have enough patience to reach your goal?
So, a husband and wife receive $1,000 monthly between them.
From the day they decide to achieve financial independence, they begin to save a quarter of their salary in order to invest it with a yield of 30% per year. According to young people, the remaining $750 is enough for them to live a normal (in their understanding) life.
$250 will be saved per month, per year – 12 x $250 = $3000. Now we need to take into account compound interest. Each amount begins to work for a young family from the moment it is invested. That is, the first payment gives a profit of 12 months, the second – 11, the third – 10, etc. If you do the math, you get the same figure as if you put the entire amount at half interest: $3,000 x 15% = $450. In total, by the end of the first year, the family will have the amount (contributions + compound interest): $3000 + $450 = $3450.
Where to begin?
Oddly enough, from my attitude towards money. For many of us it is completely abnormal. In words, we all love and value money. But this is only in words.
I'll explain with an example. Money can be compared to health. Everyone wants to be healthy, but not everyone does something for it. Ideally, you need to walk in the fresh air every day, eat right, get enough sleep, give your body physical activity, and give up bad habits.
Instead, we mercilessly waste our health on harmful nonsense. And by the age of 40-50, problems with the heart, blood vessels and gastrointestinal tract make themselves known loudly. The same thing happens with money.
Money has no independent value. A good financial level only creates the conditions for a fulfilling life! Let's continue the comparison.
A healthy person can move freely, work and have active rest. A sick person is forced to limit himself in many ways. A financially independent person lives the way he wants: travels, chooses housing and cars to his liking, and does interesting things. Financially “unhealthy” - trapped in a prison of limited income.
You need to constantly monitor your health, strengthen it and not waste it. Money also requires constant accounting, preservation and increase.
So before you start working on financial freedom, reconsider your attitude towards money! Money is not just pieces of paper that need to be spent quickly. Money is a resource and energy that can provide complete freedom of action (when you don’t work for money, but money works for you). And 99% of us will have to simulate this situation ourselves.
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This will allow you to work with pleasure, and if the activity brings both finances and joy, then this is simply an ideal option. If a person receives a large salary and is not ready to leave such a job at some point, then a favorite activity (hobby) can become a way out in this situation. In addition, a hobby can generate additional income.
There is another way of looking at things, for example, work should bring a good income - this is the most important aspect that you need to rely on, and not “more days off.” If you can’t get a good profit for a certain job, it’s better not to waste your time. In addition, pay attention to the rules of investing - your income must grow.
Look at your surroundings, your communication should not make you despondent. It's good if you are surrounded by successful people. There is an opinion that those who have not been able to realize themselves in life try to raise their self-esteem at the expense of others. Understand that this principle is not typical for successful people.
There are many methods of self-realization in the world, however, do not rush to extremes, from participating in a financial pyramid to becoming a cashier in a grocery store. Set realistic goals, develop ways of implementation and strive to achieve them. Drawing up an action plan can be a good help in this. Start, for example, by planning a day, then a month, and then the next year.
You need to give up habits that slow down your progress. For example, many people like to watch hours of entertaining TV shows in their free time. You should not perceive such a pastime as relaxation; it is rather a “cultivation” of laziness. It is unlikely that any useful information can be extracted from this.
Record all your financial processes in a notebook
It may not be easy at first, but you need to understand that this way you can really imagine the picture. It is very important that your profits exceed your expenses.
A good way to increase your cash flow is to look for additional sources of income. This is unlikely to include a promotion or small part-time job. You need to look for alternative ways to increase profits, for example, use your knowledge and hobbies, which can subsequently develop from an additional source of income into a main source of income. Let's consider several options for generating active income (when a person invests his skills and free time):
- the ability to do something independently (sewing, knitting or crafting) and sell the final product - this may, at some point, become an idea for creating your own workshop;
- the ability to take photographs or shoot video - can turn into a type of business (servicing events of various types from proms to weddings), and possibly opening your own photo studio;
— having a home computer is a great start for making money on the Internet; everyone can choose an interesting and profitable business for themselves;
— if you have personal transport, it can also be used as a part-time job of various types.
Passive income does not require labor costs, in this case we are talking about investments, as well as investments. Properly constructed passive income makes a person independent:
- a classic example of passive income is opening a bank account at a certain interest rate, however, one must keep in mind that the deposit must also be substantial;
— investing is a currently popular way of earning money, but for it to be effective, it is worth understanding the intricacies of this area;
— this type of income includes royalties for books you created or drawings that you posted online;
— also for those who can create a high-quality website or blog, good passive income is possible.
Why is this especially important for women?
Because here the issue is more acute than among men. It is simply more difficult for a woman to achieve financial independence, and here's why.
- Employers are more willing to hire men Employers have become less likely to pay attention to the marital status of applicants, but gender preferences remain. To compete in such a situation, women are forced to accept less. When competing with men for jobs, women accept wages that are lower than market wages. On average, they earn 30% Russian women are paid 30% less than men in the same positions with the same responsibilities. The reasons for this are not only gender stereotypes, but also gender-related circumstances, which are discussed below. They also make women financially vulnerable on their own.
- Only 2% decide to take maternity leave. Every fiftieth father in Russia takes paternity leave; women more often go on maternity leave. As a result, it is she who loses 60% of her earnings for a year and a half, and then, until the child is three years old, she is left with no income at all. In addition, during maternity leave you can seriously “sag” in your career, since in the 21st century this is a huge period for the development of many industries.
- Traditionally, it is believed that the husband is the breadwinner, and the wife is the keeper of the hearth. Contrary to expectations, this does not mean that the latter are sitting on the necks of the former. In Russia, 74.4% of working-age women and 80.3% of men work - the difference is small. But women are often expected to easily sacrifice their careers for the sake of their husband’s employment if he is offered a move, and not to stay late at work in order to cope with household chores. They are the ones who stay home if a child is sick. All this is reflected in the salary.
- And again traditions: it is considered unacceptable if the woman in a couple earns more than the man. Often it is precisely such attitudes that significantly limit career growth. And at various trainings, women are even persuaded to quit right now, because working is not their true purpose and in general it’s bad.
Client example
A woman came to one of the streams of the “Energy of Money” course and then shared the results. She was given money for the course by her husband, who had never paid for her education before.
But when she said that this was a course about money, her husband immediately paid for the course and admonished her with the words: “Of course, go, maybe you’ll become smarter!” As a result, after the training, they together made several important conclusions:
- They stopped dividing money into “yours” and “mine”, but combined them into one budget.
- We realized that it was necessary to separate the family budget and the business budget.
- We realized that in both our personal and business budgets we need a Freedom Fund.
Important! Mixing budgets is a common mistake of many businessmen. They first invest everything in the business to the last penny, and then begin to take money from the enterprise for the needs of the family.
- We repaid loans issued both to ourselves and to our business.
- We filed tax deductions (which we had been planning to do for a long time!).
But the girl didn’t stop there. She began to use financial instruments not only in relation to personal funds, but also to use them in business. And after a short period of time, making regular calculations, she discovered that business income had increased 8 times !
The next thing she did was start special piggy banks for different purposes. That is, she stopped using loans, and began to create a financial future. This is a very mature, wise step!
But that's not all. Previously, she gave a lot of the money she received to pay off loans. Now that the debts were closed, she could afford to spend money on herself. Even if it was not much, these small joys filled her and created a feeling of abundance in her.
Let's summarize: step-by-step plan
So here's a step-by-step plan for achieving financial freedom:
- Put your finances and your head in order, determine expenses, income, assets, liabilities and balance debits with credits.
- Determine what step of the financial independence ladder you are on.
- Make a plan for moving to the next stage based on your input data.
- Cut expenses and pay off debts. At least to a sane level.
- At the same time, find ways to increase income. You start with active methods and gradually transfer capital to passive sources of income. Or you can create such sources yourself.
- You form a money-box and don’t spend it anywhere. This is your NZ in case of force majeure.
- Be sure to invest. Determine the amount you will invest: a fixed amount, a percentage of income or your entire salary.
- Stick to the plan and do not increase expenses in parallel with income growth.
Consistently completing these steps will allow you to gain financial freedom within the time frame you set. Don't hesitate, but move on to implementing the plan! Good luck, and may the money be with you!
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Types of cash flows
Money comes through numerous channels, and the amount is determined by a person’s activities and skills. Many limit themselves to receiving a salary for work performed, which puts themselves in a dependent position on the employer.
Income can be active or passive, and its sources are as follows:
- investments and deposits;
- rental of real estate;
- social payments;
- sale of property;
- cost reduction;
- part-time jobs.
Some types of income are not available to everyone: real estate, property, social status, and free time are required. By the way, in any case, the temporary resource will need to be used to gain financial independence.
