9 Magical Keys To Financial Independence
The images of "rich" and "wealth" on the TV screen and magazines consist of smiling faces next to luxury homes, luxury cars, and constant spending. Corporations use advertising to imprint the idea that the key to happiness is to buy, buy, and buy more. After you're done buying and amassing mountains of stuff, it's time to do it all over again.
Consumerism is the cult of the modern age. So many people confuse their identity with how big their homes are, how expensive their cars are, and how big their bank accounts are. Although the amount of money you have has its place, there is a far bigger picture that is often missed.
Financial independence has also been confused with the images of mass consumerism. The idea is to work to get as much money as you can so you can buy more, and more. But if you think about it, are you really independent of the things you buy for your happiness?
Truth is that there are only a few things in life that matter. There is something called Pareto's Law, which basically states that 80% of your results comes from only 20% of the total effort. This law is evident everywhere and can be applied to your finances. About 80% of your total satisfaction, enjoyment and fulfillment comes from only 20% of what you're spending.
So with that in mind, I'm going to reveal to you 9 secret keys to gaining real financial independence. Don't worry, you won't have to give up all your belongings and become a beggar. You also don't have to become a miser. These fundamentals can be customized to your specific lifestyle needs.
1. A) Make Peace With Your Past - how much money have you earned over the course of your life? To find your total lifetime earnings you'll want to go back in time and determine the first penny you've ever made to your last paycheck.
The following ideas can help you get started:
Request a Statement of Earnings from Social Security Administration.
Copies of state and federal income tax returns.
Paycheck stubs and your employee records
Review any unreported income. (For example money made with any garage sales, babysitting jobs, side businesses, lemonade stands as a kid, newspaper routes, summer jobs, etc.)
The goal here is to get a crystal clear picture of how powerful you really are at brining money into your life. The key is to be clear and specific, so you'll want to avoid any vagueness and self-deception. This may be a challenge for you, however it will be worth it. You will have instilled confidence within yourself and you will give your goals momentum. This step is very important. It is fundamental to the practice of any business, so the more you practice this step, the more you will experience not only financial independence, but you will boost your transferable job skills to boot.
B) Determine Your Net Worth
Next, ask yourself what you've got to show for it it? Determine your net worth by creating a personal balance sheet. List all of your assets and liabilities on the sheet. Include every single thing you own and every single penny you owe.
2. A) Tracking Your Life Energy - Be In The Present - how much of your life energy are you exchanging for the things you buy. You want to get a clear understanding of the actual cost to you in terms of not just money, but also in terms of time and energy required to maintain your job.
Here is how to compute your real hourly wage.
Deduct from your gross monthly (or weekly) income all of the costs associated with your job. This includes: Job costuming/clothing,at-work meals, travel costs, car insurance, gas, amount of $ spent on decompressing from work (including that Starbucks coffee every other day, the McDonald's burger, that cookie from the vending machine, cigarettes, stress medications, etc.)
It also includes recreating, escaping and vacating from work-related stress, job-related illness, any other expenses associated with maintaining you on your job.
Next, you'll want to add your workweek hours that you spent in preparing for work, showering, dressing, grooming, decompressing, commuting and travel time, escaping, hours spent watching TV or logging on to Internet to decompress, shopping to make you feel better, vacating and all other hours linked to maintaining your job.
Why: Once again, this is a fundamental practice to any business, and guess what? You're in business of selling the most precious resource in the world. This resource is your life energy, so you'd be better off to know just how much you're selling it for.
The number that results from this second step is your real hourly wage. This real hourly wage is going to be the key ingredient in transforming your relationship with finances and money.
B) Keep track of every single penny that goes in and out of your life. Create a system to keep records that works for you. You can keep it on your cell phone, PDA, or use a pocket memo book. The point is to keep records of daily expenditures very accurately. Record all of your income, including things given to you and things you find. This will show you in detail what you are trading your life energy for.
3. Where Is It All Going? - every month you'll want to create a table that shows all of your income and all of your expenditures. Each of them will have their own separate category, according to your own unique spending patterns.
Balance your monthly income and outgo goals.
Convert dollars spent in every category to the total amount of life energy hours spent. Use your real hourly wage that you computed in Step 2. Once you do this, you'll have a very accurate picture of how you are actually living. This takes some guts, but once again, you are in business of selling your life energy, so you'd better know just how much you're selling it for.
4. Three Questions That Will Transform Your Life - when doing your monthly tabulations, ask yourself the following questions when evaluating each of the category totals as expressed in hours of life energy. Record your responses to these questions;
I. Did I receive satisfaction, fulfillment and value in proportion to the life energy that I spent?
II. Is this expenditure of my life energy in harmony with my life purpose and value?
III. How might this particular expenditure change if I didn't have to work for a living?
At the bottom of every category, put a minus - if you did not receive satisfaction/fulfillment in proportion to the hours of life energy spent or if it wasn't in line with your values and purpose. Put a plus sign + if you believe that upping this expenditure would actually increase your satisfaction, fulfillment or give you greater alignment with your life purpose and values. Put a 0 if you believe the category is just fine on all counts.
5. Make Your Life Energy Visible - make a large wall chart, so that you can plot the total monthly income and your total monthly expenses from your tabulation. Place this where you can easily see it every day.
Graph paper works best for this. You can use 18 x 22 in to 24 x 36 in. Make sure there are at least 10 squares to the centimeter/inch. Select a scale that gives you plenty of room above your highest projected monthly earnings or expenses. Also, you'll want to choose different colored lines for monthly income and monthly expenses.
This will enable you to clearly see the trend in your personal financial situation. It will also give you a sense of stability and progress over time. You will see the obvious change in your relationship to money.
You'll also see your expense line go down as your satisfaction and fulfillment go up. This is the result of an "intuitive" or automatic lowering of expenditures in those particular categories you've labeled a minus -.
This wall chart is going to become your big picture of progress. Remember, the goal is financial independence and you're going to use this wall chart from now on. It will be your source of inspiration, support, and gentle accountability.
6. Value Your Life Energy - Minimize Expenditures and Spending - continue to practice intelligent management of your life energy (aka money). This is going to result in lowering your expenditures and fatten up your savings. It will also create a greater sense of contentment, satisfaction and fulfillment in your life.
Ask yourself the 3 magic questions in step 4 every single month. Learn to separate needs from wants and define your true needs. Become conscious of your spending. Master the techniques of frugality and wise purchasing. Research the products/services before you hand over your hard-earned cash. Research the companies, value, quality and durability.
Why: You are consuming planet earth's precious resources. They are not unlimited and there is only a finite amount left. You also cannot expect others, your children, corporations or your government to know the value of money if you don't take the lead and demonstrate it first.
The quality of life goes down as the standard of living rises. There is a bliss point or Peak Fulfillment Curve when it comes to money. Spending more after you've reached the bliss point will actually decrease your satisfaction and fulfillment. Money is like beer, more is not always better.
7. Value Your Life Energy - Maximize Your Income - respect all of the life energy that you're are expending into your job. You are simply trading your life energy for money. Now you'll want to trade it with integrity and purpose for maximizing your earnings.
Ask yourself: "Am I making a living or making a dying?" Evaluate and closely examine your purposes for employment. Break the link between your work and wages so that you can open up more doors for increased earnings.
Why: You only have a certain amount of hours left of life. You now want to discover how you can spend those remaining life hours most efficiently, in line with your personal life purpose and values.
You also want to break the robotic link between what you do for a living and who you are. Don't be like so many other people who confuse their identity with their job. You will become free to make more fulfilling choices when you break the dichotomy.
8. Capital & The Crossover Point - every single month you'll apply the following equation to your total accumulated capital. You'll also post the monthly independence income on your wall chart as a separate line.
capital x current long-term interest rate/ 12 = monthly investment income
How: Discover your long-term inerest rate by reviewing the interest of the Wall Street Journal's treasury bond table. You can choose any major metropolitan newspaper if you do not have access to the Wall Street Journal. After several months, your total monthly expense line will reveal a smaller zigzag pattern. This will be at a significantly lower level than when you first started. Take a pencil and make a light line, projecting your total monthly expenditure line out into the future of the wall chart.
After several months your investment income line will begin to make its way up. Once again, take a pencil and create a light line, projecting your investment income out into the future. At some point, your future is going to cross over your total monthly expenses line. This is the big Crossover Point!
By doing this, you're going see that you only need to pay for a finite amount of time and this will give you some major momentum as well. The Crossover Point is when you're financially independent. Your monthly income from investment capital will equal to your monthly expenses. You will have enough, and your options and opportunities are now wide open. Time to celebrate!
Step 9: Manage Your Finances With Maximum Efficiency - the final step to financial independence is to educate yourself about long-term income-producing investments. You want to be not just knowledgeable, but also become an adept at this, so that you're able to manage your finances for an income that is going to be steady and sufficient to cover all your needs and those of your family over the long term.
How: Make your own investment decisions, keep the power with you. U.S. treasury bonds are known to be safe, long-term, non-speculative, fixed-income securities. If you are able to tolerate greater risks, then you may want to explore other low investment opportunities that are still conservative. Think for yourself and balance any irrational fears about inflation with clarity and increasing self-awareness.
You'll also want to set up a financial plan using what is known as the "three pillars";
Capital - this is your income-producing core.
Cushion - this is enough cash, that is earning bank interest, and that will cover you for a minimum of at least six months of expenses.
Cache - this is the surplus of funds that result from your continued implementation of the 9 magical keys to financial independence. This cache can be used to reinvest to produce an endowment fund, finance your service work, to compensate for inflation or occasional inroads, or you can give it away as charity.
Why: There is more to life than nine-to-five.
So there you have it, the 9 magical keys to experiencing financial independence and transforming your relationship with money. The information in this article may or may not be completely new to you. Take your time going over the steps, and understand that time and money are intimately linked together. It takes time, determination, and patience to pull yourself out of a financial rut.
Even if you're doing just fine, would you mind if things got just a little better without much fuss? Get off the 9-to-5 treadmill and join the New Rich!
References & Recommended Resources For Further Reading:
Dominguez, Joe and Vicki Robin. Your Money Or Your Life. 9 Steps To Transforming Your Relationship With Money And Achieving Financial Independence. Penguin Books. 2008.
Nemeth, M., PhD. The Energy Of Money. A Spiritual Guide To Financial and Personal Fulfillment. Ballantine Wellspring. 1999.
Miller, Jason. Financial Socery. Magical Strategies To Create Real And Lasting Wealth. Career Press. 2012.
Ferriss, Timothy. The 4 - Hour Workweek. Escape 9-5, Live Anywhere, And Join The New Rich. Expanded and Updated. 2009.
Consumerism is the cult of the modern age. So many people confuse their identity with how big their homes are, how expensive their cars are, and how big their bank accounts are. Although the amount of money you have has its place, there is a far bigger picture that is often missed.
Financial independence has also been confused with the images of mass consumerism. The idea is to work to get as much money as you can so you can buy more, and more. But if you think about it, are you really independent of the things you buy for your happiness?
Truth is that there are only a few things in life that matter. There is something called Pareto's Law, which basically states that 80% of your results comes from only 20% of the total effort. This law is evident everywhere and can be applied to your finances. About 80% of your total satisfaction, enjoyment and fulfillment comes from only 20% of what you're spending.
So with that in mind, I'm going to reveal to you 9 secret keys to gaining real financial independence. Don't worry, you won't have to give up all your belongings and become a beggar. You also don't have to become a miser. These fundamentals can be customized to your specific lifestyle needs.
1. A) Make Peace With Your Past - how much money have you earned over the course of your life? To find your total lifetime earnings you'll want to go back in time and determine the first penny you've ever made to your last paycheck.
The following ideas can help you get started:
Request a Statement of Earnings from Social Security Administration.
Copies of state and federal income tax returns.
Paycheck stubs and your employee records
Review any unreported income. (For example money made with any garage sales, babysitting jobs, side businesses, lemonade stands as a kid, newspaper routes, summer jobs, etc.)
The goal here is to get a crystal clear picture of how powerful you really are at brining money into your life. The key is to be clear and specific, so you'll want to avoid any vagueness and self-deception. This may be a challenge for you, however it will be worth it. You will have instilled confidence within yourself and you will give your goals momentum. This step is very important. It is fundamental to the practice of any business, so the more you practice this step, the more you will experience not only financial independence, but you will boost your transferable job skills to boot.
B) Determine Your Net Worth
Next, ask yourself what you've got to show for it it? Determine your net worth by creating a personal balance sheet. List all of your assets and liabilities on the sheet. Include every single thing you own and every single penny you owe.
2. A) Tracking Your Life Energy - Be In The Present - how much of your life energy are you exchanging for the things you buy. You want to get a clear understanding of the actual cost to you in terms of not just money, but also in terms of time and energy required to maintain your job.
Here is how to compute your real hourly wage.
Deduct from your gross monthly (or weekly) income all of the costs associated with your job. This includes: Job costuming/clothing,at-work meals, travel costs, car insurance, gas, amount of $ spent on decompressing from work (including that Starbucks coffee every other day, the McDonald's burger, that cookie from the vending machine, cigarettes, stress medications, etc.)
It also includes recreating, escaping and vacating from work-related stress, job-related illness, any other expenses associated with maintaining you on your job.
Next, you'll want to add your workweek hours that you spent in preparing for work, showering, dressing, grooming, decompressing, commuting and travel time, escaping, hours spent watching TV or logging on to Internet to decompress, shopping to make you feel better, vacating and all other hours linked to maintaining your job.
Why: Once again, this is a fundamental practice to any business, and guess what? You're in business of selling the most precious resource in the world. This resource is your life energy, so you'd be better off to know just how much you're selling it for.
The number that results from this second step is your real hourly wage. This real hourly wage is going to be the key ingredient in transforming your relationship with finances and money.
B) Keep track of every single penny that goes in and out of your life. Create a system to keep records that works for you. You can keep it on your cell phone, PDA, or use a pocket memo book. The point is to keep records of daily expenditures very accurately. Record all of your income, including things given to you and things you find. This will show you in detail what you are trading your life energy for.
3. Where Is It All Going? - every month you'll want to create a table that shows all of your income and all of your expenditures. Each of them will have their own separate category, according to your own unique spending patterns.
Balance your monthly income and outgo goals.
Convert dollars spent in every category to the total amount of life energy hours spent. Use your real hourly wage that you computed in Step 2. Once you do this, you'll have a very accurate picture of how you are actually living. This takes some guts, but once again, you are in business of selling your life energy, so you'd better know just how much you're selling it for.
4. Three Questions That Will Transform Your Life - when doing your monthly tabulations, ask yourself the following questions when evaluating each of the category totals as expressed in hours of life energy. Record your responses to these questions;
I. Did I receive satisfaction, fulfillment and value in proportion to the life energy that I spent?
II. Is this expenditure of my life energy in harmony with my life purpose and value?
III. How might this particular expenditure change if I didn't have to work for a living?
At the bottom of every category, put a minus - if you did not receive satisfaction/fulfillment in proportion to the hours of life energy spent or if it wasn't in line with your values and purpose. Put a plus sign + if you believe that upping this expenditure would actually increase your satisfaction, fulfillment or give you greater alignment with your life purpose and values. Put a 0 if you believe the category is just fine on all counts.
5. Make Your Life Energy Visible - make a large wall chart, so that you can plot the total monthly income and your total monthly expenses from your tabulation. Place this where you can easily see it every day.
Graph paper works best for this. You can use 18 x 22 in to 24 x 36 in. Make sure there are at least 10 squares to the centimeter/inch. Select a scale that gives you plenty of room above your highest projected monthly earnings or expenses. Also, you'll want to choose different colored lines for monthly income and monthly expenses.
This will enable you to clearly see the trend in your personal financial situation. It will also give you a sense of stability and progress over time. You will see the obvious change in your relationship to money.
You'll also see your expense line go down as your satisfaction and fulfillment go up. This is the result of an "intuitive" or automatic lowering of expenditures in those particular categories you've labeled a minus -.
This wall chart is going to become your big picture of progress. Remember, the goal is financial independence and you're going to use this wall chart from now on. It will be your source of inspiration, support, and gentle accountability.
6. Value Your Life Energy - Minimize Expenditures and Spending - continue to practice intelligent management of your life energy (aka money). This is going to result in lowering your expenditures and fatten up your savings. It will also create a greater sense of contentment, satisfaction and fulfillment in your life.
Ask yourself the 3 magic questions in step 4 every single month. Learn to separate needs from wants and define your true needs. Become conscious of your spending. Master the techniques of frugality and wise purchasing. Research the products/services before you hand over your hard-earned cash. Research the companies, value, quality and durability.
Why: You are consuming planet earth's precious resources. They are not unlimited and there is only a finite amount left. You also cannot expect others, your children, corporations or your government to know the value of money if you don't take the lead and demonstrate it first.
The quality of life goes down as the standard of living rises. There is a bliss point or Peak Fulfillment Curve when it comes to money. Spending more after you've reached the bliss point will actually decrease your satisfaction and fulfillment. Money is like beer, more is not always better.
7. Value Your Life Energy - Maximize Your Income - respect all of the life energy that you're are expending into your job. You are simply trading your life energy for money. Now you'll want to trade it with integrity and purpose for maximizing your earnings.
Ask yourself: "Am I making a living or making a dying?" Evaluate and closely examine your purposes for employment. Break the link between your work and wages so that you can open up more doors for increased earnings.
Why: You only have a certain amount of hours left of life. You now want to discover how you can spend those remaining life hours most efficiently, in line with your personal life purpose and values.
You also want to break the robotic link between what you do for a living and who you are. Don't be like so many other people who confuse their identity with their job. You will become free to make more fulfilling choices when you break the dichotomy.
8. Capital & The Crossover Point - every single month you'll apply the following equation to your total accumulated capital. You'll also post the monthly independence income on your wall chart as a separate line.
capital x current long-term interest rate/ 12 = monthly investment income
How: Discover your long-term inerest rate by reviewing the interest of the Wall Street Journal's treasury bond table. You can choose any major metropolitan newspaper if you do not have access to the Wall Street Journal. After several months, your total monthly expense line will reveal a smaller zigzag pattern. This will be at a significantly lower level than when you first started. Take a pencil and make a light line, projecting your total monthly expenditure line out into the future of the wall chart.
After several months your investment income line will begin to make its way up. Once again, take a pencil and create a light line, projecting your investment income out into the future. At some point, your future is going to cross over your total monthly expenses line. This is the big Crossover Point!
By doing this, you're going see that you only need to pay for a finite amount of time and this will give you some major momentum as well. The Crossover Point is when you're financially independent. Your monthly income from investment capital will equal to your monthly expenses. You will have enough, and your options and opportunities are now wide open. Time to celebrate!
Step 9: Manage Your Finances With Maximum Efficiency - the final step to financial independence is to educate yourself about long-term income-producing investments. You want to be not just knowledgeable, but also become an adept at this, so that you're able to manage your finances for an income that is going to be steady and sufficient to cover all your needs and those of your family over the long term.
How: Make your own investment decisions, keep the power with you. U.S. treasury bonds are known to be safe, long-term, non-speculative, fixed-income securities. If you are able to tolerate greater risks, then you may want to explore other low investment opportunities that are still conservative. Think for yourself and balance any irrational fears about inflation with clarity and increasing self-awareness.
You'll also want to set up a financial plan using what is known as the "three pillars";
Capital - this is your income-producing core.
Cushion - this is enough cash, that is earning bank interest, and that will cover you for a minimum of at least six months of expenses.
Cache - this is the surplus of funds that result from your continued implementation of the 9 magical keys to financial independence. This cache can be used to reinvest to produce an endowment fund, finance your service work, to compensate for inflation or occasional inroads, or you can give it away as charity.
Why: There is more to life than nine-to-five.
So there you have it, the 9 magical keys to experiencing financial independence and transforming your relationship with money. The information in this article may or may not be completely new to you. Take your time going over the steps, and understand that time and money are intimately linked together. It takes time, determination, and patience to pull yourself out of a financial rut.
Even if you're doing just fine, would you mind if things got just a little better without much fuss? Get off the 9-to-5 treadmill and join the New Rich!
References & Recommended Resources For Further Reading:
Dominguez, Joe and Vicki Robin. Your Money Or Your Life. 9 Steps To Transforming Your Relationship With Money And Achieving Financial Independence. Penguin Books. 2008.
Nemeth, M., PhD. The Energy Of Money. A Spiritual Guide To Financial and Personal Fulfillment. Ballantine Wellspring. 1999.
Miller, Jason. Financial Socery. Magical Strategies To Create Real And Lasting Wealth. Career Press. 2012.
Ferriss, Timothy. The 4 - Hour Workweek. Escape 9-5, Live Anywhere, And Join The New Rich. Expanded and Updated. 2009.
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