*This article was originally published on October 2021 and has been kept in its original form

Vicki Robin, Co-Author of Your Money or Your Life gives four simple lessons to attain Financial Independence. She defines as the ability to cover your expenses through passive income, thus leaving you with the option to only “work” if you want to. Most think that this is an unattainable ideal available only to “trustafarians”, lottery winners and the 1 percenters.

These wickedly simple lessons are however attainable for most.

So let’s dive into the four levels/lessons to financial independence.

4 Lessons to Reach Financial Independence

• Financial Freedom Financial freedom is understanding that you have a relationship with money but it does not run your life. There is a little quote that goes: “your value is not what is in your bank account”. There is a smorgasbord of presumptions which drives us away from Financial Freedom and into things like wage slavery, debt and into the warm embrace of consumer culture. You need to realise that you are a separate, sovereign being removed from the economy, and you can (willingly) move in and out as you please, without it affecting your core being or value. This is the first step, to not have an overly emotional connection to gains or losses.

• Get out of debt It may seem that this is a lesson from Captain Obvious, but the first step is not to get into more debt. Although devilishly simple in theory, some find this the most difficult part, as debt can become habitual. After clearing debt, people have mentioned that they never imagined how much it affected them psychologically. They also comment that they never realised how many future opportunities they missed because of this never-ending servicing of debt. This should be the one key takeaway, that the future opportunities are more important than the shiny thing is right now. If you would like to review some debt smashing strategies we have an article for you here.

• Six Month Emergency Savings Fund This would be in a bank account or a liquid Unit Trust, with low or no risk. Something that you could essentially get your hands on in 2-5 Days. Having this facility secured will mean that if something happens that you are not immediately forced to go into debt. This event could be losing your job or having to pay some form of expense that arises rapidly, without you being able to anticipate this. In the backdrop of Covid-19 we saw this happen to many individuals, those who had no liquid emergency fund, were forced into debt or lost assets.

• Invest Surplus Savings. Now when you have met all three of the above-mentioned steps, the next step is to start investing surplus funds into investments. With these surplus funds, dependent on your risk profile and needs, you can invest in moderate to aggressive funds, which should over time give you a great return, and later you could derive a passive income from this. Decisions regarding this should be made in a tax-efficient manner, see our article here. To see what is available for investing, make a budget (see our tips for Budget Creation here) and secondly but just as important track your spending monthly, and this review of past spent money will get you into the habit of thinking differently about your spending. There was a study done which claims that when people do this they tend to spend anywhere from 20-30% less naturally, because that is the amount of unconscious spending we do, and reviewing spending brings this unconscious spending into the light and eliminates it.

Get in touch if you wish to discuss this in more detail, or if you want us to assist you with either budgeting, investing surplus or setting up a plan to smash your debt.