Friday, March 2, 2012

How To Achieve Financial Independence


Over the years, I've read a lot of how to stuff. I've read a lot of motivational stuff. A common theme among many of these works is that most people want to achieve financial independence. But for most people, this is just a dream they will never realize because they don't have a plan behind it to achieve it. I myself have been suckered into many get rich quick ideas. What I have learned is that it's pretty easy to sell someone a book or course on how to get rich. It is quite another to specifically help people do it.

I'm going to give you my take on how I think you should go about it and then beyond that start to introduce some concepts for both the green belt that relates to money and for the orange belt that relates to your work.

I wanted to start introducing this material now because it is on my mind at the present. I'd like to earn more. I'd like to have more freedom. I would also like to not work more than anything else and just enjoy my time.

But, in order to get there, most of us have to work first and generate enough capital to invest and live off.

So the first thing that I am going to share with you is the basic plan for financial independence and then the beginning road map on how to achieve it will begin tomorrow.

All of us have bills. We have the basics such as the mortgage or rent, utilities, food, etc. Then we have the things we like to do, going to the movies, eating out and going on vacation for example.

Let's say that I only had four bills and I was looking to gain my financial independence:

  • Mortgage $1000/mo

  • Food $500

  • Water $30

  • Car $400

If I my fantasy world, if these were the only bills I had, then my monthly expenses would be $1930 per month. This means that in order to live to satisfy my NEEDS, I would need to either work and earn $1930 a month, borrow it or use income from investments to pay for it.

If I was financially independent, and I could live off my investments to pay for my needs each month, I would need a certain amount of money earning a certain amount of interest to do that.

To make things easy, let's say that my monthly expenses were $2000 per month. I'm going to assume I could earn 5% annually on my investments.

This means that I would need $480,000 in capital. ($480,000 times 5% equals $24000 divided by 12 equals $2000 per month).

If you have no money now, thinking about how to raise nearly half a million dollars to live off seems like a huge amount and probably also something that might not be obtainable to you.

That's why I say, to look at that list of bills again. I want you to focus on the smallest one which is $30 per month. How much money would I need invested at 5% to pay for that water bill.

The answer is $7200.

A number that seems much more reasonable for people and one that is also more achievable.

I'd make my first goal to raise $7200 and get it invested. Then I'd look at the next smallest bill on my list and repeat the process.

I think you might see a pattern here if you have been following my Black Belt teachings. If you raised $7200 and found a way to earn 5% interest annually, you would be financially independent to the "WATER BILL LEVEL". Much like be a Black Belt at processing for example, but not one at reviewing.

The next step in the process would be figure out how to raise that $7200. I will start that discussion tomorrow.

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Michael Kuhn

Black Belt Project: Build Mental Strength